Financial Markets and Institutions (2-downloads)

9. Assume the debt in the previous question is trading

at $1,035. How can you earn a riskless profit from this

situation (arbitrage)?

10. A 10-year, $1,000 par value bond with a 5% annual

coupon is trading to yield 6%. What is the current yield?

11. A $1,000 par bond with an annual coupon has only

one year until maturity. Its current yield is 6.713%,

and its yield to maturity is 10%. What is the price of

the bond?

12. A one-year discount bond with a face value of $1,000

was purchased for $900. What is the yield to matu-

rity? What is the yield on a discount basis? (See

Chapters 3 and 12.)

13. A seven-year, $1,000 par bond has an 8% annual

coupon and is currently yielding 7.5%. The bond can

be called in two years at a call price of $1,010. What

is the bond yielding, assuming it will be called (known

as the yield to call)?

14. A 20-year $1,000 par value bond has a 7% annual

coupon. The bond is callable after the 10th year for

a call premium of $1,025. If the bond is trading with

a yield to call of 6.25%, what is the bond’s yield to

maturity?

15. A 10-year $1,000 par value bond has a 9% semiannual

coupon and a nominal yield to maturity of 8.8%. What

is the price of the bond?

16. Your company owns the following bonds:

If general interest rates rise from 8% to 8.5%, what

is the approximate change in the value of the port-

folio? (Review Chapter 3.)

W E B   E X E R C I S E S

The Bond Market

1. Stocks tend to get more publicity than bonds, but many

investors, especially those nearing or in retirement, find

that bonds are more consistent with their risk prefer-

ences. Go to