A General Power bond carries a coupon rate of 8.7%, has 9 years until maturity, and
sells at a yield to maturity of 7.7%. (Assume annual interest payments.)
a. What interest payments do bondholders receive each year?
b. At what price does the bond sell?
Note: Do not round intermediate calculations. Round your answer to 2
decimal places.
c. What will happen to the bond price if the yield to maturity falls to 6.7%?
Note: Do not round intermediate calculations. Round your answer to 2
decimal places.
a. Interest payments
b. Price
c. Price will be _____ by ______
One bond has a coupon rate of 8.0%, another a coupon rate of 9.5%. Both bonds pay
interest annually, have 10-year maturities, and sell at a yield to maturity of 9.0%.
a. If their yields to maturity next year are still 9.0%, what is the rate of return on each
bond?
Note: Do not round intermediate calculations. Enter your answers as a percent
rounded to 1 decimal place.
Rate of return Bond 1
Rate of return Bond 2
General Matter’s outstanding bond issue has a coupon rate of 11.2%, and it sells at a
yield to maturity of 9.00%. The firm wishes to issue additional bonds to the public. What
coupon rate must the new bonds offer in order to sell at face value?
Note: Enter your answer as a percent rounded to 2 decimal places.
Coupon rate _____%
Consider three bonds with 5.30% coupon rates, all making annual coupon payments
and all selling at face value. The short-term bond has a maturity of 4 years, the
intermediate-term bond has a maturity of 8 years, and the long-term bond has a
maturity of 30 years.
a. What will be the price of the 4-year bond if its yield increases to 6.30%?
Note: Do not round intermediate calculations. Round your answer to 2
decimal places.
b. What will be the price of the 8-year bond if its yield increases to 6.30%?
Note: Do not round intermediate calculations. Round your answer to 2
decimal places.
c. What will be the price of the 30-year bond if its yield increases to 6.30%?
Note: Do not round intermediate calculations. Round your answer to 2
decimal places.
d. What will be the price of the 4-year bond if its yield decreases to 4.30%?
Note: Do not round intermediate calculations. Round your answer to 2
decimal places.
e. What will be the price of the 8-year bond if its yield decreases to 4.30%?
Note: Do not round intermediate calculations. Round your answer to 2
decimal places.
f. What will be the price of the 30-year bond if its yield decreases to 4.30%?
Note: Do not round intermediate calculations. Round your answer to 2
decimal places.
g. Comparing your answers to parts (a), (b), and (c), are long-term bonds more or less
affected than short-term bonds by a rise in interest rates?
h. Comparing your answers to parts (d), (e), and (f), are long-term bonds more or less
affected than short-term bonds by a decline in interest rates?
a. Bond price
b. Bond price
c. Bond price
d. Bond price
e. Bond price
f. Bond price
g. Long term bonds
h. Long term bonds
The following table shows the prices of a sample of Treasury bonds, all of
which have coupon rates of zero. Each bond makes a single payment at
maturity.
Years to
Maturity
1
2
3
4
Price (%
of face
value)
97.752%
94.251
90.444
86.380
a. What is the 1-year interest rate?
Note: Do not round intermediate calculations. Enter your answer as a
percent rounded to 2 decimal places.
b. What is the 2-year interest rate?
Note: Do not round intermediate calculations. Enter your answer as a
percent rounded to 2 decimal places.
c. What is the 3-year interest rate?
Note: Do not round intermediate calculations. Enter your answer as a
percent rounded to 2 decimal places.
d. What is the 4-year interest rate?
Note: Do not round intermediate calculations. Enter your answer as a
percent rounded to 2 decimal places.
e. Is the yield curve upward-sloping, downward-sloping, or flat?
f. Is this the usual shape of the yield curve?
a. Interest rate
b. Interest rate
c. Interest rate
d. Interest rate
e. __________
f. _________
Many years ago, Castles in the Sand Incorporated issued bonds at face value at a
yield to maturity of 8%. Now, with 8 years left until the maturity of the bonds, the
company has run into hard times and the yield to maturity on the bonds has
increased to 15%. What is now the price of the bond? (Assume semiannual
coupon payments.)
Note: Do not round intermediate calculations. Round your answer to 2
decimal places.
Bond price ______
Suppose that investors believe that Castles can make good on the promised
coupon payments but that the company will go bankrupt when the bond matures
and the principal comes due. The expectation is that investors will receive only
80% of face value at maturity. If they buy the bond today, what yield to maturity
do they expect to receive?
Note: Do not round intermediate calculations. Enter your answer as a
percent rounded to 2 decimal places.
Yield of maturity ______
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