Week 4 - Interest Rates and Bond Valuation
Week 4 - Interest Rates and Bond Valuation
1. What is the annual yield of a 6-year, 6.4% semi-annual coupon-paying bond priced today at $1,190? Par is $1,000.
2. What is the annual yield of a 9-year, 4.1% annual coupon-paying bond priced today at $1,088? Par is $1,000.
3. Show the cash flows and prices for the following four bonds, each with a par value of $1,000 and paying interest semi-annually:
|
# |
Coupon Rate |
Years to Maturity |
Market Yield |
|
A |
6.4% |
8 |
4.5 |
|
B |
3.7% |
9 |
4.4 |
|
C |
3.8% |
9 |
4.6 |
|
D |
0.0% |
5 |
4.3 |
Which of the four bonds would you prefer to hold and why? (Answer in the box provided.)
4. Consider a semi-annual bond with an annual coupon=6.33%, maturity=10 years, par value = $1,000, and a market price today = $1,063:
a. What is its yield to maturity (YTM)?
b. Supposethebondcanbecalledat$950attheendofyear8, what is its yield to call?
5. You have two bonds with the following characteristics:
|
Characteristics |
Bond A |
Bond B |
|
Coupon |
4.4% |
5.5% |
|
Years to Maturity |
7.5 |
5 |
|
Par Value |
$1000 |
$1000 |
|
Price |
$902.00 |
$911.00 |
a. What are the bond durations?
b. If rates rise to 4.5%, what are the new prices for each bond?