Liberty University BUSI 420 Homework 5 Interest Rates & Bonds Assignment answers
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Problem 10-19 Finding the Bond Maturity (LO1,
CFA2)
LKD Company has 10 percent coupon bonds with a YTM of 8.1
percent. The current yield on these bonds is 9.5 percent. How
many years do these bonds have left until they mature?
Note: Do not round intermediate calculations. Round your
answer to 2 decimal places.
Problem 10-17 Interest Rate Risk (LO3, CFA4)
Both Bond A and Bond B have 8.2 percent coupons and are priced
at par value. Bond A has 6 years to maturity, while Bond B has 18
years to maturity.
a. If interest rates suddenly rise by 1 percent, what is the
percentage change in price of Bond A and Bond B?
Note: A negative value should be indicated by a
minus sign. Do not round intermediate calculations.
Enter your answers as a percent rounded to 2 decimal
places.
b. If interest rates suddenly fall by 1 percent instead, what
would be the percentage change in price of Bond A and
Bond B?
Note: Do not round intermediate calculations. Enter
your answers as a percent rounded to 2 decimal
places.
Problem 10-12 Bond Prices (LO1, CFA5)
Great Wall Pizzeria issued 11-year bonds one year ago at a
coupon rate of 6.8 percent. If the YTM on these bonds is 9
percent, what is the current bond price?
Note: Do not round intermediate calculations. Round your
answer to 2 decimal places.
Problem 10-11 Coupon Rates (LO1, CFA2)
Ghost Rider Corporation has bonds on the market with 10 years to
maturity, a YTM of 5.1 percent, and a current price of $950. What
must the coupon rate be on the company’s bonds?
Note: Do not round intermediate calculations. Enter your
answer as a percent rounded to 2 decimal places.
Problem 10-10 Yield to Call (LO1, CFA5)
Atlantis Fisheries issues zero coupon bonds on the market at a
price of $457 per bond. If these bonds are callable in 6 years at a
call price of $514, what is their yield to call?
Note: Do not round intermediate calculations. Enter your
answer as a percent rounded to 2 decimal places.
Problem 10-9 Yield to Call (LO1, CFA5)
Atlantis Fisheries issues zero coupon bonds on the market at a
price of $421 per bond. These are callable in 7 years at a call
price of $640. Using semiannual compounding, what is the yield
to call for these bonds?
Note: Do not round intermediate calculations. Enter your
answer as a percent rounded to 2 decimal places.
Problem 10-8 Yield to Maturity (LO1, CFA5)
Atlantis Fisheries issues zero coupon bonds on the market at a
price of $582 per bond. Each bond has a face value of $1,000
payable at maturity in 20 years. What is the yield to maturity for
these bonds?
Note: Do not round intermediate calculations. Enter your
answer as a percent rounded to 2 decimal places.
Problem 10-7 Yield to Maturity (LO1, CFA5)
May Industries has a bond outstanding that sells for $786. The
bond has a coupon rate of 5.9 percent and 21 years until
maturity. What is the yield to maturity of the bond?
Note: Do not round intermediate calculations. Enter your
answer as a percent rounded to 2 decimal places.
Problem 10-5 Yield to Maturity (LO1, CFA5)
A bond sells for $981.20 and has a coupon rate of 7.10 percent. If
the bond has 28 years until maturity, what is the yield to maturity
of the bond? Assume semiannual compounding.
Note: Do not round intermediate calculations. Enter your
answer as a percent rounded to 2 decimal places.
Problem 10-4 Bond Prices (LO1, CFA3)
A bond with 20 years until maturity has a coupon rate of 7.4
percent and a yield to maturity of 6.1 percent. What is the price of
the bond?
Note: Do not round intermediate calculations. Round your
answer to 2 decimal places.
Problem 10-3 Bond Prices (LO1, CFA3)
A bond has a coupon rate of 8.9 percent and 5 years until
maturity. If the yield to maturity is 7.7 percent, what is the price
of the bond?
Note: Do not round intermediate calculations. Round your
answer to 2 decimal places.
Problem 10-2 Bond Yields (LO1, CFA2)
Rolling Company bonds have a coupon rate of 7.80 percent, 17
years to maturity, and a current price of $1,276. What is the YTM?
The current yield?
Note: Do not round intermediate calculations. Enter your
answers as a percent rounded to 2 decimal places.
Problem 10-1 Bond Prices (LO1, CFA5)
Aloha, Incorporated, has 8 percent coupon bonds on the market
that have 11 years left to maturity. If the YTM on these bonds is
10.22 percent, what is the current bond price?
Note: Do not round intermediate calculations. Round your
answer to 2 decimal places.
Problem 9-25 Effective Annual Rate (LO2, CFA1)
You have a car loan with a nominal rate of 5.65 percent. With
interest charged monthly, what is the effective annual rate (EAR)
on this loan?
Note: Do not round intermediate calculations. Enter your
answer as a percent rounded to 2 decimal places.
Problem 9-24 Treasury Bills (LO1, CFA1)
A Treasury bill that settles on May 18, 2022, pays $100,000 on
August 21, 2022. Assuming a discount rate of .48 percent, what
are the price and bond equivalent yield? Use Excel to answer this
question.
Note: Round your price answer to 2 decimal places. Enter
your yield answer as a percent rounded to 3 decimal
places.
Problem 9-23 Expected Inflation Rates (LO4, CFA3)
Consider the following spot interest rates for maturities of one,
two, three, and four years.
r1= 4.8% r2= 5.2% r3= 5.9% r4= 6.7%
Assuming a constant real interest rate of 2 percent, what are the
approximate expected inflation rates for the next four years?
Note: Do not round intermediate calculations. Enter your
answers as a percent rounded to 2 decimal places.
Problem 9-21 Forward Interest Rates (LO3, CFA7)
Consider the following spot interest rates for maturities of one,
two, three, and four years.
r1= 3.7% r2= 4.2% r3= 4.9% r4= 5.7%
What are the following forward rates, where@f1,k@refers to a forward
rate for the period beginning in one year and extending
for@k@years?
Note: Do not round intermediate calculations. Enter your
answers as a percent rounded to 2 decimal places.
Problem 9-13 Money Market Prices (LO1, CFA1)
The treasurer of a large corporation wants to invest $34 million in
excess short-term cash in a particular money market investment.
The prospectus quotes the instrument at a true yield of 4.30
percent; that is, the EAR for this investment is 4.30 percent.
However, the treasurer wants to know the money market yield on
this instrument to make it comparable to the T-bills and CDs she
has already bought. If the term of the instrument is 107 days,
what are the bond equivalent and discount yields on this
investment?
Note: Do not round intermediate calculations. Enter your
answers as a percent rounded to 3 decimal places.
Problem 9-12 Treasury Bills (LO1, CFA1)
A Treasury bill purchased in January 2024 has 121 days until
maturity and a bank discount yield of 4.28 percent. Assume a
$100 face value.
a. What is the price of the bill as a percentage of face value?
Note: Do not round intermediate calculations. Round
your answer to 3 decimal places.
b. What is the bond equivalent yield?
Note: Use 366 days a year. Do not round intermediate
calculations. Enter your answer as a percent rounded
to 3 decimal places.
Problem 9-11 Treasury Bills (LO1, CFA1)
A Treasury bill with 119 days to maturity is quoted at 97.630.
What are the bank discount yield, the bond equivalent yield, and
the effective annual return?
Note: Do not round intermediate calculations. Enter your
answers as a percent rounded to 3 decimal places.
Problem 9-10 Treasury Bill Prices (LO1, CFA1)
A U.S. Treasury bill with 93 days to maturity is@quoted at a
discount yield of 2.40 percent. Assume a $1 million face value.
What is the bond equivalent yield?
Note: Do not round intermediate calculations. Enter your
answer as a percent rounded to 3 decimal places.
Problem 9-9 Treasury Bill Prices (LO1, CFA1)
How much would you pay for a U.S. Treasury bill with 108 days to
maturity quoted at a discount yield of 2.41 percent? Assume a $1
million face value.
Note: Enter your answer in dollars not in millions. Do not
round intermediate calculations. Round your answer to 2
decimal places.
Problem 9-8 Treasury Bill Prices (LO1, CFA1)
A U.S. Treasury bill with 89 days to maturity is@quoted at a
discount yield of 1.35 percent. Assume a $1 million face value.
What is the bond equivalent yield?
Note: Do not round intermediate calculations. Enter your
answer as a percent rounded to 3 decimal places.
Problem 9-7 Treasury Bill Prices (LO1, CFA1)
What is the price of a U.S. Treasury bill with 89 days to maturity
quoted at a discount yield of 1.35 percent? Assume a $1 million
face value.
Note: Enter your answer in dollars not in millions. Do not
round intermediate calculations. Round your answer to 2
decimal places.
Problem 9-6 Fisher Effect (LO4, CFA3)
Your investments increased in value by 15.9 percent last year,
but your purchasing power increased by only 7.8 percent. What
was the approximate inflation rate?
Note: Enter your answer as a percent rounded to 1
decimal place.
Problem 9-5 Fisher Effect (LO4, CFA3)
A stock had a return of 7.7 percent last year. If the inflation rate
was 1.4 percent, what was the approximate real return?
Note: Enter your answer as a percent rounded to 1
decimal place.
Problem 9-4 STRIPS (LO3, CFA1)
What is the yield to maturity on a Treasury STRIPS with 13 years
to maturity and a quoted price of 58.779?
Note: Do not round intermediate calculations. Enter your
answer as a percent rounded to 2 decimal places.
Problem 9-3 STRIPS (LO3, CFA6)
A Treasury STRIPS is quoted at 57.001 and has 11 years until
maturity. What is the yield to maturity?
Note: Do not round intermediate calculations. Enter your
answer as a percent rounded to 2 decimal places.
Problem 9-2 STRIPS (LO3, CFA6)
A Treasury STRIPS matures in 9 years and has a yield to maturity
of 12.4 percent. Assume the par value is $100,000.
a. What is the price of the STRIPS?
Note: Do not round intermediate calculations. Round
your answer to 2 decimal places.
b. What is the quoted price?
Note: Do not round intermediate calculations. Round
your answer to 3 decimal places.
Problem 9-1 STRIPS (LO3, CFA6)
What is the price of a Treasury STRIPS with a face value of $100
that matures in 5 years and has a yield to maturity of 5.5
percent?
Note: Do not round intermediate calculations. Round your
answer to 2 decimal places.
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