2 QAs

SOUTHERN NEW HAMPSHIRE UNIVERSITY

School of Business

FIN 320

FIN320: Homework # 3

1. An investor has three bonds in his portfolio that have a face value of $1,000. They have the following annual coupon rates and time to maturity.

Bond A: 10% coupon and 10 years to maturity

Bond B: Zero-coupon and 10 years to maturity

Bond C: 10% coupon and 2 years to maturity

Calculate the price of each bond at a YTM of 5% and at a YTM of 6%. (This question is asking for six numbers.)

2. Consider a bond which has 10-years remaining until maturity. The bond has a face value of $1,000, and pays a semi-annual coupon of 8%. The bond is currently priced at $1,100.

a. What is the Yield To Maturity for this bond?

b. Suppose that in one year, interest rates remain unchanged. What will the price of this bond be at that point? (Note: there will be 9 more years until maturity.)

c. What return will you have received from owning the bond?