Question 1

Blue Water Homes has 8 percent bonds outstanding that mature in 13 years.The bonds pay interest semiannually.These bonds have a par value of $1,000 and are callable in 2 years at a premium of $75.What is the yield to call if the current price is equal to 103.25 percent of par?

Accepted Answer

Using a financial calculator:

Question 2

Two bonds have a coupon rate of 6.5 percent,semi-annual payments,face values of $1,000,and yields to maturity of 7.1 percent.Bond S matures in 6 years and bond L matures in 12 years.What is the difference in the current prices of these bonds?

Accepted Answer

Using a financial calculator: Using a financial calculator: Difference = $971.10 - $952.08 = $19.02

Question 3

Alex purchased a $1,000 par value bond one year ago at a price of $1,016.At the time of purchase,the bond had 12 years to maturity and a 5 percent,semiannual coupon.Today,the bond has a yield to maturity of 5.25 percent.What is his realized yield as of today?

Accepted Answer

Using a financial calculator:

Question 4

You want to buy a bond that has a quoted price of $923.The bond pays interest semiannually on April 1 and October 1.The coupon rate is 6 percent.What is the clean price of this bond if today's date is June 1? Assume a 360-day year.

Accepted Answer

Clean price = Quoted price = $923

Question 5

One year ago,you purchased a $1,000 face value bond at a yield to maturity of 9.45 percent.The bond has a 9 percent coupon and pays interest semiannually.When you purchased the bond,it had 12 years left until maturity.You are selling the bond today when the yield to maturity is 8.20 percent.What is your realized yield on this bond?

Accepted Answer

Using a financial calculator:

Question 6

The outstanding bonds of International Plastics mature in 6 years and pay semiannual interest payments of $33.50 on a $1,000 face value bond.The bonds are currently selling for $1,008.64.The coupon rate is _____ percent,the current yield is _____ percent,and the yield to maturity is _____ percent.

Accepted Answer

Using a financial calculator:Coupon rate = ($33.50 × 2)/$1,000 = 6.70 percentCurrent yield = ($33.50 × 2)/$1,008.64 = 6.643 percentYield to maturity = 6.52 percent

Question 7

Cochran's Furniture Outlet is issuing 25-year,9 percent callable bonds.These bonds are callable in 4 years with a call premium of $45.The bonds are being issued at par and pay interest semi-annually.What is the yield to call?

Accepted Answer

Using a financial calculator:

Question 8

You are considering two bonds.Both have semi-annual,8 percent coupons,$1,000 face values,and yields to maturity of 7.5 percent.Bond S matures in 4 years and Bond L matures in 8 years.What is the difference in the current prices of these bonds?

Accepted Answer

Using a financial calculator: Using a financial calculator: Difference = $1,029.68 - $1,017.01 = $12.67

Question 9

You own a 6.5 percent,semiannual coupon bond that matures in 7 years.The par value is $1,000 and the current yield to maturity is 6.8 percent.What will the percentage change in the price of your bond be if the yield to maturity suddenly increases by 75 basis points?

Accepted Answer

Percentage change in bond price = (983.51 - $943.71)/$983.51 = -4.05 percent

Question 10

Will owns a bond with a make-whole call provision.The bond matures in 13 years but is being called today.The coupon rate is 8.25 percent with interest paid semiannually.What is the current call price if the applicable discount rate is 7.75 percent and the make-whole call provision applies?

Accepted Answer

Using a financial calculator:

Question 11

A bond has a $1,000 par value,semiannual interest payments of $40,and a current market value of $1,054.The bonds mature in 12.5 years.The coupon rate is _____ percent,the current yield is _____ percent,and the yield to maturity is _____ percent.

Accepted Answer

Coupon rate = ($40 × 2)/$1,000 = 8.00 percentCurrent yield = ($40 × 2)/$1,054 = 7.59 percentYield to maturity = 7.33 percentUsing a financial calculator:

Question 12

Ted owns a bond which is callable in 2.5 years.The bond has a 6 percent coupon,pays interest semiannually,has a par value of $1,000,and has a yield to call of 6.3 percent.What is the call premium if the bond currently sells for $1,044.54?

Accepted Answer

Using a financial calculator: Call Premium = 1060 - 1000 = $60

Question 13

You are buying a bond at a quoted price of $892.The bond has a 7.5 percent coupon and pays interest semiannually on February 1 and August 1.What is the dirty price of this bond if today is April 1? Assume a 360-day year.

Accepted Answer

Dirty price = $892 + [(.075 × $1,000)/2] × 2/6 = $904.50

Question 14

Ferrous Metals has bonds outstanding which it is calling today under the make-whole call provision.The bonds mature in 6 years,have a 10 percent coupon,pay interest semiannually,and have a par value of $1,000.What is today's call price given that the applicable discount rate is 7.20 percent?

Accepted Answer

Using a financial calculator:

Question 15

A $1,000 par value bond is currently valued at $1,037.84.The bond pays interest semi-annually,has 7 years to maturity,and has a yield to maturity of 7.3 percent.The coupon rate is _____ percent and the current yield is _____ percent.

Accepted Answer

Using a financial calculator: Coupon rate = ($40 × 2)/$1,000 = 8.0 percentCurrent yield = ($40 × 2)/$1,037.84 = 7.708 percent

Question 16

An 8.5 percent coupon bond pays interest semiannually and has 10.5 years to maturity.The bond has a face value of $1,000 and a market value of $878.50.What is the yield to maturity?

Accepted Answer

Using a financial calculator:

Question 17

Green Roofing Materials has 7.5 percent bonds outstanding that are currently priced at $1,068 each.The bonds pay interest on December 1 and June 1.What is the dirty price of this bond if today's date is May 1? Assume a 360-day year.

Accepted Answer

Dirty price = $1,068 + [(.075 × $1,000)/2] × 5/6 = $1,099.25

Question 18

You own a bond that pays semiannual interest payments of $38.The bond is callable in 2 years at a premium of $76.What is the callable bond price if the yield to call is 7.9 percent?

Accepted Answer

Using a financial calculator:

Question 19

Alaskan Motors has outstanding bonds that mature in 13 years and pay $34.50 every 6 months in interest.The par value is $1,000 per bond and the market value is $990.The coupon rate is _____ percent,the current yield is _____ percent,and the yield to maturity is _____ percent.

Accepted Answer

Coupon rate = ($34.50 × 2)/$1,000 = 6.90 percentCurrent yield = ($34.50 × 2)/$990 = 6.97 percentYield to maturity = 7.02 percentUsing a financial calculator:

Question 20

A $1,000 face value bond is selling for $1,016.36.The bond pays interest semiannually and has 3.5 years to maturity.The yield to maturity is 5.48 percent.The current yield is _____ percent and the coupon rate is _____ percent.

Accepted Answer

Using a financial calculator: Current yield = ($30 × 2)/$1,016.36 = 5.90 percentCoupon rate = ($30 × 2)/$1,000 = 6.0 percent

Quiz 10: Bond Prices and Yields

Blue Water Homes has 8 percent bonds outstanding that mature in 13 years.The bonds pay interest semiannually.These bonds have a par value of $1,000 and are callable in 2 years at a premium of $75.What is the yield to call if the current price is equal to 103.25 percent of par?

Two bonds have a coupon rate of 6.5 percent,semi-annual payments,face values of $1,000,and yields to maturity of 7.1 percent.Bond S matures in 6 years and bond L matures in 12 years.What is the difference in the current prices of these bonds?

Alex purchased a $1,000 par value bond one year ago at a price of $1,016.At the time of purchase,the bond had 12 years to maturity and a 5 percent,semiannual coupon.Today,the bond has a yield to maturity of 5.25 percent.What is his realized yield as of today?

You want to buy a bond that has a quoted price of $923.The bond pays interest semiannually on April 1 and October 1.The coupon rate is 6 percent.What is the clean price of this bond if today's date is June 1? Assume a 360-day year.

The outstanding bonds of International Plastics mature in 6 years and pay semiannual interest payments of $33.50 on a $1,000 face value bond.The bonds are currently selling for $1,008.64.The coupon rate is ___ percent,the current yield is _ percent,and the yield to maturity is ___ percent.

Cochran's Furniture Outlet is issuing 25-year,9 percent callable bonds.These bonds are callable in 4 years with a call premium of $45.The bonds are being issued at par and pay interest semi-annually.What is the yield to call?

You are considering two bonds.Both have semi-annual,8 percent coupons,$1,000 face values,and yields to maturity of 7.5 percent.Bond S matures in 4 years and Bond L matures in 8 years.What is the difference in the current prices of these bonds?

You own a 6.5 percent,semiannual coupon bond that matures in 7 years.The par value is $1,000 and the current yield to maturity is 6.8 percent.What will the percentage change in the price of your bond be if the yield to maturity suddenly increases by 75 basis points?

Will owns a bond with a make-whole call provision.The bond matures in 13 years but is being called today.The coupon rate is 8.25 percent with interest paid semiannually.What is the current call price if the applicable discount rate is 7.75 percent and the make-whole call provision applies?

A bond has a $1,000 par value,semiannual interest payments of $40,and a current market value of $1,054.The bonds mature in 12.5 years.The coupon rate is ___ percent,the current yield is _ percent,and the yield to maturity is ___ percent.

Ted owns a bond which is callable in 2.5 years.The bond has a 6 percent coupon,pays interest semiannually,has a par value of $1,000,and has a yield to call of 6.3 percent.What is the call premium if the bond currently sells for $1,044.54?

You are buying a bond at a quoted price of $892.The bond has a 7.5 percent coupon and pays interest semiannually on February 1 and August 1.What is the dirty price of this bond if today is April 1? Assume a 360-day year.

Ferrous Metals has bonds outstanding which it is calling today under the make-whole call provision.The bonds mature in 6 years,have a 10 percent coupon,pay interest semiannually,and have a par value of $1,000.What is today's call price given that the applicable discount rate is 7.20 percent?

A $1,000 par value bond is currently valued at $1,037.84.The bond pays interest semi-annually,has 7 years to maturity,and has a yield to maturity of 7.3 percent.The coupon rate is _ percent and the current yield is _ percent.

An 8.5 percent coupon bond pays interest semiannually and has 10.5 years to maturity.The bond has a face value of $1,000 and a market value of $878.50.What is the yield to maturity?

Green Roofing Materials has 7.5 percent bonds outstanding that are currently priced at $1,068 each.The bonds pay interest on December 1 and June 1.What is the dirty price of this bond if today's date is May 1? Assume a 360-day year.

You own a bond that pays semiannual interest payments of $38.The bond is callable in 2 years at a premium of $76.What is the callable bond price if the yield to call is 7.9 percent?

Alaskan Motors has outstanding bonds that mature in 13 years and pay $34.50 every 6 months in interest.The par value is $1,000 per bond and the market value is $990.The coupon rate is ___ percent,the current yield is _ percent,and the yield to maturity is ___ percent.

A $1,000 face value bond is selling for $1,016.36.The bond pays interest semiannually and has 3.5 years to maturity.The yield to maturity is 5.48 percent.The current yield is _ percent and the coupon rate is _ percent.