FIN PROBLEMS 5
Do problems 7-1, 7-3, 7-5, 7-7, 7-9, 7-11, 7-13, and 7-15, page 179 of your textbook
7-1. Determine the interest payment for the following three bonds: 3 ½ percent coupon corporate bond (paid semiannually), 4.25 percent coupon Treasury note, and a corporate zero coupon bond maturing in ten years. (Assume a $1000 par value.)
3 ½ percent coupon corporate bond (paid semi-annually): ½ × 3.5% × $1,000 = $17.50
4.25 percent coupon Treasury note: ½ × 4.25% × $1,000 = $21.25 corporate zero coupon bond maturing in 10 years: 0% × $1,000 = $0
7-3. A bond issued by Ford on May 15, 1997, is scheduled to mature on May 15, 2097. If today is November 16, 2012, what is this bond’s time to maturity?
May 15, 2097 min November 16, 2012 = 92 years and 6 months
7-5. A 6 percent corporate coupon bond is callable in five years for a call premium of one year of coupon payments. Assuming a par value of $1000, what is the price paid to bondholder if the issuer calls the bond?
Principal + call premium = $1,000 + 6% * $1,000 = $1,060
7-7. A 2 ¾ percent TIPS has an original reference CPI of 185.4. If the current CPI is 210.7, what is the current interest payment and par value of TIPS?
par value = 210.7/185.4 × $1,000 = $1,136.46 interest payment = ½ × 2.75% × $1,136.46 = $15.63
7-9. Consider the following three bond quotes: a Treasury note quoted at 97:27, a corporate bond quoted at 103.25, and a municipal bond quoted at 101.90. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000, what is the price of these three bonds in dollars?
Treasury note at 97:27: (97+27/32)% × $1,000 = $978.44
Corporate bond at 103.24: 103.24% × $1,000 = $1,032.40
Municipal bond at 101.90: 101.90% × $5,000 = $5,095.00
7-11. Calculate the price of a zero coupon bond that matures in 20 years if the market interest rate is 4.5 percent.
Use semi-annual compounding:
7-13. What is the current yield of
7-1. Determine the interest payment for the following three bonds: 3 ½ percent coupon corporate bond (paid semiannually), 4.25 percent coupon Treasury note, and a corporate zero coupon bond maturing in ten years. (Assume a $1000 par value.)
3 ½ percent coupon corporate bond (paid semi-annually): ½ × 3.5% × $1,000 = $17.50
4.25 percent coupon Treasury note: ½ × 4.25% × $1,000 = $21.25 corporate zero coupon bond maturing in 10 years: 0% × $1,000 = $0
7-3. A bond issued by Ford on May 15, 1997, is scheduled to mature on May 15, 2097. If today is November 16, 2012, what is this bond’s time to maturity?
May 15, 2097 min November 16, 2012 = 92 years and 6 months
7-5. A 6 percent corporate coupon bond is callable in five years for a call premium of one year of coupon payments. Assuming a par value of $1000, what is the price paid to bondholder if the issuer calls the bond?
Principal + call premium = $1,000 + 6% * $1,000 = $1,060
7-7. A 2 ¾ percent TIPS has an original reference CPI of 185.4. If the current CPI is 210.7, what is the current interest payment and par value of TIPS?
par value = 210.7/185.4 × $1,000 = $1,136.46 interest payment = ½ × 2.75% × $1,136.46 = $15.63
7-9. Consider the following three bond quotes: a Treasury note quoted at 97:27, a corporate bond quoted at 103.25, and a municipal bond quoted at 101.90. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000, what is the price of these three bonds in dollars?
Treasury note at 97:27: (97+27/32)% × $1,000 = $978.44
Corporate bond at 103.24: 103.24% × $1,000 = $1,032.40
Municipal bond at 101.90: 101.90% × $5,000 = $5,095.00
7-11. Calculate the price of a zero coupon bond that matures in 20 years if the market interest rate is 4.5 percent.
Use semi-annual compounding:
7-13. What is the current yield of