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BOND CASE
Problem 1: Bond Valuation & Interest Rate Risk
Problem 2: Chrysler Financial Corporation
Problem 3: Serial Bonds
Problem 4: Maturity and Interest Rate Risk
PROBLEM 1: Bond Valuation & Interest Rate Risk
Jim, a pension fund manager, wants to invest a large sum of money
for exactly 10 years. He is considering investing in one of two
bond issues, which are very similar in their risk characteristics.
When Jim purchases a bond, he will hold it until maturity.
Bond Issue X Bond Issue Y
Face Value $1000 Face Value $1000
Price $1000 Price $ 321.97
Coupon 12% paid annually Coupon none
Maturity 10 years Maturity 10 years
A. Estimate the yield to maturity for each bond?
(Bond X) _______ (Bond Y) _______
B. Assume that the required return (yield) on each bond remains
