Chapter 7
Problems 1-35
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
Chapter 7
Question 1
Input area:
Output area:
The yield to maturity is the required rate of return on a bond
expressed as a nominal annual interest rate. For noncallable
bonds, the yield to maturity and required rate of return are
interchangeable terms. Unlike YTM and required return, the
coupon rate is a fixed percentage of par over the life of the bond
the coupon rate on the bond is still 10%, and the YTM is 8%.
Required rate of return 8%
Chapter 7
Question 2
Output area:
Price and yield move in opposite directions; if interest rates rise,
the price of the bond will fall. This is because fixed coupon
payments determined by the fixed coupon rate are not as
valuable when interest rates rise–hence, the price of the bond
Chapter 7
Question 3
Input area:
Output area:
Settlement date 1/1/2000
Maturity date 1/1/2025
Coupon rate 6.40%
Coupons per year 1
Face value (% of par) 100
Yield to maturity 7.50%
Settlement date 1/1/2000
Maturity date 1/1/2018
Annual coupon rate 4.3%
Coupons per year 1
Face value (% of par) 100
Bond price (% of par) 87.000
Years to maturity 18
Chapter 7
Question 5
Input area:
Years to maturity 9
Output area:
Present value of final payment 596.95$
Present value of coupon payments 351.05$
Coupon payment 51.39$
Coupons per year 1
Face value 1,000$
Bond price 948$
Yield to maturity 5.90%
Chapter 7
Question 6
Input area:
Settlement date 1/1/2000
Output area:
Maturity date 1/1/2013
Coupon rate 6.90%
Coupons per year 2
Face value 100$
Yield to maturity 5.20%
Settlement date 1/1/2000
Maturity date 1/1/2018
Annual coupon rate 7.10%
Coupons per year 2
Face value (% of par) 100
Bond price (% of par) 105
Chapter 7
Question 8
Input area:
Output area:
Present value of final payment 418.42$
Present value of coupon payments 619.58$
Coupon payment 32.49$
Years to maturity 14.5
Coupons per year 2
Face value 1,000$
Yield to maturity 6.1%
Bond price 1,038$
Chapter 7
Question 9
Input area:
Output area:
Treasury rate 6.00%
Inflation rate 2.60%
Chapter 7
Question 10
Input area:
Output area:
Real rate 2.50%
Inflation rate 4.10%
Chapter 7
Question 11
Input area:
Output area:
Investment return 13%
Real return 7%
Chapter 7
Question 12
Input area:
Output area:
Total return 10.70%
Inflation rate 3.70%
Chapter 7
Question 13
Input area:
Output area:
This is a bond.
Today’s ask price 123 15/32
Coupon rate 6.125%
Bid price 123 13/32
Chapter 7
Question 14
Input area:
Output area:
The bond is at a: premium
Today’s ask price 123 15/32
Coupon rate 6.1250%
Bid price 123 13/32
Ask yield 4.2790%
Chapter 7
Question 15
Input area:
Output area:
Settlement date 01/01/00
Maturity date 01/01/13
Bond X:
Coupon rate 9%
Yield to maturity 7%
Face value (% of par) 100
# of coupons per year 2
Bond Y:
Coupon rate 7%
Yield to maturity 9%
Face value (% of par) 100
# of coupons per year 2
Chapter 7
Question 16
Input area:
Bond Sam:
Output area:
Price of Bond Sam 948.42$
Price of Bond Dave 815.98$
Coupon rate 7%
Settlement date 1/1/2000
Maturity date 1/1/2003
Face value 1,000
# of coupons per year 2
Bond Dave:
Coupon rate 7%
Settlement date 1/1/2000
Maturity date 1/1/2020
Face value 1,000
# of coupons per year 2
Change in interest rate 2%
Chapter 7
Question 17
Input area:
Bond J:
Output area:
Initial price of Bond J 705.99$
Price after change 567.70
Initial price of Bond K 1,294.01$
Price after change 1,086.46
Coupon rate 3%
Initial yield to maturity 6%
Settlement date 1/1/2000
Maturity date 1/1/2015
Face value 1,000
# of coupons per year 2
Bond K:
Coupon rate 9%
Initial yield to maturity 6%
Settlement date 1/1/2000
Maturity date 1/1/2015
Face value 1,000
# of coupons per year 2
Change in interest rate 2%