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CHAPTER 7 - 15
The call value is the difference between this implied bond value and the actual bond price. So, the
33. In general, this is not likely to happen, although it can (and did). The reason this bond has a negative
34. To find the present value, we need to find the real weekly interest rate. To find the real return, we need
to use the effective annual rates in the Fisher equation. So, we find the real EAR is:
CHAPTER 7 - 16
35. To answer this question, we need to find the monthly interest rate, which is the APR divided by 12.
Now we can find the future value of the retirement account in real terms. The future value of each
account will be:
CHAPTER 7 - 17
Now we need to find the monthly interest rate in retirement. We can use the same procedure that we
used to find the monthly interest rates for the stock and bond accounts, so:
Calculator Solutions
3.
Enter
25
7.50%
€64
€1,000
N
I/Y
PV
PMT
FV
CHAPTER 7 - 18
P1
Enter
24
7%/2
$90/2
$1,000
N
I/Y
PV
PMT
FV
Solve for
$1,160.58
CHAPTER 7 - 19
16. If both bonds sell at par, the initial YTM on both bonds is the coupon rate, 7 percent. If the YTM
suddenly rises to 9 percent:
CHAPTER 7 - 20
17. Initially, at a YTM of 6 percent, the prices of the two bonds are:
If the YTM declines from 6 percent to 4 percent:
CHAPTER 7 - 21
18.
22. Current yield = .0755 = $80/P0 ; P0 = $80/.0755 = $1,059.60
CHAPTER 7 - 22
29.
Bond P
CHAPTER 7 - 23
30.
a.
rates dropped by 1 percent; bond prices rise when yields fall.
31.
PM
CHAPTER 7 - 24
34. To find the present value, we need to find the real weekly interest rate. To find the real return, we need
35. To answer this question, we need to find the monthly interest rate, which is the APR divided by 12.
CHAPTER 7 - 25
Now we can find the future value of the retirement account in real terms. The future value of each
account will be:
Now we can find the real monthly withdrawal in retirement. Using the present value of an annuity
equation and solving for the payment, we find:
CHAPTER 7 - 26
This is the real dollar amount of the monthly withdrawals. The nominal monthly withdrawals will
