Problem 14-5
A bond with par value of $1,000 has an annual coupon rate of 4.8% and currently sells for $970. What
is the bond’s current yield? (Round your answer to 2 decimal places. Omit the “%” sign in your
response.)
Problem 14-6
Calculate the effective annual interest rate for the following:
a.A 3-month T-bill selling at $97,645 with par value $100,000. (Round your answer to 2 decimal
places. Omit the “%” sign in your response.)
0.0016 0.0800
effective annual yield 0.0816
Problem 14-7
Treasury bonds paying an 8% coupon rate with semiannual payments currently sell at par value. What coupon
rate would they have to pay in order to sell at par if they paid their coupons annually? (Hint: What is the
effective annual yield on the bond?) (Round your answer to 2 decimal places. Omit the “%” sign in your
Problem 14-9
Consider an 8% coupon bond selling for $953.10 with 3 years until maturity making annual coupon payments. The
interest rates in the next 3 years will be, with certainty, r1= 8%, r2= 10%, and r3= 12%. Calculate the yield to maturity
and realized compound yield of the bond. (Round your answers to 2 decimal places. Omit the “%” sign in your
response.)
b yield 0.08 0 0.08 0.1
prices $500.25 $1,000.00 $1,124.94
c Data
t 1
maturity 10
coupon bond 0.1
yield 0.08 0 0.08 0.1
prices $463.19 $1,000.00 $1,134.20
yield 0.08
Problem 14-10
Assume you have a 1-year investment horizon and are trying to choose among three bonds. All have the same
degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The
second has an 8% coupon rate and pays the $80 coupon once per year. The third has a 10% coupon rate and pays the
$100 coupon once per year.
taxes $19.86 $37.03 $42.25
Problem 14-11
A 20-
year maturity bond with par value of $1,000 makes semiannual coupon payments at a coupon rate of 8%.
Find the bond equivalent and effective annual yield to maturity of the bond for the following bond
prices.(Round your answers to 2 decimal places. Omit the “%” sign in your response.)
Problem 14-12
A 20-year maturity bond with par value of $1,000 makes annual coupon payments at a coupon rate of 8%. Find the bond
equivalent and effective annual yield to maturity of the bond for the following bond prices.(Round your answers to 2
decimal places. Omit the “%” sign in your response.)
Problem 14-13
Fill in the table below for the following zero-coupon bonds, all of which have par values of
$1,000. Assume annual compounding.
(Round your answers to 2 decimal places. Omit the “$”
and “%” signs in your response.)
Problem 14-14
Consider a bond (with par value = $1,000) paying a coupon rate of 10% per year semiannually when the market interest rate is
only 4% per half-year. The bond has 3 years until maturity.
a.Find the bond’s price today and 6 months from now after the next coupon is paid. (Round your answers to 2 decimal places.
Omit the “$” sign in your response.)
b.What is the total (6-month) rate of return on the bond? (Omit the “%” sign in your response.)
Problem 14-15
A government bond with a coupon rate of 7% makes semiannual coupon payments on
January 15 and July 15 of each year. The Wall Street Journal reports the asked price for the
bond on January 30 at 100.125. What is the invoice price of the bond? The coupon period
has 182 days. (Round your answer to 2 decimal places. Omit the “$” sign in your
response.)
Data
coupon 0.04
Problem 14-18
Refer the table below and calculate both the real and nominal rates of return on the TIPS bond in the second and three years. Assume
the coupon rate is 4%. (Do not round intermediate calculations. Round “Nominal return” to 2 decimal places.)
t inflation par coupon payment principal repay total payment
Problem 14-19
A newly issued 20-year maturity, zero-coupon bond is issued with a yield to maturity of 8% and face value
$1,000. Find the imputed interest income in the first, second, and last year of the bond’s life. Assume annual
compounding. (Round your answers to 2 decimal places
Problem 14-20
A newly issued 10-year maturity, 4% coupon bond making annual coupon payments is sold to
the public at a price of $800. What will be an investor’s taxable income from the bond over the
coming year? The bond will not be sold at the end of the year. The bond is treated as an original
issue discount bond.(Round your answer to 2 decimal places. Omit the “$” sign in your
response.)
a yield to call 0.06735809
t30
coupon 0.08
callable 5
b yield to call 0.05952517
t30
coupon 0.08
callable 2
Problem 14-21
A 30-year maturity, 8% coupon bond paying coupons semiannually is callable in 5 years at a call price
of $1,100. The bond currently sells at a yield to maturity of 7% (3.5% per half-year).
t30
coupon 0.08
data
t10
Problem 14-22
A 10-year bond of a firm in severe financial distress has a coupon rate of 14% and sells for
$900. The firm is currently renegotiating the debt, and it appears that the lenders will allow
the firm to reduce coupon payments on the bond to one-half the originally contracted
amount. The firm can handle these lower payments. What are the stated and expected yield
to maturity of the bonds? The bond makes its coupon payments annually. (Do not round
intermediate calculations. Round your answers to 3 decimal places. Omit the “%” sign in
your response.)
Data
t 2
Problem 14-23
A 2-year bond with par value $1,000 making annual coupon payments of $100 is priced at
$1,000.
today april 15
coupon 0.1
Problem 14-24
Suppose that today’s date is April 15. A bond with a 10% coupon paid semiannually every January 15
and July 15 is listed in The Wall Street Journal as selling at an ask price of 101:25. If you buy the bond
from a dealer today, what price will you pay for it? (Round your answer to 2 decimal places. Omit
the “$” sign in your response.)
$705.46
b tax on interest $22.57 $711.89 $6.44
tax on cap gain $24.42 $718.84 $6.95
total tax $46.99
c after-tax HPR 13%
reinvest rate 0.03
d realized compound y 0.1297
net cash flow $27.43
net cash reinvested 27.91908
total net profits $829.96
e realized compound y 0.0847
Problem 14-31
A newly issued bond pays its coupons once annually. Its coupon rate is 5%, its maturity is 20 years, and its yield to
maturity is 8%.
a.Find the holding-period return for a 1-year investment period if the bond is selling at a yield to maturity of 7% by
the end of the year. (Do not round intermediate calculations.
Round your answer to 2 decimal places. Omit the “%”
sign in your response.)
taxes interest 0.4
taxes cap gain 0.3