1)Ninja Co. issued 13-year bonds a year ago at a coupon rate of 8.5 percent. The

Question

1)Ninja Co. issued 13-year bonds a year ago at a coupon rate of 8.5 percent. The bonds make semiannual payments. If the YTM on these bonds is 6.8 percent, what is the current bond price? (Round your answer to 2 decimal places. (e.g., 32.16))

2)

Ponzi Corporation has bonds on the market with 14.5 years to maturity, a YTM of 7.50 percent, and a current price of $1,061. The bonds make semiannual payments.

What must the coupon rate be on these bonds? (Round your answer to 2 decimal places. (e.g., 32.16))

3)

Treasury bills are currently paying 7 percent and the inflation rate is 2.90 percent.

What is the approximate real rate of interest? (Round your answer to 2 decimal places. (e.g., 32.16))

What is the exact real rate? (Round your answer to 2 decimal places. (e.g., 32.16))

1)Ninja Co. issued 13-year bonds a year ago at a coupon rate of 8.5 percent. The bonds make semiannual payments. If the YTM on these bonds is 6.8 percent, what is the current bond price? (Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

1) 1)Ninja Co. issued 13-year bonds a year ago at a coupon rate of 8.5 percent. The bonds make semiannual payments. If the YTM on these bonds is 6.8 percent, what is the current bond price?

Semiannual payment = 8.5%*1000/2 = 42.5

current bond price = 42.5/(1+6.8%/2) + 42.5/(1+6.8%/2)^3 + 42.5/(1+6.8%/2)^4 .........+ 1042.5/(1+6.8%/2)^26 =

2) Ponzi Corporation has bonds on the market with 14.5 years to maturity, a YTM of 7.50 percent, and a current price of $1,061. The bonds make semiannual payments.What must the coupon rate be on these bonds?

Let semiannual payments be x

1061 = x/(1+ 7.50%/2) + x/(1+ 7.50%/2)^2 + x/(1+ 7.50%/2)^3 ..................x/(1+ 7.50%/2)^29 + 1000/(1+ 7.50%/2)^29

x= $41

coupon rate = 41*2/1000 = 8.20%

3) Treasury bills are currently paying 7 percent and the inflation rate is 2.90 percent.What is the approximate real rate of interest

Approimate real rate of interest= nominal - inflation = 7%-2.9% = 4.1%

What is the exact real rate? (

(1+nominal rate) = (1+real rate)*(1+inflation)

real rate =(1+7%)/(1+2.9%)-1 = 3.98%

exact real rate = 3.98%

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