1. Atlantis Fisheries issues zero coupon bonds on the market at a price of $514
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Question
1. Atlantis Fisheries issues zero coupon bonds on the market at a price of $514 per bond. Each bond has a face value of $1,000 payable at maturity in 13 years. What is the yield to maturity for these bonds?(Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Yield to maturity
%
2. Great Wall Pizzeria issued 4-year bonds one year ago at a coupon rate of 5.2 percent. If the YTM on these bonds is 7.6 percent, what is the current bond price? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Price
$
3. Soprano’s Spaghetti Factory issued 20-year bonds two years ago at a coupon rate of 6.80 percent. If these bonds currently sell for 90.5 percent of par value, what is the YTM? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)
YTM
%
4. Both bond A and bond B have 9.4 percent coupons and are priced at par value. Bond A has 7 years to maturity, while bond B has 20 years to maturity.
a)
Assume if interest rates suddenly rise by 2 percent, what is the percentage change in price of bond A and bond B? (Round your answer to 2 decimal places. Negative answers should be indicated by a minus sign. Omit the "%" sign in your response.)
Bond A
%
Bond B
%
b)
Assume if interest rates suddenly fall by 2 percent instead, what would the percentage change in price of bond A and bond B? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Bond A
%
Bond B
%
5. Suppose you buy a 7.2 percent coupon bond today for $1,140. The bond has 10 years to maturity.
a.
What rate of return do you expect to earn on your investment? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Rate of return
%
b-1.
Two years from now, the YTM on your bond has increased by 2 percent, and you decide to sell. What price will your bond sell for? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Price
$
b-2.
What is the annual realized yield on your investment? (Negative amounts should be indicated by a minus sign. Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Realized return
%
6. What is the Macaulay duration of a 10.4 percent coupon bond with five years to maturity and a current price of $974.60? What is the modified duration? (Round your answer to 3 decimal places.)
Duration
Macaulay
Years
Modified
Years
7. Consider a 9.00 percent coupon bond with six years to maturity and a current price of $958.50. Suppose the yield on the bond suddenly increases by 2 percent.
1.
Use duration to estimate the new price of the bond. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Price
$
2.
Calculate the new bond price. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Price
$
8. A Treasury bond with 8 years to maturity is currently quoted at 108:7. The bond has a coupon rate of 8.3 percent. What is the yield value of a 32nd for this bond? (Round your answer to 3 decimal places.)
Yield value (in basis point)
1. Atlantis Fisheries issues zero coupon bonds on the market at a price of $514 per bond. Each bond has a face value of $1,000 payable at maturity in 13 years. What is the yield to maturity for these bonds?(Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Explanation / Answer
(1)YIELD TO MATURITY(YTM)=(I+(F-P)/N)/(F+P)/2
WHERE,I=INTEREST=0
F=FACEVALUE=$1,000
P=CURRENT PRICE=$514
SO,YTM=((1,000-514)/N)/(1,000+514)/2
=37.38/757=0.0494
=0.05
(2)CALCULATION OF CURRENT BOND PRICE
APPLYING FORMULA,
CURRENT BOND PRICE=COUPON AMOUNT *PVIFA(YTM,NO.OF YEARS)
LET FACE VALUE OF BOND =$100
COUPON AMOUNT=$100*5.2%=$5.2
CURRENT BOND PRICE=5.2PVIFA(7.6%,4)
=5.2*3.342
=$17.3784
=$17.38
(3)YTM=
(I+(F-P)/N)/(F+P)/2
WHERE,I=INTEREST=$6.8
F=FACEVALUE=LET IT BE $100
P=CURRENT PRICE=$90.5
N =YEARS TO MATURITY=18 YEARS
YTM=(6.8+(100-90.5)/18)/(100+90.5)/2
=(6.8+0.5278)/95.25
=0.077
=0.08
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