1.

The ABC Corporation bonds have a coupon of 14%, pay interest semiannually, and they
will mature in 7 years. Your required rate of return for such an investment is 10%
annually. How much should you pay for a 1,000 ABC Corporation bond?
2. Government issued perpetual bonds in 1921 with a coupon rate of 3% and face value of
100. Calculate the price of such a bond in 2008 when the riskless interest rate is 4.85%.
3. KK Corp bonds pay interest semiannually and they will mature in 10 years. Currently a
1000 bond sells for 800 and the bondholders require annual return of 9%. Calculate the
coupon rate of these bonds.
4. You have bought a zero-coupon bond for 300. It will mature in 6 years and pay the face
value of 1,000. Assuming annual compounding, what is the implied rate of return for the
bond?
5. BlackWhite Company 7% coupon bonds pay interest semiannually. When you bought
one of these bonds, it had 11 years to maturity, and the appropriate discount rate was 9%.
After one year, the discount rate on such bonds is 8% because of the improved financial
health of the company. If you sell the bond today, what would be your capital gain or
loss? Assume bond par value as 1000

1. 1,197.97

2. 61.86

3. 5.925%

4. 22.22%

5. 69.89 gain