October

FUNDAMENTAL OF FINANCIAL MANAGEMENT

6, 2022
TUTORIAL: BONDS
1. Textbook Chapter 5 (page 226) – Financial Management: Theory and Practice:
Problems: 5-1, 5-2, 5-3, 5-7, 5-9, 5-10, 5-13, 5-21

2. Staind, Inc., has 7.5 percent coupon bonds on the market that have 10 years left to
maturity. The bonds make annual payments. If the YTM on these bonds is 8.75
percent, what is the current bond price? Assuming the par value of Staind, Inc. bonds
is $1,000.

3. Grohl Co. issued 11-year bonds a year ago at a coupon rate of 6.9 percent. The bonds
make semiannual payments. If the YTM on these bonds is 7.4 percent, what is the
current bond price? Assuming the par value of Grohl Co. bonds is $1,000.

4. Ashes Divide Corporation has bonds on the market with 14.5 years to maturity, a YTM
of 6.8 percent, and a current price of $924. The bonds make semiannual payments.
What must the coupon rate be on these bonds, assuming the par value of Ashes
Divide Corporation bonds is $1,000?

5. Bond X is a premium bond making annual payments. The bond pays an 8 percent
coupon, has a YTM of 6 percent, and has 13 years to maturity. Bond Y is a discount
bond making annual payments. This bond pays a 6 percent coupon, has a YTM of 8
percent, and also has 13 years to maturity. If interest rates remain unchanged, what
do you expect the price of these bonds to be one year from now? In three years? In
eight years? In 12 years? Assuming the par value of these bonds is $1,000.

6. Both Bond C and Bond D have 9 percent coupons, make semiannual payments, and
are priced at par value. Bond C has 3 years to maturity, whereas Bond D has 20 years
to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change
in the price of Bond C? Of Bond D? If rates were to suddenly fall by 2 percent instead,
what would the percentage change in the price of Bond C be then? Of Bond D?
Assuming the par value of both bonds is $1,000.