Q1 TRUE For two otherwise identical coupon bonds, the one with the higher coup

Q2 FALSE For two otherwise identical coupon bonds, the one with the higher rating

Q3 TRUE To calculate the yield to maturity for semiannual coupon bonds, you nee

Q4 TRUE The government in the U.S. issues zero-coupon bonds up to one year ma
years. So, for example, a financial institution could first buy 200 30-year c
months. The institution could then sell the combined coupons totaling $1
30 years. This is a financial innovation that occurred decades ago in the f
government bonds. Given this information, analyze the following statem
that of a short-term STRIP." (True or False? Why?)

Q5 TRUE The prices of a bond with a higher fixed coupon rate will be less volatile t
ne with the higher coupon will have a higher price. (True or False? Why?)

ne with the higher rating will have a higher yield to maturity. (True or False? Why?)

coupon bonds, you need to double the semiannual yield to arrive at the annualized figure. (True or False? Why?)

bonds up to one year maturity, but STRIPS are "manufactured" zero-coupon bonds with maturities up to 30
ld first buy 200 30-year coupon bonds issued by the government that each pay $5 of coupon every six
ined coupons totaling $1,000 as a separate zero-coupon bond for each maturity ranging from 6 months up to
red decades ago in the face of volatile inflation and an increased demand for long-term zero coupon
yze the following statement: "The yield to maturity (YTM) of a long-term STRIP will typically be higher than
?)

rate will be less volatile than those of an otherwise identical bond with a lower fixed coupon rate. (True or False? Why?)
r False? Why?)

True or False? Why?)

 What is the yield to maturity (YTM) of a zero coupon bond with a face
value of $1,000, current price of $770 and maturity of 4 years? Recall th
the compounding interval is 6 months and the YTM, like all interest rate
is reported on an annualized basis. (Allow two decimals in the
1000 face percentage.) (Answer is 6.64%)
770 price
4 years
? YTM

0.03321 YTM six months

6.64% YTM annual
ro coupon bond with a face
maturity of 4 years? Recall that
the YTM, like all interest rates,
two decimals in the
 A pure discount (or zero-coupon) government bond is issued today that promises
years. If the current interest rate on similar bonds is 6%, what is the price of the b
10000 face compounding interval for bonds is 6 months. (Answer is $7440.94)
5 years
0.06 rate

7,440.94 ₽ Price of bond (pv calculation)

is issued today that promises to pay $10,000 in 5
6%, what is the price of the bond? Recall that the
r is $7440.94)
 Suppose Wolverine Steel Company wishes to issue a $100,00
to raise $81,110. The market requires a yield to maturity (YTM
borrowing/debt. How much coupon will the company have to
decimals to the closest integer, i.e., rounding $30.49 down to
$31.) (Answer is $3913.)

100000 face
81110 price
0.115 YTM
8 years
? coupon

3,913 ₽ Coupon payment (pmt calculation)

any wishes to issue a $100,000 bond with a maturity of 8 years
quires a yield to maturity (YTM) of 11.5% for this company's
upon will the company have to pay every six months? (Round of
i.e., rounding $30.49 down to $30 and rounding $30.50 up to
 Three years ago, you invested in a zero coupon bond with a face value o
of 11.0% and 5 years left until maturity. Today, that bond has a YTM of 6
emergency, you are forced to sell the bond. What is your capital gain/lo
the dollar gain/loss relative to the price of the bond when you bought it
compounding interval is 6 months and the YTM, like all interest rates, is
annualized basis. (Round of decimals to the closest integer, i.e., roundin
and rounding $30.50 up to $31.) (Answer is $294.)

1000 face 0.065 YTM new

0.11 YTM
5 duration gain/loss ?
2 years left

Price(old) 585.43 ₽ - pv calculation

Price(new) 879.91 ₽ - pv calculation
Gain/Loss 294 ₽
upon bond with a face value of $1,000 that had a YTM
oday, that bond has a YTM of 6.5%. Due to a financial
d. What is your capital gain/loss, which is defined as
the bond when you bought it? Recall that the
YTM, like all interest rates, is reported on an
e closest integer, i.e., rounding $30.49 down to $30
s $294.)
 Hard Spun Industries (HSI) has a project that it expect
To finance the project, the company needs to borrow
intermediate cash flows of $250,000 per year that HS
every six months. Based on the risk of this investment
wishes a maturity of 13 years (matching the arrival of
of the bond have to be? Recall that the compounding
rates, is reported on an annualized basis. (Round of de
down to $30 and rounding $30.50 up to $31.) (Answe

cash flow 3700000

maturity 13
price 2500000
coupon annual 250000
coupon six months 125000
required YTM 0.095
face ?

Face value $ 2,191,843.75

s (HSI) has a project that it expects will produce a cash flow of $3.7 million in 13 years.
ct, the company needs to borrow $2.5 million today. The project will also produce
ows of $250,000 per year that HSI can use to service coupon payments of $125,000
sed on the risk of this investment, market participants will require a 9.5% yield. If HSI
13 years (matching the arrival of the lump sum cash flow), what does the face value
be? Recall that the compounding interval is 6 months and the YTM, like all interest
an annualized basis. (Round of decimals to the closest integer, i.e., rounding $30.49
unding $30.50 up to $31.) (Answer is $2191844.)
 Five years ago, Highland, Inc. issued a corporate bond with an annual co
every six months, and a maturity of 14 years. The par (face) value of the
the company has run into some financial difficulty and has restructured
has already been paid, but the remaining coupon payments will be postp
payments will accrue interest at an annual rate of 6.5% per year and wil
maturity along with the face value. The discount rate on the renegotiate
has gone from 8.5% prior to the renegotiations to 12.5% per annum with
What is the price at which the new renegotiated bond should be selling
interval is 6 months and the YTM, like all interest rates, is reported on an
the closest integer, i.e., rounding $30.49 down to $30 and rounding $30

5500 annual $ 65,861.72 FV of all coupon payments

2750 6months $ 22,116.28 PV of coupon FV
14 years $ 335,798.77 PV of Face Value
1000000 face $ 357,915.06 Sum of PVs
0.065 interest on couon
0.085 YTM was
0.125 YTM now
9 years left
corporate bond with an annual coupon of $5,500, paid at the rate of $2,750
years. The par (face) value of the bond is $1,000,000. Recently, however,
ial difficulty and has restructured its obligations. Today's coupon payment
ng coupon payments will be postponed until maturity. The postponed
nual rate of 6.5% per year and will be paid as a lump sum amount at
e discount rate on the renegotiated bonds, now considered much riskier,
otiations to 12.5% per annum with the announcement of the restructuring.
negotiated bond should be selling today? Recall that the compounding
all interest rates, is reported on an annualized basis. (Round of decimals to
49 down to $30 and rounding $30.50 up to $31.) (Answer is $357915.)