Brooks 3e IM 06

Problems
Bond Prices: Use the following table for problems 1 through 4.
Coupon Years to Yield to

Par Value Rate Maturity Maturity Price
$1,000.00 8% 10 6% ?
$1,000.00 6% 10 8% ?
$5,000.00 9% 20 7% ?
$5,000.00 12% 30 5% ?
1. Price the bonds from the above table with annual coupon payments.
ANSWER
Price = $1,000.00 × 1/(1.06)10 + $80.00 (1 – 1/(1.06)10)/ 0.06
Price = $1,000.00 × 0.5584 + $80.00 × 7.3601
Price = $558.39 + $588.81 = $1,147.20
Price = $1,000.00 × 1/(1.08)10 + $60.00 (1 – 1/(1.08)10)/ 0.08
Price = $1,000.00 × 0.4632 + $60.00 × 6.7101
Price = $463.19 + $402.60 = $865.80
Price = $5,000.00 × 1/(1.07)20 + $450.00 (1 – 1/(1.07)20)/ 0.07
Price = $5,000.00 × 0.2584 + $450.00 × 10.5940
Price = $1,292.10 + $4,767.30 = $6,059.40
Price = $5,000.00 × 1/(1.05)30 + $600.00 (1 – 1/(1.05)30)/ 0.05
Price = $5,000.00 × 0.2314 + $600.00 × 15.3725
Price = $1,156.89 + $9,223.47 = $10,380.36
2. Price the bonds from the above table with semiannual coupon payments.
ANSWER
Price = $1,000.00 × 1/(1.03)20 + $40.00 (1 – 1/(1.03)20)/ 0.03
Price = $1,000.00 × 0.5537 + $40.00 × 14.8775
Price = $553.67 + $595.10 = $1,148.77
Price = $1,000.00 × 1/(1.04)20 + $30.00 (1 – 1/(1.04)20)/ 0.04
Price = $1,000.00 × 0.4564 + $30.00 × 13.5903
Price = $456.39 + $407.71 = $864.10
Price = $5,000.00 × 1/(1.035)40 + $225.00 (1 – 1/(1.035)40)/ 0.035
Price = $5,000.00 × 0.2526 + $225.00 × 21.3551
Price = $1,262.86 + $4,804.90 = $6,067.75
146
©2016 Pearson Education Ltd
147Brooks Financial Management: Core Concepts, 3e
Price = $5,000.00 × 1/(1.025)60 + $300.00 (1 – 1/(1.025)60)/ 0.025

Price = $5,000.00 × 0.2273 + $300.00 × 30.9087
Price = $1,136.41 + $9,272.60 = $10,409.01
3. Price the bonds from the above table with quarterly coupon payments.
ANSWER
Price = $1,000.00 × 1/(1.015)40 + $20.00 (1 – 1/(1.015)40)/ 0.015
Price = $1,000.00 × 0.55126 + $20.00 × 29.92
Price = $551.26 + $598.32 = $1,149.58
Price = $1,000.00 × 1/(1.02)40 + $15.00 (1 – 1/(1.02)40)/ 0.02
Price = $1,000.00 × 0.45289 + $15.00 × 20.52
Price = $452.89 + $410.33 = $863.22
Price = $5,000.00 × 1/(1.0175)80 + $75.00 (1 – 1/(1.0175)80)/ 0.0175
Price = $5,000.00 × 0.2584 + $75.00 × 10.5940
Price = $1,292.10 + $3,178.20 = $4,464
Price = $5,000.00 × 1/(1.0125)120 + $150.00 (1 – 1/(1.0125)120)/ 0.0125
Price = $5,000.00 × 0.2314 + $150.00 × 15.3725
Price = $1,156.89 + $9,223.47 = $10,423.50
4. Price the bonds from the above table with monthly coupon payments.
ANSWER
Price = $1,000.00 × 1/(1.005)120 + $6.67 (1 – 1/(1.005)120)/ 0.005
Price = $1,000.00 × 0.54963 + $6.67 × 90.07
Price = $549.63 + $600.79 = $1,150.42
Price = $1,000.00 × 1/(1.0067)120 + $5.00 (1 – 1/(1.0067)120)/ 0.0067
Price = $1,000.00 × 0.4632 + $5.00 × 6.7101
Price = $463.19 + $402.60 = $860.13
Price = $5,000.00 × 1/(1.0058)240 + $37.50 (1 – 1/(1.0058)240)/ 0.0058
Price = $5,000.00 × 0.2476 + $37.50 × 128.98
Price = $1,238.01 + $4,836.84 = $6,074.85
Price = $5,000.00 × 1/(1.0042)360 + $50.00 (1 – 1/(1.0042)360)/ 0.0042
Price = $5,000.00 × 0.2314 + $50.00 × 15.3725
Price = $1,156.89 + $9,223.47 = 10,377.65
Yield-to-Maturity: Use the following table for problems 5 through 8.

Par Value Coupon Rate Years to Yield to Price
Maturity Maturity
$1,000.00 8% 10 ? $1000.00

Chapter 6  Bonds and Bond Valuation 148
$1,000.00 6% 10 ? $850.00
$5,000.00 9% 20 ? $5,400.00
$5,000.00 12% 30 ? $4,300.00
5. What is the yield of the above bonds if interest (coupon) is paid annually?
ANSWER
(TVM Keys) Set Calculator to P/Y = 1 and C/Y = 1
INPUT 10 ? -1000.00 80.00 1000.00
KEYS N I/Y PV PMT FV
CPT 8.0
INPUT 10 ? -850.00 60.00 1000.00
CPT 8.2619
INPUT 20 ? -5400.00 450.00 5000.00
CPT 8.1746
INPUT 30 ? -4300.00 600.00 5000.00
CPT 13.9991
6. What is the yield of the above bonds if interest (coupon) is paid semiannually?
ANSWER
INPUT 20 ? -1000.00 40.00 1000.00
CPT 8.0
INPUT 20 ? -850.00 30.00 1000.00
CPT 8.2300
INPUT 40 ? -5400.00 225.00 5000.00
©2016 Pearson Education Ltd.

CPT 8.1807
INPUT 60 ? -4300.00 300.00 5000.00
CPT 13.9936
7. What is the yield of the above bonds if interest (coupon) is paid quarterly?
ANSWER
INPUT 40 ? -1000.00 20.00 1000.00
CPT 8.0
INPUT 40 ? -850.00 15.00 1000.00
CPT 8.2140
INPUT 80 ? -5400.00 112.50 5000.00
CPT 8.1838
INPUT 120 ? -4300.00 150.00 5000.00
CPT 13.9909
8. What is the yield of the above bonds if interest (coupon) is paid monthly?
ANSWER
INPUT 120 ? -1000.00 6.67 1000.00
CPT 8.0
INPUT 120 ? -850.00 5.00 1000.00
CPT 8.2033
INPUT 240 ? -5400.00 37.50 5000.00

CPT 8.1859
INPUT 360 ? -4300.00 50.00 5000.00
CPT 13.9891
9. How long to maturity for the bonds listed below?

Coupon Years to Yield to Coupon
Rate Maturity Maturity
Par Value Price Frequency
$1,000.00 8% ? 8.7713% $950.00 Annual
$1,000.00 6% ? 7.7038% $850.00 Semi-Annual
$5,000.00 9% ? 8.1838% $5,400.00 Quarterly
$5,000.00 12% ? 16.0938% $4,300.00 Monthly
ANSWER:
INPUT ? 8.7713 -950.00 80.00 1000.00
CPT 9.9995
Approximately 10 years to maturity
INPUT ? 7.7038 -850.00 30.00 1000.00
CPT 30.0014
Approximately 30 six-month periods or 30/2 = 15 years to maturity
INPUT ? 8.1838 -5400.00112.50 5000.00
CPT 79.9969
Approximately 80 quarters or 80 / 4 = 20 years to maturity
INPUT ? 16.0938 -4300.0050.00 5000.00
CPT 60.0003
Approximately 60 months or 60 / 12 = 5 years to maturity
10. Coupon rates. What are the coupon rates for the bonds listed below?

Coupon Years to Yield to Coupon

Rate Maturity Maturity
Par Value Price Frequency
$1,000.00 ? 30 6.0% $1,412.94 Annual
$1,000.00 ? 25 10.0% $1,182.56 Semi-Annual
$1,000.00 ? 20 9.0% $907.63 Quarterly
$1,000.00 ? 10 8.0% $862.63 Monthly
ANSWER
INPUT 30 6.0 -1412.94 ? 1000.00
CPT 90.00
Coupon payments are $90.00 every year so coupon rate is:
$1,000 × rate = $90.00
rate = $90 / $1,000 = 0.09 or 9%
INPUT 50 10.0 -1,182.56 ? 1000.00
CPT 60.00
Coupon payments are $60.00 every six months so coupon rate is:
$1,000 × rate / 2 = $60.00
$1,000 × rate = $120.00
rate = $120 / $1,000 = 0.12 or 12%
INPUT 80 9.0 -907.63 ? 1000.00
CPT 20.00
Coupon payments are $20.00 every four months so coupon rate is:
$1,000 × rate / 4 = $20.00
$1,000 × rate = $80.00
rate = $80 / $1,000 = 0.08 or 8%
INPUT 120 8.0 -862.63 ? 1000.00
CPT 5.0000
Coupon payments are $5.00 every month so coupon rate is:
$1,000 × rate / 12 = $5.00
$1,000 × rate = $60.00
rate = $60 / $1,000 = 0.06 or 6%

11. Bond prices and maturity dates. Moore Company is about to issue a bond with semi-
annual coupon payments, a coupon rate of 8%, and par value of $1,000. The yield-to-
maturity for this bond is 10%.
a. What is the price of the bond if the bond matures in five, ten, fifteen, or
twentyyears?
b. What do you notice about the price of the bond in relationship to thematurity of
the bond?
ANSWER (A)
At five years to maturity
Price = $1,000.00 × 1/(1.05)10 + $40.00 (1 – 1/(1.05)10)/ 0.05
Price = $1,000.00 × 0.6139 + $40.00 × 7.7217
Price = $613.91 + $308.87 = $922.78
INPUT 10 10.0 ? 40.00 1000.00
CPT -922.78
At ten years to maturity
Price = $1,000.00 × 1/(1.05)20 + $40.00 (1 – 1/(1.05)20)/ 0.05
Price = $1,000.00 × 0.3769 + $40.00 × 12.4622
Price = $376.89 + $498.49 = $875.38
INPUT 20 10.0 ? 40.00 1000.00
CPT -875.38
At fifteen years to maturity
Price = $1,000.00 × 1/(1.05)30 + $40.00 (1 – 1/(1.05)30)/ 0.05
Price = $1,000.00 × 0.2314 + $40.00 × 15.3725
Price = $231.38 + $614.90 = $846.28
INPUT 30 10.0 ? 40.00 1000.00
CPT -846.28
At twenty years to maturity
Price = $1,000.00 × 1/(1.05)40 + $40.00 (1 – 1/(1.05)40)/ 0.05
Price = $1,000.00 × 0.1420 + $40.00 × 17.1591
Price = $142.05 + $686.36 = $828.41
INPUT 40 10.0 ? 40.00 1000.00
CPT -828.41

ANSWER (B)
The longer the maturity of a bond selling at a discount, all else held constant, the lower
the price of the bond!
12. Bond Prices and Maturity Dates. Les Company is about to issue a bond with
semiannual coupon payments, a coupon rate of 10%, and par value of $1,000. The
yield-to-maturity for this bond is 8%.
a. What is the price of the bond if the bond matures in five, ten, fifteen, or
twentyyears?
b. What do you notice about the price of the bond in relationship to the maturity of
the bond?
ANSWER (A)
At five years to maturity
Price = $1,000.00 × 1/(1.04)10 + $50.00 (1 – 1/(1.04)10)/ 0.04
Price = $1,000.00 × 0.6756 + $50.00 × 8.1109
Price = $675.56 + $405.55 = $1,081.11
INPUT 10 8.0 ? 50.00 1000.00
CPT -1,081.11
At ten years to maturity
Price = $1,000.00 × 1/(1.04)20 + $50.00 (1 – 1/(1.04)20)/ 0.04
Price = $1,000.00 × 0.4564 + $50.00 × 13.5903
Price = $456.39 + $679.51 = $1,135.90
INPUT 20 8.0 ? 50.00 1000.00
CPT -1,135.90
At fifteen years to maturity
Price = $1,000.00 × 1/(1.04)30 + $50.00 (1 – 1/(1.04)30)/ 0.04
Price = $1,000.00 × 0.3083 + $50.00 × 17.2920
Price = $308.32 + $864.60 = $1,172.92
INPUT 30 8.0 ? 50.00 1000.00
CPT -1,172.92
At twenty years to maturity
Price = $1,000.00 × 1/(1.04)40 + $50.00 (1 – 1/(1.04)40)/ 0.04
Price = $1,000.00 × 0.2083 + $50.00 × 19.7928
Price = $208.29 + $989.64 = $1,197.93
INPUT 40 8.0 ? 50.00 1000.00

CPT -1,197.93
ANSWER (B)
The longer the maturity of a bond selling for a premium, all else held constant, the higher
the price of the bond!
13. Zero-coupon bond. Addison Company will issue a zero coupon bond this coming
month. The projected yield for the bond is 7%. If the par value of the bond is $1,000,
what is the price of the bond using a semiannual convention if
a. The maturity is 20 years?
b. The maturity is 30 years?
c. The maturity is 50 years?
d. The maturity is 100 years?
ANSWER (A)
Price = $1,000 × 1 / (1.035)40 = $1,000 × 0.2526 = $252.57
ANSWER (B)
Price = $1,000 × 1 / (1.035)60 = $1,000 × 0.1269 = $126.93
ANSWER (C)
Price = $1,000 × 1 / (1.035)100 = $1,000 × 0.0321 = $32.06
ANSWER (D)
Price = $1,000 × 1 / (1.035)200 = $1,000 × 0.0010= $1.03
14. Zero-coupon bond. Wesley Company will issue a zero-coupon bond this coming
month. The projected yield for the bond is 5%. If the par value of the bond is $1,000,
what is the price of the bond using a semiannual convention if
a. The maturity is 20 years?
b. The maturity is 30 years?
c. The maturity is 50 years?
d. The maturity is 100 years?
ANSWER (A)
Price = $1,000 × 1 / (1.025)40 = $1,000 × 0.3724 = $372.43
ANSWER (B)
Price = $1,000 × 1 / (1.025)60 = $1,000 × 0.2273 = $227.28

ANSWER (C)
Price = $1,000 × 1 / (1.025)100 = $1,000 × 0.0846 = $84.65
ANSWER (D)
Price = $1,000 × 1 / (1.025)200 = $1,000 × 0.0072= $7.17
15. Zero-coupon bond. What is the annual implied interest of a five-year zero-coupon
bond (using the semiannual pricing convention) with a current yield of 12% and a par
value of $1,000.00?
ANSWER
Step One is to find the price of the zero coupon bond:
Price = $1,000 × 1 / (1.06)10 = $1,000 × 0.5584= $558.39
Interest each year is the change in price which is the capitalized interest of thebond.
Note on a semi-annual bond there are two interest payments per year and “two” prices to
figure each year.
Amortization of Zero-Coupon Bond
Period Beginning Beginning Balance × 0.06=
(six-months) Balance Interest Ending Balance
1 $558.39 $558.39 × 0.06 = $33.51 $591.90
2 $591.90 $591.90 × 0.06 = $35.51 $627.41
3 $627.41 $627.41 × 0.06 = $37.65 $665.06
4 $665.06 $665.06 × 0.06 = $39.90 $704.96
5 $704.96 $704.96 × 0.06 = $42.30 $747.26
6 $747.26 $747.26 × 0.06 = $44.83 $792.09
7 $792.09 $792.09 × 0.06 = $47.53 $839.62
8 $839.62 $839.62 × 0.06 = $50.38 $890.00
9 $890.00 $890.00 × 0.06 = $53.40 $943.40
10 $943.40 $943.40 × 0.06 = $56.60 $1,000.00
The first year’s interest is: $33.51 + $35.51 or ($627.41 –$558.39) = $69.02
The second year’s interest is: $37.65 + $39.90 or ($704.96 –$627.41) = $77.55
The third year’s interest is: $42.30 + $44.83 or ($792.09 -$704.96) = $87.13
The fourth year’s interest is: $47.53 + $50.38 or ($890.00 – $792.09) = $97.91
The fifth year’s interest is: $53.40 + $56.60 or ($1,000 – $890.00) = $110.00
Total interest is $1,000 – $558.39 = $441.61

16. Callable bond.Corso Books has just sold a callable bond. The bond is a thirty year
semi-annual bond with a coupon rate of 6%. Investors, however, can call the bond
starting at the end of ten years. If the yield-to-call on this bond is 8% and the call
requires Corso Books to pay one year of additional interest at the call (two coupon
payments), what is the price of this bond if priced with the assumption that it will be
called on the first available call date?
ANSWER
Determine the cash flows until the call date.
The coupons are 0.06 × $1,000 / 2 = $30.00
Final payment is the par value plus one year of interest or two couponpayments:Par
Value + extra interest = $1,000 + 2 × $30.00 = $1,060
If the yield to call is 8.0% (4.0% semi-annual rate) and the call is ten yearsaway (20
semi-annual periods) the price is:
INPUT 20 8.0 ? 30.00 1060.00
CPT -891.48
17. Callable bond. McCarty Manufacturing Company makes baseball equipment. The
company decides to issue a callable bondthat it expects to sell for $840 per bond. If
the bond is a twenty-year semiannual bond with a 6% coupon rate and a current yield
to maturity of 7%, what is the cost of the option attached to the bond? (Assume $1000
par value). Hint: find the price of an equivalent bond without the call option.
ANSWER
First determine the price of the bond without the option attached.
INPUT 40 7.0 ? 30.00 1000.00
CPT -893.22
Subtract the cost of the callable bond from the straight bond to get the price of the call
option.
Call Option = $893.22 – $840.00 = $53.22
18. Missing information on a bond. Your broker faxed you the following information on
two semiannual coupon bonds that you are considering as a potential investment.
Unfortunately, your fax machine is blurring some of the items and all you can read
from the fax on the two different bonds is the following information:

IBM Coupon Bond AOL Coupon Bond

Face Value (Par) $1,000 $1,000
Coupon Rate 9.5%
Yield to Maturity 7.5% 9.5%
Years to Maturity 10 20
Price $689.15
Fill in the missing data from the information sent by the broker.
ANSWER
IBM’s Variables
n = 10 × 2 = 20
R = 0.075 / 2 = 0.0375
Coupon = $1000 × 0.095 / 2 = $47.50
Par value = $1000
IBM’s Price =
IBM’s Price = $1000 × 0.4789 + $47.50 × 13.8962 = $1,138.96
AOL’s Coupon Rate? This will be a little more difficult, but we can solve first for the
coupon and then backtrack to the coupon rate.
AOL’sVariables:
n = 20 × 2 = 40
r = 0.095 / 2 = 0.0475
Par Value = $1000
Price = $689.15
$689.15 =
Now we need to isolate the coupon amount on the left-hand side of the equation and we
have:
Coupon = $689.15 –

Coupon × (17.7630) = $689.15 – $1000 × 0.15626 = $532.89

Coupon = $532.89 / 17.7630 = $30.00
So if the coupon is $30.00 every six months, the annual interest is $60.00 (2 × $30) and
the coupon rate is the annual interest divided by the par value:
Coupon rate = $60.00 / $1000 = 0.06 or 6%
Treasury notes and bonds. For Questions 19 through 23 use the following
information:
Today is February 15, 2008
Coupon Current
Type IssueDate Price Rate MaturityDate YTM Yield Rating
Note Feb 2000 --- 6.50% 2-15-2010 3.952% 6.199% AAA
Bond Aug 2005 100.00 4.25% 8-15-2018 --- 4.250% AAA
Bond Aug 2003 --- 7.25% 8-15-2023 4.830% 5.745% AAA
Bond Feb 1995 126.19 8.50% 2-15-2015 --- 6.736% AAA
19. What is the price in dollars of the February 2000 Treasury note if its par value is
$100,000? Verify the current yield of this note.
ANSWER
INPUT 4 3.952 ? 3250 100000
CPT -104,853.88
Current Yield is:
$6500 / $104,853.88 = 6.199%
20. What is the yield to maturity of the August 2005 Treasury bond? Compare the yield
to maturity and the current yield. How do you explain this relationship?
ANSWER
INPUT 21 ? 100000 2125 100000
CPT 4.25
Current Yield is: 4.25% = YTM
If a note (or bond) sells for its par value then the current yield is equal to theyield-to-
maturity.

21. What is the price of the August 2003 Treasury bond (assume a $100,000 par value)
with the yieldtomaturity from the table? Verify the current yield. Why is the current
yield higher than the yieldtomaturity?
ANSWER
INPUT 31 4.830 ? 3625 100000
CPT -126,192.53
Current Yield is: $7250 / $126,192.53 = 5.745%
The current yield is higher than the YTM since the bond is selling at apremium. The
lower the price of a bond, the higher its yield to maturity. If thebond sells below its par
value it yield to maturity would be higher than itscurrent yield and vice-versa.
22. What is the yieldtomaturity of the February 1995 Treasury bond based on the price
from the table? Verify the current yield. Why is the current yield higher than the
yield-to-maturity?
ANSWER
INPUT 14 ? -126190 4250 100000
CPT 4.150
Current Yield is:
$8,500 / $126,190.00 = 6.736%
If a note (or bond) sells for its par value then the current yield is equal to the yield-to-
maturity. This bond is selling at a premium so its yield-to-maturity is lower than its
current yield.
23. What pattern do you see in the yield-to-maturity of these Treasury notes and bonds?
ANSWER
The yieldtomaturity of these Treasury notes and bonds increases as maturity increases
implying that they are positively related.

Treasury bills. Use the information in the following table for Questions 24 through
28. Note: The face value of the Treasury bill is assumed to be $10,000.
Maturity Days toMaturity Bank Discount
Mar 30 28 1.20
Apr 30 59 2.00
Jun 30 120 2.45
Aug 30 181 ?
24. What is the price for the March 30 Treasury bill?
ANSWER
  28  
Price  $10,000  1 - 0.0120    $9,990.67
  360  
Or
Discount = Face Value × Discount Rate × (Days to Maturity / 360)
Discount = $10,000 × 0.0120 × (28/360) = $9.33
Price = $10,000 – $9.33 = $9,990.67
25. What is the price for the April 30 Treasury bill?
ANSWER
  59  
Price  $10,000  1 - 0.0200    $9,967.22
  360  
Or
Discount = $10,000 × 0.0200 × (59/360) = $32.78
Price = $10,000 – $32.78 = $9,967.22
26. What is the price for the June 30 Treasury bill?
ANSWER
  120  
Price  $10,000  1 - 0.0245    $9,918.33
  360  
Or

Discount = $10,000 × 0.0245 × (120/360) = $81.67

Price = $10,000 – $81.67 = $9,918.33
27. Determine the bank discount rate of the August 30Treasury billif it is currently selling
for $9,841.625. What is the bond equivalent yield?
ANSWER
Using the formula for pricing a T-bill we get:
  181  
$9,841.625  $10,000  1 - discount  
  360  
Or
Discount Rate = Discount / Face Value × (360 /Days to Maturity)
Discount = $10,000 – $9,841.625 = $158.375
Discount Rate = $158.375 / $10,000 × (360/181) = 0.0315 or 3.15%
Bond Equivalent Yield is:
365  0.0315
BEY   0.03245145
360  181 0.0351
≈ 3.245%
To calculate the Effective Annual Rate we first compute the HPR:
Then we find the annual compounded rate of return:

EAR = (1+ 0.0016092363)365/181 – 1 = 0.032716911 or ≈ 3.27%.
Thus, the bank discount yield is 3.15%, BEY is 3.245% and EAR is 3.27%
28. What are the bond equivalent yields of the March 30, April 30, and June 30 T-Bills?
ANSWER
Bond Equivalent Yield for the March 30 T-Bill is:
365  0.0120
BEY   0.012178
360  28  0.0120
≈ 1.22%
Bond Equivalent Yield for the Apr 30 T-Bill is:
365  0.020
BEY   0.020344462
360  59  0.020

≈ 2.03%
Bond Equivalent Yield for the Jun 30 T-Bill is:
365  0.0245
BEY   0.02504481
360  120  0.0245
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Brooks 3e IM 06

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Brooks 3e IM 06

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Problems

Bond Prices: Use the following table for problems 1 through 4.

Coupon Years to Yield to

Price = $5,000.00 × 1/(1.025)60 + $300.00 (1 – 1/(1.025)60)/ 0.025

Yield-to-Maturity: Use the following table for problems 5 through 8.

©2016 Pearson Education Ltd

©2016 Pearson Education Ltd.

©2016 Pearson Education Ltd

9. How long to maturity for the bonds listed below?

©2016 Pearson Education Ltd.

Coupon Years to Yield to Coupon

©2016 Pearson Education Ltd

©2016 Pearson Education Ltd.

INPUT 40 8.0 ? 50.00 1000.00

©2016 Pearson Education Ltd.

©2016 Pearson Education Ltd

©2016 Pearson Education Ltd.

IBM Coupon Bond AOL Coupon Bond

©2016 Pearson Education Ltd

Coupon × (17.7630) = $689.15 – $1000 × 0.15626 = $532.89

©2016 Pearson Education Ltd.

©2016 Pearson Education Ltd

24. What is the price for the March 30 Treasury bill?

25. What is the price for the April 30 Treasury bill?

26. What is the price for the June 30 Treasury bill?

©2016 Pearson Education Ltd.

Discount = $10,000 × 0.0245 × (120/360) = $81.67

Then we find the annual compounded rate of return:

©2016 Pearson Education Ltd

©2016 Pearson Education Ltd.

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