1. Thirteen years ago a firm issued $1,000 par value bonds with a 5% annual coupon rate and a term to maturity of 20 years. Market interest rates have decreased since then and similar bonds today would carry an annual coupon rate of 4%. What would these bonds sell for today if they made (a) annual coupon payments; and (b) semiannual coupon payments?
If the annual coupon bond in #8 above is selling for $1,150, according to the approximate YTM formula, what is its annual YTM?
2. How does the precise YTM compare to the approximate YTM in #11?
A. There is insufficient information to answer this question.
B. It is equal to the approximate YTM.
C. It is below the approximate YTM.
D. It is above the approximate YTM.