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please complete Chapter 6 practice problems 6-5, 6-11, 6-17, 6-21, and 6-24.
Note: For problems 6-5, 6-17, and 6-24, face value is $1,000.
Be sure to include any explanation of your answer that will help your facilitator assess your understanding of the material in this chapter.
Chapter 6 Valuing bonds Problems
6-5 Bond pricing. A general Power bond carries a coupon rate of 8%, has 9 years until maturity, and sells at a yield maturity of 7%.(Assume annual interest payments.)
a. What interest payment do bond holders receive each year?
b.At what price does the bond sell?
c.What will happen to the bond price if the yield to maturity falls to 6%?
6-11. A 30-year maturity bond with face value of $1,000 makes semiannual coupon payments and has a coupon rate of 8%. What is the bond's yield to maturity if the bond is selling for :
a. $900?
b. $ 1,000?
c.$1,100 ?
6-17. A bond has 10 years until maturity , carries a coupon rate of 9%, and sells for $1,100. Interest is paid annually.
a. If the bond has a yield to maturity of 9% 1 year from now, what will its price be at that time?
b. what will be the rate of return on the bond?
c.Now assume that interest is paid semiannually. What will be the rate of return on the bond?
d. If the inflation rate during the year is 3%, what is the real rate of return on the bond?
6-21. A bond is issued with a coupon of 4% paid annually, a maturity of 30 years, and a yield to maturity of 7%.What rate of return will be earned by an investor who purchases the bond for $627.73 and holds it for 1 year if the bond's yield to maturity at the end of the year is 8%?
6-24. Suppose that you buy a TIPS (inflation-indexed) bond with a 2 year maturity and a coupon of 4% paid annually. If you buy the bond at its face value and the inflation rate is 8% in each year:
a. what will be your cash flow in 1 year ?
b. What will be your cash flow in 2 year ?
c. What will be your real rate of return over the two year period?