1. Consider a 30 year bond with a face value of $1000 that has a coupon rate of 5.5%, with semiannual payments. What is the coupon payment for this bond?
2. Assume that a bond will make payments every six months as shown on the following timeline (using six-month periods):
a. What is the maturity of the bond (in years)?
b. What is the coupon rate (as a percentage)? c. What is the face value?
3. Suppose a ten-year, $1000 bond with an 8.4% coupon rate and semiannual coupons is trading for $1,034.73.
a. What is the bonds yield to maturity (expressed as an APR with semiannual compounding)?
b. If the bond’s yield to maturity changes to 9.7% APR, what will be the bond’s price?
4. Suppose a seven-year, $1000 bond with a 7.5% coupon rate and semiannual coupons is trading with a yield to maturity of 6.41%.
a. Is the bond currently trading at a discount, at par, or at a premium? Explain.
b. If the yield to maturity of the bond rises to 7.02% (APR with semiannual compounding), what price will the bond trade for?
5. HMK Enterprises would like to raise $10 million to invest in capital expenditures. The company plans to issue five-year bonds with a face value of $1000 and a coupon rate of 6.58% (annual payments). The following table summarizes the yield to maturity for five-year (annual-payment) coupon corporate bonds of various ratings:
Rating AAA AA A BBB BB
YTM 6.13% 6.36% 6.58% 6.91% 7.57%
a. Assuming the bonds will be rated AA, what will be the price of the bonds?
b. What must be the rating of the bonds for them to sell at par?
c. Suppose that when the bonds are issued, the price of each bond is $960.02. What is the likely rating of the bonds? Are they junk bonds?