1. Suppose we have a coupon bond where the face value of the bond is $1,000 and the coupon rate is 8%. If the yield to maturity is 9.4%, is the price of the bond:
A. $1,000
B. > $1,000
C. < $1,000
2. What is the yield to maturity on a bond that has a price of $1,000 and pays $75 a year forever? 25%
3. What is the yield to maturity on a one-year discount bond with a face value of $5,000 for which we paid $4,950? 1%
4. What would the rate of return be on a bond bought for $950 and sold one year later for $1,000? The bond has a par value of $1,000 and a coupon rate of 8.8%.
5. What would the rate of return be on a bond bought for $950 and sold one year later for $850? The bond has a par value of $1,000 and a coupon rate of 8.8%
6. We have two bonds both have coupon rates of 10%, both have a face value of $1,000. The IBM bond has 10 years until maturity. The GE bond has 2 years until maturity. Which has greater interest rate risk?