1. Assume the following information for an existing bond that provides annual coupon payments: Par value = $1,000 Coupon rate = 11% Maturity = 4 years Required rate of return by investors = 11%
a. What is the present value of the bond?
b. If the required rate of return by investors were 14% instead of 11%, what would be the present value of the bond?
c. If the required rate of return by investors were 9%, what would be the present value of the bond?
2. Assume that you require a 14% return on a zero-coupon bond with a par value of $1,000, and six years to maturity. What is the price you should be willing to pay for this bond?
3. You are interested in buying a $1,000 par value bond with 10 years to maturity and an 8% coupon rate that is paid semiannually. How much more or less should you be willing to pay for the bond if the investor’s required rate of return is 10%?
4. A 20-year maturity bond with par value $1000 makes semiannual coupon payments at a coupon rate of 8%. Find the bond annual yield to maturity (YTM) of the bond if the bond price is: a. $950 b. $1000 c. $1,050.