1. You purchase a Chrysler bond with a par value of $1,000 that carries a semi-annual coupon rate of 4%, has a 5-year maturity and sells at par.
a. What will be the bond’s price one year later if the YTM has decreased by 1%?
b. If you sell the bond at the price (a) above, what was is your HPR (Holding Period Return)? Round your answer to two (2) decimal places.
2. The Nickelodeon Manufacturing Corp. has a series of $1,000 par value bonds outstanding. Each bond pays interest (coupon payment) semi-annually and carries an annual coupon rate of 6%. Some bonds have a maturity date of 4 years and some have a maturity date of 10 years. If the YTM is 10%, what is the current price of: (12 points) Round your answers to two decimal points:
a. The bonds with 4 year maturity
b. The bonds with 10 year maturity
c. Are the bonds selling at a discount, at par, or at a premium? Briefly explain.
d. Which of the bonds has a higher selling price under the current market conditions? Briefly explain.