Assignment: Interest Rates and Bond Valuation
• What is the annual yield of a 6-year, 6.4% semi-annual coupon-paying bond priced today at $1,190? Par is $1,000.
• What is the annual yield of a 9-year, 4.1% annual coupon-paying bond priced today at $1,088? Par is $1,000.
• Show the cash flows and prices for the following four bonds, each with a par value of $1,000 and paying interest semi-annually:
|
#
|
Coupon Rate
|
Years to Maturity
|
Market Yield
|
|
A
|
6.4%
|
8
|
4.5
|
|
B
|
3.7%
|
9
|
4.4
|
|
C
|
3.8%
|
9
|
4.6
|
|
D
|
0.0%
|
5
|
4.3
|
Which of the four bonds would you prefer to hold and why?
• Consider a semi-annual bond with an annual coupon=6.33%, maturity=10 years, par value = $1,000, and a market price today = $1,063:
o What is its yield to maturity (YTM)?
o Suppose the bond can be called at $950 attheend of year 8, what is its yield to call?
• You have two bonds with the following characteristics:
|
Characteristics
|
Bond A
|
Bond B
|
|
Coupon
|
4.4%
|
5.5%
|
|
Years to Maturity
|
7.5
|
5
|
|
Par Value
|
$1000
|
$1000
|
|
Price
|
$902.00
|
$911.00
|
o What are the bond durations?
o If rates rise to 4.5%, what are the new prices for each bond?
Format your assignment according to the give formatting requirements:
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