Question 1. Determine the value of a $1,000 denomination Bell South bond with a 7 percent coupon rate maturing in 20 years for an investor whose required rate of return is:
a. 8 percent
b. 7 percent
c. 5 percent
Question 2. Consider Allied Signal Corporation's 9 7/8 percent bonds that mature on June 1, 2010. Assume that the interest on these bonds is paid and compounded annually. Determine the value of a $1,000 denomination Allied Signal Corporation bond as of June 1, 2004, to an investor who holds the bond until maturity and whose required rate of return is:
a. 7 percent
b. 9 percent
c. 11 percent
d. What would be the value of the Allied Signal Corporation bonds at an 8 percent required rate of return if the interes were paid and compounded semiannually.
Question 3. Southern Bell has issued 4 3/8 percent bonds that mature on August 1, 2011. Assume that interest is paid and compounded annually. Determine the yield to maturity if an investor purchases a $1,000 denomination bond for $853.75 on August 1, 2004.
Question 4. Consider the Allied Signal Corporation zero coupon money multiplier notes for 2008. The bonds were issued on July 1, 1990, for $100. Interest is paid every July 1 and the bond matures on July 1, 2008. Determine the yield to maturity if the bonds are purchased at the:
a. Issue price in 1990
b. Market price as of July 1, 2004, of 750
c. Explain why the returns calculated in (a) and (b) are different
Question 5. If you purchase a zero coupon bond today for $225 and it matures at $1000 in 11 years, what rate of return will you earn on that bond (to the nearest 10th of 1 percent)?