Question 1. Assume that a bond will make payments every six months as shown on the following time-line (using six months periods):
0------1------2-------3---------------------20
$20 $20 $20 $20 + $1000
a) What is the maturity of the bond (in years)?
b) What is the coupon rate (in percent)?
c) What is the face value?
Question 2. Suppose the current zero-coupon yield curve for risk-free bonds is as follows:
Maturity (years) 1 2 3 4 5
YTM 5.00% 5.50% 5.75% 5.95% 6.05%
a) What is the price per $100 face value of a two-year, zero-coupon, risk-free bond?
b) What is the price per $100 face value of a four-year, zero-coupon, risk-free bond?
c) What is the risk-free interest rate for a five-year maturity?
Question 3. Suppose a seven-year, $1000 bond with an 8%coupon rate and semiannual coupons is trading with a yield to maturity of 6.75%
a) Is this bond currently trading at a discount, at par, or at a premium? Explain.
b) If the yield to maturity of the bond rises to 7% (APR with semiannual compounding), what price will the bond trade for?