Reference no: EM133072803

1. Consider a bond with $1,000 face value and 30 years left to maturity that pays an annual coupon of $40. Calculate the coupon rate, market value, and current yield under three scenarios: (a) Suppose the yield for similar bonds is 3%. (b) Suppose the yield for similar bonds is 4%. (c) Suppose the yield for similar bonds is 5%.

2. Consider a bond with $1,000 face value and 30 years left to maturity that pays a semiannual coupon of $20. Calculate the coupon rate, market value, and current yield under three scenarios: (a) Suppose the yield for similar bonds is 3%. (b) Suppose the yield for similar bonds is 4%. (c) Suppose the yield for similar bonds is 5%.

3. Reflection. When the yield changes, how does the coupon rate, market value, and current yield change? When compounding changes from annual to semiannual, what happens to the market value (hint: it does change, but it's not always visible due to rounding)?

4. Using a financial calculator (or spreadsheet), calculate the yield of the following bond: Market value $1,036.05 Face value $1,000 Coupon 3.25% Maturity date Feb. 23, 2026 Next coupon date Feb. 22, 2022 No. of payments per year 2 Hint: yields are quoted on an annual basis