Maximum price you should be willing to pay for the bond

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Reference no: EM131999458

1. Assume that you are considering the purchase of a 20-year, noncallable bond with an annual coupon rate of 9.5%. The bond has a face value of $1,000, and it makes semiannual interest payments. If you require an 10.7% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

a. $721.44 b. $901.80 c. $910.81 d. $874.74 e. $1,000.99

2. Which of the following statements is CORRECT?

a. A zero coupon bond's current yield is equal to its yield to maturity.

b. If a bond’s yield to maturity exceeds its coupon rate, the bond will sell at par.

c. All else equal, if a bond’s yield to maturity increases, its price will fall.

d. All else equal, if a bond’s yield to maturity increases, its current yield will fall.

e. If a bond’s yield to maturity exceeds its coupon rate, the bond will sell at a premium over par

3. Interest rate swap: Consider a $30 million notional principal interest rate swap. The fixed interest rate is 7%, paid quarterly on the basis of 90 days in a quarter and 360 days in a year. The first floating interest rate payment is set at 7.2%. Calculate the first net payment.

A. $15,000

B. $20,000

C. $540,000

D. $525,000

Reference no: EM131999458

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