What is the most you should pay for the bond

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Assignment

Answer the following time value of money questions below. Charting out each of the problem elements (ex. N = 10, PV = 500, etc.) will not only help you in answering the questions but will also assist me in following your calculations.

I. Calculate the value of a bond with a coupon rate of 7.5% and market interest rate of 9% that matures in 12 years.

II. What is the value of the bond in question I if the market interest rate decreases to 6.5%? What would you call this kind of bond?

III. What is the value of the bond in question I if the market interest rate increases to 11%? What would you call this kind of bond?

IV. You just purchased an outstanding 20-year bond with a par value of $1,000 for $1,095. Its annual coupon is $60. Calculate the bond's yield to maturity.

V. You just purchased an outstanding 20-year bond with a par value of $1,000 for $1,095. Its annual coupon payment is $60. What is the yield to call if the bond is callable in 5 years at a price of $1,060?

VI. You have been offered the opportunity to purchase a non-callable bond with a $100 annual coupon at a market rate of 7% that matures in 15 years. What is the most you should pay for this bond?

VII. What is the current price of a bond with an 8% semiannual coupon at a market rate of 6% that matures in 10 years?

VIII. What is the yield to maturity of a bond with a 7% semiannual coupon, a current price of $1,200, that matures in 15 years?

IX. Last year you purchased a bond with a 6% semiannual coupon with a market rate of 8% that matures in 20 years. Today, 1 year later, the market rate has increased to 10%. What is the percentage change in bond value from last year to today?

X. Two years ago, you purchased a bond with a 6% semiannual coupon with a market rate of 8% that matures in 20 years. Today, the market rate has decreased to 6.5%. What is the percentage change in bond value from two years ago to today?

Reference no: EM133664888

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