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1. UM bonds pay an annual coupon rate of 10%. They have 8 years before maturity.

The maturity value is $1,000. The yield to maturity (market interest rate) on

this class of bonds is 10%. Determine the price of these bonds. [$1,000]

2. What is the value of a government bond that pays semiannual payments of $50

(coupon rate of 10%) and has a maturity value of $1,000 if the annual market

interest rate is 12% and the bond has 20 years until maturity? [$ 849.53]

3 The Banzai Auto Company has experienced a market re-evaluation lately due to a

number of lawsuits. The firm has a bond issue outstanding with 15 years to

maturity and a coupon rate of 8% (paid semiannually). The required rate has now

risen to 12.25%. At what price can these securities be purchased on the market?

[$ 711.37]

4. Liddy Corporation has bonds that pay an annual coupon rate of 8% and a maturity value of $1,000. The yield on comparable new bonds is 9.5%. The bonds have 7 years

before they mature. Determine the value of one of Liddy's bonds. [$925.76]

5. Hamblin Inc. has bonds that pay a coupon rate of 11% and a maturity value of

$1,000. The yield in the market for this risk class of bonds is 10.5 %. The bonds

have 18 years before maturity. How much would one Hamblin bond be worth in

the market? [$1,039.73]

6. Adeline Corporation just issued a zero coupon bond with a life of 15 years. The

face value of these bonds is $100,000 and the market rate is 9.6%. What would

be the price of these bonds? {25,283.76]

7. You are the owner of 100 bonds issued by Georgia Corporation. These bonds have

8 years remaining to maturity, an annual coupon payment of $80, and a par value of

$1,000. Unfortunately, Georgia Corp. is on the brink of bankruptcy, and the

creditors, including yourself, have agreed to a postponement of the next 4

interest payments. The remaining interest payments will be made as scheduled.

The postponed payments will accrue interest at an annual rate of 6% and will be

paid as a lump sum at maturity 8 years hence. The required rate of return on

these bonds, considering their substantial risk, is now 28%. What is the present

value of each bond? [$266.88]

8. A major auto manufacturer has experienced a market re-evaluation lately due to a

number of lawsuits. The firm has a bond issue outstanding with 15 years to

maturity and a coupon rate of 8% (paid semiannually). The required rate has now

risen to 16%. At what price can these securities be purchased on the market?

[$549.69]

9. What is the value today of a “mortgage bond” that pays monthly coupons of $500, has a face/maturity value of $100,000, and matures in 30 years if the appropriate market rate is 7.20% for these bonds? [73660.68 + 11607.19 = 85267.87]

10. Suppose the bond in number 9 just paid its 10th coupon (i.e., it has 350 payments left). What is the price if market rates have risen to 8.86%? [62561.26 + 7617.87 = 70179.13]

11. You are the bond trader that bought 1 million of the bonds in problem 9 10 months ago and sold them today (after 10 months) due to a liquidity crisis. What is your annualized return for this transaction? (Hint, get the return first, then annualize).

[-20.84%]

12. You notice that a bond rises in price from $1000 to $1064.18 when rates go from 10% to 9%. What is the duration of this bond? [7.06]

13. A bond has a duration of 4.2 years. If interest rates fall by 50 basis points from an initial rate of 8.2 percent, what is the expected return on the bond? [+1.94%]

14. Calculate the duration of a bond paying a 7% annual coupon with a market rate of interest of 9%, $1000 face value, and a maturity of three years. [2.80 years]

15. Calculate the duration of a bond paying a 8% annual coupon with a market rate of interest of 9%, $1000 face value, and a maturity of three years. [2.78 years]

16. Calculate the duration of a bond paying a 9% annual coupon with a market rate of interest of 9%, $1000 face value, and a maturity of four years. [3.53 years]

17. Calculate the duration of a bond paying a 7% annual coupon with a market rate of interest of 10%, $1000 face value, and a maturity of three years. [2.80 years]

18. Calculate the duration of a bond paying a 7% annual coupon with a market rate of interest of 12%, $1000 face value, and a maturity of four years. [3.59 years]

19. Calculate the duration of a bond paying a 8% semi-annual coupon with a market rate of interest of 10%, $1000 face value, and a maturity of two years. [1.885 or 1.89 years]

20. Calculate the duration of a bond paying a 8.40% semi-annual coupon with a market rate of interest of 6.6%, $1000 face value, and a maturity of two-and-one half years. [2.31 years]

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