1. You have a ten year bond that you purchased for $1000, it has a face value of $1000 and a coupon rate of 10% a. What is the yield to maturity? b. Is it selling for face value or at a discount or at a premium? 2. One year later you want to sell the bond in number 1. The market yield for that type of bond is now 13%. a. What will happen to the price of that bond? Will it go up or down? b. Is it selling for face value or at a discount or at a premium? 3. What is a zero coupon bond? Explain how investors get their return 4. What is difference between Muni Bonds and Corporate Bonds? 5. What is a general obligation bond? A revenue bond? 6. There is a bond that pays a 12% coupon, has three years left to maturity, a face value of $1,000 and market yields are 10%. What is the price this bond should sell for? What is the current yield? 7. A two year bond that yields 10% has a coupon rate of 10% a. What is the price this bond will sell for? (Hint you do not need to do any math here) b. What is the dollar value of the coupon that is paid? c. What is the price it should pay for if the market yields now drop to 8%?
1. You have a ten year bond that you purchased for $1000, it has a face value of $1000 and a coupon rate of 10% a. What is the yield to maturity? b. Is it selling for face value or at a discount or at a premium? 2. One year later you want to sell the bond in number 1. The market yield for that type of bond is now 13%. a. What will happen to the price of that bond? Will it go up or down? b. Is it selling for face value or at a discount or at a premium? 3. What is a zero coupon bond? Explain how investors get their return 4. What is difference between Muni Bonds and Corporate Bonds? 5. What is a general obligation bond? A revenue bond? 6. There is a bond that pays a 12% coupon, has three years left to maturity, a face value of $1,000 and market yields are 10%. What is the price this bond should sell for? What is the current yield? 7. A two year bond that yields 10% has a coupon rate of 10% a. What is the price this bond will sell for? (Hint you do not need to do any math here) b. What is the dollar value of the coupon that is paid? c. What is the price it should pay for if the market yields now drop to 8%?
Related questions
Arthur plans to invest 10,000 dollars in a ten-year bond of a technology company: Face Tech. Inc. The bond offers an 8 percent annual coupon and a yield to maturity of 10 percent. He plans to sell the bond in 4 years and invest the proceeds in a 3-year default-free zero coupon bond and cash. All bonds have a face value of $1000 per unit. The yield curve for the default free zero coupon bonds is provided in the following table:
| Default free zero coupon bond with face value of $1000 | Yield to Maturity |
| 1-year Bond | 7% |
| 2-year Bond | 8% |
| 3-year Bond | 9% |
| 4-year Bond | 10% |
| 5-year Bond | 12% |
| 6-year Bond | 13% |
| 7-year Bond | 14% |
| 8-year Bond | 15% |
(a) If Arthur can invest the coupons at an annual rate of 7 percent, and 4 years later, this coupon bond of Face Tech. Inc. can sell at a yield to maturity of 8.5%, what is his annualized holding period return on this bond?
(b) After Arthur collected his proceeds from his investments in Face Tech. Inc. 4 years later, he will use the money to purchase 8 units of a 3-year default-free zero coupon bond and put the rest in cash. What are the percentage weights in the 3-year default-free zero coupon bond and cash (out of Arthur's total proceeds), respectively? Assume that the yield curve on zero coupon bonds stays the same and you can ignore the liquidity premium.
