11. Suppose a 10- year, $1000 bond with an 8% coupon rate and semiannual coupons is trading for a price of $1034.74

a. What is the bond’s yield to maturity (expressed as an APR with semiannual compounding)

b. If the bond’s yield to maturity changes to 9% what will the bond be?

15. Suppose a 7 year, $1000 bond with an 8% coupon rate and semi annual coupons is trading with a yield to maturity of 6.75%

a. is this bond currently trading at a discount, at par, or at a premium?

b. If the yield to maturity of the bond rises to 7% (APR with semiannual compounding) what price will the bond trade for?

25. Andrew Industries is contemplating issuing a 30 year bond with a coupon rate of 7% (annual coupon payment) and a face value of $1000. Andrew believes it can get a rating from A from Standard & Poor’s. However, due to recent financial difficulties at the company, Standard and poor’s is warning that it may downgrade Andrew Industries bonds to BBB. Yields on A-rated, long-term bonds are currently 6.5% and yields on BBB-rated 6.9 %.

a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue?

b. What will the price of the bond be if it is downgraded?

16. Suppose that GM issued a bond with 10 years until maturity, a face value of $1000 and a coupon rate of 7%(annual payments). The yield to maturity on this bond when it was issued was 6%.

a. aWhat was the price of the bond when issued?

b. b.Assuming the yield to maturity remains constant, what is the price of the bond immediately before it makes its first coupon

c. c.Assuming the yield to maturity remains constant, what is the price of the bond immediately after it makes its first coupon?

Subject | Mathematics |

Due By (Pacific Time) | 10/03/2012 12:00 pm |

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