Download Chapter 11 Problem 2 (Page 309) If an investor is in a 30 percent

Chapter 11 Problem 2 (Page 309)
If an investor is in a 30 percent marginal tax bracket and can purchase a straight (non municipal bond) at
8.37 percent and a municipal bond at 6.12 percent, which should he or she choose?
Chapter 11 Problem 6 (Page 309)
Assume a $1,000 Treasury bill is quoted to pay 5 percent interest over a six-month period.



a. How much interest would the investor receive?
b. What will be the price of the Treasury bill?
c. What will be the effective yield?
Chapter 11 Problem 8 (Page 309)
The price of a Treasury strip note or bond can be found using AppendixC toward the back of the text. It
is simply the present value factor from the table times the maturity (par) value of the Treasury strip.
Assume you are considering a $10,000 par value Treasury strip that matures in 25 years. The discount
rate is 7 percent. What is the price (present value) of the investment?
Chapter 12 Problem 2 (Page 333)
Given a 15-year bond that sold for $1,000 with a 9 percent coupon rate, what would be the price of the
bond if interest rates in the marketplace on similar bonds are now 12 percent? Interest is paid
semiannually. Assume a 15-year time period.
Chapter 12 Problem 6 (Page 333)
What is the current yield of an 8 percent coupon rate bond priced at $877.60?
Chapter 12 Problem 7 (Page 333)
What is the yield to maturity for the data in problem 6 ? Assume there are 10 years left to maturity. It is
a $1,000 par value bond. Use the trial-and-error approach with annual analysis. [Hint: Because the bond
is trading for less than par value, you can assume the interest rate (i) for which you are solving is greater
than the coupon rate of 8 percent.]
Chapter 12 Problem 16 (Page 334)
The following pattern for one-year Treasury bills is expected over the next four years:
Year1- 5%
Year2- 7%
Year3- 10%
Year4- 11%




What return would be necessary to induce an investor to buy a two-year security?
What return would be necessary to induce an investor to buy a three-year security?
What return would be necessary to induce an investor to buy a four-year security?
Diagram the term structure of interest rates for years 1 through 4.
Chapter 18 Problem 5 (Page 490)
You are considering the purchase of two $1,000 bonds. Your expectation is that interest rates will drop,
and you want to buy the bond that provides the maximum capital gains potential. The first bond has a
coupon rate of 6 percent with four years to maturity, while the second has a coupon rate of 14 percent
and comes due six years from now. The market rate of interest (discount rate) is 8 percent. Which bond
has the best price movement potential? Use duration to answer the question.