Download For some questions there are correct answers are in parentheses. A

Rahoituksen perusteet 2006.
[email protected]
Harjoitus 4.
For some questions there are correct answers are in parentheses.
1. A General Motors bond carries a coupon rate of 8 percent (paid
annually), has 9 years until maturity, and sells at a yield to maturity of 9
percent. The face value of the bond is 1000.
a. What interest payments do bondholders receive each year? (80)
b. At what price does the bond sell? (940.05)
c. What will happen to the bond price if the yield to maturity falls to 7
percent? (1 065.15)
2. Fill in the table below for the following zero-coupon bonds. The face
value of each bond is $1.000.
Price Maturity (Years)
Yield to Maturity
$300
30
____(4.095 %)
$300
__(15.64) 8 %
$___(385.14) 10
10 %
3. You buy an 8 % coupon, 10-year maturity bond for 980 euros. A year
later, the bond price is 1.050 euros.
a. What is the new yield to maturity on the bond? (7.23 %)
b. What is your rate of return over the year? (15.31 %)
4. A bond's credit rating provides a guide to its risk. Long-term bonds
rated Aa currently offer yields to maturity of 8.5 percent. A-rated bonds
sell at yields of 8.8 percent. If a 10-year bond with a coupon rate of 8
percent is downgraded by Moody's from Aa to A rating, what is the
likely effect on the bond price? The face value of the bond is 1000.
(967.14948.20)
5. Suppose that you buy a 1-year maturity bond for 1.000 that will pay you
back 1.000 plus a coupon payment of 60 at the end of the year. What
real rate of return will you earn if the inflation rate is 2, 4, 6 or 8
percent. [a) 3,92 b) 1,92 c) 0 d) –1,85]
6. Consider three bonds with 8 % coupon rates, all selling at face value.
The short-term bond has a maturity of 4 years, the intermediate-term
bond has maturity of 8 years, and the long-term bond has maturity of 30
years. The face value of the bond is 1000. (for this, there are no answers
here)
a. What will happen to the price of each bond if their yields increase to
9 percent?
b. What will happen to the price of each bond if their yields decrease to
7 %?
What do you conclude about the relationship between time to maturity and
the sensitivity of bond price to interest rates?