Q1: Consider a 10 year bond with a coupon rate of 6%, face value of $1000, and a YTM of 4%.

What the
price of this bond? Assume semi-annual coupon payments.

YTM 4% RATE(6m) 0.02 Price?

N 10 NPER(6m) 20 $1,163.51
c.r 6% PMT(6m) $30.00
Face $1,000 FV $1,000

Q2: What is the yield on a 91 day T-bill with a face value of $10000 and a quoted price of 98.95?

n 91 per T-bill per $100 face:

F 10000 Yield? (k[BEY]) or Yield? (k[BEY])
P(quote) 98.95 4.256% 4.256%
P 9895

Q3: What is the price of a 10 year zero coupon (semi-annually compounded) bond with a face
value of $10,000 and a market yield of 5%?

N 11 RATE 0.025 Price?

Face 100 NPER 22 $5,808.65
YTM 5% PMT 0
FV 10000

Q4: Consider a 10 year bond with a coupon rate of 5% and a face value of $1000. The bond has a quoted
price on the market of $99.20. What is the yield to maturity? Assume semi-annual coupon payments

Per bond Per $100 face value

N 10 NPER 20 NPER 20
c.r 5% PMT 25 PMT 2.5
Face 1000 PV -992 PV -99.2
P(quote) 99.2 FV 1000 FV 100
P 992 RATE? 2.55% RATE? 2.55%
YTM? 5.10% YTM? 5.10%
Q5: A bond has a yield to maturity of 8%. State plausible coupon rates for the coupon to be at a discount, at
par, and at premium.

Discount 7%
Par 8%
Premium 9%

Q6: If a bond rating agency downgrades the rating of a bond, how will it affect the price of that bond?

Downgrade implies more risk.

If there is more risk more return is required.
Recall the inverse relationship between return (YTM) and price.
Price will go down to reflect the higher required return to hold the bond.

n 11 22
p0 80
fv 100

1.25
0.045455
1.010195
1.02%
 of 4%. What the

of 98.95?

bond has a quoted

pon payments

CAUTION: When calculating the YTM for a

semi-annual bond do not forget to
multiply your rate by 2!
to be at a discount, at

e of that bond?