FIN5100 EXERCISE : BOND

1. Assume that you are considering the purchase of a 20-year, noncallable bond
with an annual coupon rate of 9.5%. The bond has a face value of $1,000, and
it makes semiannual interest payments. If you require an 11.9% nominal yield
to maturity on this investment, what is the maximum price you should be
willing to pay for the bond?

2. NAS Corporation issued 20-year, noncallable, 7.8% annual coupon bonds at

their par value of $1,000 one year ago. Today, the market interest rate on these
bonds is 5.5%. What is the current price of the bonds, given that they now have
19 years to maturity?

3. Malko Enterprises’ bonds currently sell for $990. They have a 6-year
maturity, an annual coupon of $75, and a par value of $1,000. What is their
current yield? Capital Gain/ loss?

4. Keenan Industries has a bond outstanding with 15 years to maturity, an

8.25% nominal coupon, semiannual payments, and a $1,000 par value. The
bond has a 6.50% nominal yield to maturity, but it can be called in 6 years
at a price of $1,150. What is the bond’s nominal yield to call?

5. NAS Corporation recently issued 20-year bonds. The bonds have a coupon
rate of 9 percent and pay interest semiannually. Also, the bonds are callable
in 7 years at a call price equal to 115 percent of par value. The par value of
the bonds is RM1,000. If the yield to maturity is 7 percent, what is the yield
to call?

6. NSKDF's bonds currently sell for RM1,100. They pay a RM90 annual
coupon, have a 25-year maturity, and a RM1,000 par value, but they can be
called in 5 years at RM1,050. Assume that no costs other than the call
premium would be incurred to call and refund the bonds, and also assume
that the yield curve is horizontal, with rates expected to remain at current
levels on into the future. What is the difference between this bond's YTM
and its YTC? (Subtract the YTC from the YTM; it is possible to get a
negative answer