Consider the following data on various bonds trading at t = 0. Bond Coupon Payme

ID: 2646246 • Letter: C

Question

Consider the following data on various bonds trading at t = 0.

Bond Coupon Payment Freq. Face Value Time to Maturity Price at t = 0 (Rate Frequency (per $1000 in face value))

A 7% 4 times a year 1000 8 years ?

B 12% once a year 1000 2 years 1100

C 0 2 times a year 1000 5 years 700

The prices are all ex-coupon. That is, they are the price you would pay immediately after the

coupon has been paid. Thus, when you pay that price, you will receive the next coupon one

period later.

Answer the following questions.

a. What is the yield to maturity on Bond B? (5 points)

b. If the yield curve were flat at 5 percent effective annual yield, what should the price of

Bond A equal? (5 points) (Note: given all of the data above, it may not be flat.)

c. If in one year (i.e., at t = 1), the yield curve is flat at 6% (i.e., the yield to maturity on

zero-coupon bonds of all maturities is 6%), what will be the holding period yield for

Bond B if you bought Bond B at t = 0? (5 points)

a. 6,51%

Use yield to maturity calculator for the computation or use the following formula.

120(1+r)-1 + 120(1+r)-2 + 1000(1+r)-2 = 1100

b. 1131.21

Use bond price calculator

c. use bond price calculator instead of 5% use 6%.

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