Suppose the spot US$ to Euro rate S = 1.10; the 6-month borrowing rate in Euros

Question

Suppose the spot US$ to Euro rate S = 1.10; the 6-month borrowing rate in Euros = REuro= .01; the 6-month future exchange rate US$ to Euros F =1.13. What US$ 6-month interest rate (RUS) would preserve interest rate parity? Which Answer: A.0.01 B.0.032 C.0.065 D.None of the Above

Suppose a 10-year bond with a par value of $1000 has an annual coupon of 5% and a yield of 4%. What is the approximate price of this bond?
Which Answer: A. $1,081 B. $1,181 C. $1,281 D. $1,381

Suppose a 20-year bond with a par value of $1000 has a semiannual coupon of 5% and a yield of 4%. What is the approximate price of this bond?
Which Answer: A. $937 B. $1037 C. $1137 D. $1237 E. $1337

What is the approximate yield to maturity on a 5-year, 4% coupon bond (paid annually) with a par value of $1000 and a price of $956.71?
Which Answer: A. .04 B. .045 C. .05 D. .055

Explanation / Answer

10 year bond par value = 1000 annual coupon = 5% yield 4% Present Value = Future value/ ((1+r)^t) where r is 4% and t is the time period Year 1 2 3 4 5 6 7 8 9 10 Future payment 50 50 50 50 50 50 50 50 50 1050 Present value 48.08 46.23 44.45 42.74 41.10 39.52 38.00 36.53 35.13 709.34 Price of bond/ sum of present values 1081(A) 20 year bond par value = 1000 semiannual coupon = 5%, coupon rate = 2.5% yield 4% Present Value = Future value/[(1+(r/m))^mt] r is the yield t is the year m is the compounding period that is 2 mt 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 Future payment 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 1025 Present value 24.51 24.03 23.56 23.10 22.64 22.20 21.76 21.34 20.92 20.51 20.11 19.71 19.33 18.95 18.58 18.21 17.85 17.50 17.16 16.82 16.49 16.17 15.85 15.54 15.24 14.94 14.65 14.36 14.08 13.80 13.53 13.27 13.01 12.75 12.50 12.26 12.02 11.78 11.55 464.21 Price of bond/ sum of present values 1137 (C) 5 year 4% coupon paid annually par value = 1000 price of bond = 956.71 yield to maturity 0.05 (C) year 1 2 3 4 5 future payment 40 40 40 40 1040 present value 38.10 36.28 34.55 32.91 814.87 Price of bond/ sum of present values 956.71

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