BOND VALUATION PROBLEM SET 1

Bond Value:

1. The $1,000 face value bond has a coupon rate of 6%, with interest paid semi-annually, and matures in 5 years. If the bond is priced to yield 8%, what is the bond’s value today?
2. A bond has a 8% coupon rate (with interest paid semi-annually), a maturity value of $1,000, and matures in 5 years. If the bond is priced to yield 6%, what is the bond’s current price?
3. A bond has a face value of $1000 with a time to maturity ten years from now. The yield to maturity of the bond now is 10%. What is the price today if pays 8% coupon rate semi-annually?
4. A 2-year zero-coupon note was issued on December 1, 2019. If its YTM is 1.95%, what is its current market value?

Bond YTM:

1. The $1,000 face value bond has a coupon of 10% (paid semi-annually), matures in 4 years, and has current price of $1,140. What is the bond’s yield to maturity?

2. A bond has an 8% coupon rate (semi-annual interest), a maturity value of $1,000, matures in 5 years, and a current price of $1,200. What is the bond’s yield-to-maturity?
3. Suppose you invest in zero coupon bonds and you are looking at a five-year zero-coupon that matures on 2/22/2019, and which you want to buy on 2/22/2018. It has a face value of $1,000, and its price is $990.10. If the one-year risk-free rate is 2%, what is the bond’s YTM?
4. You are looking at another 5-year zero-coupon bond which matures on 2/22/2020 paying $1,000, and its price is $983.27. If the 2-year risk-free rate is 2.25%, what is the bond’s YTM?

Bond YTM 2^nd Series:

1. Suppose you purchase a 25-year, $1000-face value, zero coupon bond for $357.80 when issued on 3/1/2020. What is the bond’s YTM?
2. Find the yield to maturity on a semiannual coupon bond you are thinking of buying today. The bond price is $1128, the coupon rate is 6.5%, the face value is $1000, and was issued on Aug 15, 2013, maturing in 13 years. 
3. Suppose you purchase a 25-year, $1000-face value, zero coupon bond for $357.80 when issued on 3/1/2020. What is the bond’s YTM?
4. What is the yield-to-maturity of a $1,000 zero-coupon 2-year note priced at 96.79 and maturing on Dec. 15, 2019? Assume you bought the bond on February 21, 2018. Current rates are 3.5%.

Coupon Rate/Current Yield:

1. A bond has a current price of $800, a maturity value of $1,000, and matures in 5 years. If interest is paid semi-annually and the bond is priced to yield 8%, what is the bond’s annual coupon rate?
2. Consider a $1,000 par value bond with a 7% annual coupon. The bond pays interest annually. There are 2 years remaining until maturity. What is the current yield on the bond assuming that the required return on the bond is 10%?

3. Consider a $1,000 par value bond with a 7% annual coupon. The bond pays interest annually. There are 2 years remaining until maturity. What is the current yield on the bond assuming that the required return on the bond is 10%?
4. A bond has a current price of $800, a maturity value of $1,000 (matures in 5 years). If interest is paid semi-annually and the bond has a current yield of 8%, what is the bond’s annual coupon rate?

Duration Duration:

What is the duration of the following bonds (round to two decimal places)?

Terms:	Bond A	Bond B	Bond C	Bond D
Settlement Date	4/15/2020	4/15/2020	4/15/2020	4/15/2020
Issue Date:	12/15/2015	6/1/2018	9/15/2012	3/1/2019
Maturity Date:	12/15/2035	6/1/2023	9/15/2042	3/1/2029
Par Value (% of Par):	100.00	100.00	100.00	100.00
Price Now (% of Par):
Coupon Rate:	5.50%	2.85%	(zero-coupon)	2.75%
Current Yield:	3.62%	1.9%	2.5%	2.11%
Coupon Pmt Frequency:	2 (Semi-annual)	2 (Semi-annual)	2 (Semi-annual)	2 (Semi-annual)

Modified Duration:

What is the modified duration of the bonds in the previous section (round to two decimal places)?

1. _________

2. _________

3. _________

4. _________

Miscellaneous Bond Questions:

1. A municipal bond has a coupon rate of 4.5% and just sold for 104.56. It matures on December 1, 2023. What is its tax-equivalent yield? Assume a marginal tax rate of 40% and interest is paid June 1 and December 1.
2. Short answer essay: what is the mathematical difference between duration and modified duration, and what does each one measure? (5 points)

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