Question 1

Allen Roofing Materials has 6.5 percent bonds outstanding that are currently priced at $1,044 each.The bonds pay interest on December 1 and June 1.What is the dirty price of this bond if today's date is April 1? Assume a 360-day year.

Accepted Answer

Dirty price = $1,044 + [(0.065 × $1,000)/2] × 4/6 = $1,065.67

Question 2

An 8.5 percent coupon bond pays interest semiannually and has 10.5 years to maturity.The bond has a face value of $1,000 and a market value of $878.50.What is the yield to maturity?

Accepted Answer

Using a financial calculator:
 11ea6d0e_c3ec_8a38_b3c7_5fd170b61a05_TB1223_00

Question 3

You want to buy a bond that has a quoted price of $923.The bond pays interest semiannually on April 1 and October 1.The coupon rate is 6 percent.What is the clean price of this bond if today's date is June 1? Assume a 360-day year.

Accepted Answer

Clean price = Quoted price = $923

Question 4

Two bonds have a coupon rate of 5.25 percent,semi-annual payments,face values of $1,000,and yields to maturity of 6.1 percent.Bond S matures in 5 years and bond L matures in 10 years.What is the difference in the current prices of these bonds?

Accepted Answer

Bond S:
 11ea6d0e_c3ed_4d92_b3c7_97f45efbe74c_TB1223_00 Using a financial calculator:
 11ea6d0e_c3ed_4d93_b3c7_a1ba86f0388d_TB1223_00 Bond L:
 11ea6d0e_c3ed_4d94_b3c7_a1205e15c894_TB1223_00 Using a financial calculator:
 11ea6d0e_c3ed_4d95_b3c7_6fb471fdf712_TB1223_00 Difference = $963.84 - $937.06 = $26.78

Question 5

You own a bond that pays semiannual interest payments of $38.The bond is callable in 2 years at a premium of $76.What is the callable bond price if the yield to call is 7.9 percent?

Accepted Answer

11ea6d0e_c3ed_9bb6_b3c7_d1f111979733_TB1223_00 Using a financial calculator:
 11ea6d0e_c3ed_9bb7_b3c7_1154bcf8e60f_TB1223_00

Question 6

Blue Water Homes has 8 percent bonds outstanding that mature in 13 years.The bonds pay interest semiannually.These bonds have a par value of $1,000 and are callable in 2 years at a premium of $75.What is the yield to call if the current price is equal to 103.25 percent of par?

Accepted Answer

Using a financial calculator:
 11ea6d0e_c3ed_e9db_b3c7_49cd5a7262bf_TB1223_00

Question 7

Alex purchased a $1,000 par value bond one year ago at a price of $1,016.At the time of purchase,the bond had 12 years to maturity and a 5 percent,semiannual coupon.Today,the bond has a yield to maturity of 5.25 percent.What is his realized yield as of today?

Accepted Answer

11ea6d0e_c3ee_3800_b3c7_c977e20b436f_TB1223_00 Using a financial calculator:
 11ea6d0e_c3ee_3801_b3c7_d5a829669c0e_TB1223_00

Question 8

Will owns a bond with a make-whole call provision.The bond matures in 13 years but is being called today.The coupon rate is 8.25 percent with interest paid semiannually.What is the current call price if the applicable discount rate is 7.75 percent and the make-whole call provision applies?

Accepted Answer

11ea6d0e_c3ed_e9dc_b3c7_21aa248db458_TB1223_00 Using a financial calculator:
 11ea6d0e_c3ed_e9dd_b3c7_cbea58ab3913_TB1223_00

Question 9

Alaskan Motors has outstanding bonds that mature in 13 years and pay $34.50 every 6 months in interest.The par value is $1,000 per bond and the market value is $990.The coupon rate is ________ percent,the current yield is ________ percent,and the yield to maturity is ________ percent.

Accepted Answer

Coupon rate = ($34.50 × 2)/$1,000 = 6.90 percent
Current yield = ($34.50 × 2)/$990 = 6.97 percent
Yield to maturity = 7.02 percent
Using a financial calculator:
 11ea6d0e_c3ec_ff6d_b3c7_89c63867d718_TB1223_00

Question 10

You are considering two bonds.Both have semi-annual,8 percent coupons,$1,000 face values,and yields to maturity of 7.5 percent.Bond S matures in 4 years and Bond L matures in 8 years.What is the difference in the current prices of these bonds?

Accepted Answer

11ea6d0e_c3ec_ff6e_b3c7_ede192ba7fb0_TB1223_00 Using a financial calculator:
 11ea6d0e_c3ed_267f_b3c7_dbddf583b172_TB1223_00 11ea6d0e_c3ed_2680_b3c7_7307a7cf1e82_TB1223_00 Using a financial calculator:
 11ea6d0e_c3ed_2681_b3c7_a10135286ce3_TB1223_00 Difference = $1,029.68 − $1,017.01 = $12.67

Question 11

One year ago,you purchased a $1,000 face value bond at a yield to maturity of 9.45 percent.The bond has a 9 percent coupon and pays interest semiannually.When you purchased the bond,it had 12 years left until maturity.You are selling the bond today when the yield to maturity is 8.20 percent.What is your realized yield on this bond?

Accepted Answer

11ea6d0e_c3ee_3802_b3c7_ad9e51865f63_TB1223_00 Using a financial calculator:
 11ea6d0e_c3ee_5f13_b3c7_8f4deb71e6f4_TB1223_00

Question 12

Ferris Metals has bonds outstanding which it is calling today under the make-whole call provision.The bonds mature in 7 years,have a 9 percent coupon,pay interest semiannually,and have a par value of $1,000.What is today's call price given that the applicable discount rate is 7.05 percent?

Accepted Answer

11ea6d0e_c3ee_10ee_b3c7_0de0bdd01c2d_TB1223_00 Using a financial calculator:
 11ea6d0e_c3ee_10ef_b3c7_b1dfdbe846f5_TB1223_00

Question 13

Ted owns a bond which is callable in 2.5 years.The bond has a 6 percent coupon,pays interest semiannually,has a par value of $1,000,and has a yield to call of 6.3 percent.What is the call premium if the bond currently sells for $1,044.54?

Accepted Answer

11ea6d0e_c3ed_9bb8_b3c7_e71dd0d5b99f_TB1223_00 CP = $60.00
Using a financial calculator:
 11ea6d0e_c3ed_c2c9_b3c7_bd131a4d8def_TB1223_00 Call Premium = 1060 - 1000 = $60

Question 14

A bond has a $1,000 par value,semiannual interest payments of $45,and a current market value of $1,045.The bonds mature in 11.5 years.The coupon rate is ________ percent,the current yield is ________ percent,and the yield to maturity is ________ percent.

Accepted Answer

Coupon rate = ($45 × 2)/$1,000 = 9.00 percent
Current yield = ($45 × 2)/$1,045 = 8.61 percent
Yield to maturity = 8.38 percent
Using a financial calculator:
 11ea6d0e_c3ec_d85c_b3c7_0d2e288fb457_TB1223_00

Question 15

The outstanding bonds of International Plastics mature in 6 years and pay semiannual interest payments of $33.50 on a $1,000 face value bond.The bonds are currently selling for $1,008.64.The coupon rate is ________ percent,the current yield is ________ percent,and the yield to maturity is ________ percent.

Accepted Answer

Using a financial calculator:
Coupon rate = ($33.50 × 2)/$1,000 = 6.70 percent
Current yield = ($33.50 × 2)/$1,008.64 = 6.643 percent
Yield to maturity = 6.52 percent
 11ea6d0e_c3ec_b14b_b3c7_5fddfbc727b0_TB1223_00

Question 16

A $1,000 par value bond is currently valued at $1,055.The bond pays interest semi-annually,has 10 years to maturity,and has a yield to maturity of 7.3 percent.The coupon rate is ________ percent and the current yield is ________ percent.

Accepted Answer

Using a financial calculator:
 11ea6d0e_c3ec_8a39_b3c7_a3d3b3f2eba4_TB1223_00 Coupon rate = ($40.42 × 2)/$1,000 = 8.08 percent
Current yield = ($40.42 × 2)/$1,055.00 = 7.663 percent

Question 17

Castle's Furniture Outlet is issuing 20-year,8 percent callable bonds.These bonds are callable in 5 years with a call premium of $40.The bonds are being issued at par and pay interest semi-annually.What is the yield to call?

Accepted Answer

Using a financial calculator:
 11ea6d0e_c3ed_c2ca_b3c7_bfc567ce896d_TB1223_00

Question 18

A $1,000 face value bond is selling for $1,016.36.The bond pays interest semiannually and has 3.5 years to maturity.The yield to maturity is 5.48 percent.The current yield is ________ percent and the coupon rate is ________ percent.

Accepted Answer

Using a financial calculator:
 11ea6d0e_c3ec_b14a_b3c7_5bddae31a452_TB1223_00 Current yield = ($30 × 2)/$1,016.36 = 5.90 percent
Coupon rate = ($30 × 2)/$1,000 = 6.0 percent

Question 19

You own a 5.5 percent,semiannual coupon bond that matures in 8 years.The par value is $1,000 and the current yield to maturity is 6.4 percent.What will the percentage change in the price of your bond be if the yield to maturity suddenly increases by 50 basis points?

Accepted Answer

11ea6d0e_c3ee_5f14_b3c7_8b19d4b95424_TB1223_00 11ea6d0e_c3ee_5f15_b3c7_857b14c2c57f_TB1223_00 Percentage change in bond price = ($915.02 - $944.33) / $933.33= -3.10 percent

Question 20

You are buying a bond at a quoted price of $892.The bond has a 7.5 percent coupon and pays interest semiannually on February 1 and August 1.What is the dirty price of this bond if today is April 1? Assume a 360-day year.

Accepted Answer

Dirty price = $892 + [(0.075 × $1,000)/2] × 2/6 = $904.50

Quiz 10: Bond Prices and Yields