Question

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 a 10.7% nominal yield to maturity (YTM) on this investment, what is the maximum price you should be willing to pay for the bond?

Which of the following investments has the highest effective annual return (EAR)? (Assume that all CDs are of equal risk.)

What is the value on 1/1/13 of the following cash flows: Date Cash Received Amount of Cash

1/1/14 $14,000   

1/1/15 $20,000

1/1/16 $30,000

1/1/17 $43,000

1/1/18 $57,000

Use a 7% discount rate, and round your answer to the nearest $10.

Answer 1

1.
If you require a 10.7% nominal yield to maturity (YTM) on this investment, what is the maximum price you should be willing to pay for the bond?
=(9.5%*1000)/(10.7%)*(1-1/(1+10.7%/2)^(2*20))+1000/(1+10.7%/2)^(2*20)
=901.7953823

2.
What is the value on 1/1/13 of the following cash flows: Date Cash Received Amount of Cash
=14000/1.07+20000/1.07^2+30000/1.07^3+43000/1.07^4+57000/1.07^5
=128486.5294