Question

What is the annual required rate of a 10-year bond that has 10% annual payment rate and $791.36 in PV?

A.14%

B.7%

C.9%

D.16%

How many years left in “year-to-maturity” a 10-year bond outstanding with 12% annual required rate, 9% annual payment, and $908.88 in its fair value?

A. 4 years

B.10 years

C.

8 years

D.6 years

How many years left in “year-to-maturity” a 10-year bond outstanding with 9% annual required rate, 12% annual payment, and $1134.58 in its fair value?

A. 4 years

B

8 years

C.

6 years

D.10 years

How many years left in “year-to-maturity” a 10-year bond outstanding with 9% annual required rate, 7% annual payment, and $871.65 in its fair value?

A.10 years

B. 4 years

C

6 years

D 8 years

Answer 1

1)

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =10

791.36 =∑ [(10*1000/100)/(1 + YTM/100)^k]     +   1000/(1 + YTM/100)^10

k=1

YTM% = 14

2)

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =N

908.88 =∑ [(9*1000/100)/(1 + 12/100)^k]     +   1000/(1 + 12/100)^N

k=1

N(in years) = 4

3)

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =N

1134.58 =∑ [(12*1000/100)/(1 + 9/100)^k]     +   1000/(1 + 9/100)^N

k=1

N(in years) = 6

4)

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =N

871.65 =∑ [(7*1000/100)/(1 + 9/100)^k]     +   1000/(1 + 9/100)^N

k=1

N(in years) = 10