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CHAPTER 8 Interest Rates and Bond Valuation - TB Solutions

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Vangara Harish

1. This document provides solutions to 35 problems related to bond valuation and interest rates. It includes calculations of bond prices, yields to maturity, current yields, and interest payments and receipts for various bonds. 2. Key calculations provided include bond prices for different maturity dates, yields to maturity, current yields, interest income, clean and invoice prices, and present values of bond cash flows. 3. The solutions show how a bond's price changes as it approaches maturity, with the largest price changes occurring at the shortest maturities, in a phenomenon known as "pull to par."

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CHAPTER 8 Interest Rates and Bond Valuation - TB Solutions

Uploaded by

Vangara Harish
179 views2 pages
1. This document provides solutions to 35 problems related to bond valuation and interest rates. It includes calculations of bond prices, yields to maturity, current yields, and interest payments and receipts for various bonds. 2. Key calculations provided include bond prices for different maturity dates, yields to maturity, current yields, interest income, clean and invoice prices, and present values of bond cash flows. 3. The solutions show how a bond's price changes as it approaches maturity, with the largest price changes occurring at the shortest maturities, in a phenomenon known as "pull to par."

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CHAPTER 8 Interest Rates and Bond Valuation- TB solutions

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1. This document provides solutions to 35 problems related to bond valuation and interest rates. It includes calculations of bond prices, yields to maturity, current yields, and interest payments and receipts for various bonds. 2. Key calculations provided include bond prices for different maturity dates, yields to maturity, current yields, interest income, clean and invoice prices, and present values of bond cash flows. 3. The solutions show how a bond's price changes as it approaches maturity, with the largest price changes occurring at the shortest maturities, in a phenomenon known as "pull to par."

Copyright:

© All Rights Reserved
Download as DOCX, PDF, TXT or read online from Scribd
Download as docx, pdf, or txt
179 views2 pages

CHAPTER 8 Interest Rates and Bond Valuation - TB Solutions

Uploaded by

Vangara Harish
1. This document provides solutions to 35 problems related to bond valuation and interest rates. It includes calculations of bond prices, yields to maturity, current yields, and interest payments and receipts for various bonds. 2. Key calculations provided include bond prices for different maturity dates, yields to maturity, current yields, interest income, clean and invoice prices, and present values of bond cash flows. 3. The solutions show how a bond's price changes as it approaches maturity, with the largest price changes occurring at the shortest maturities, in a phenomenon known as "pull to par."

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CHAPTER 8 Interest Rates and Bond Valuation:

Page 283-287: Solutions

1.
a) Price $411.99
b Price $308.32
)
c) Price $231.38
2.
a) Price $1,000.00
b Price $815.98
)
c) Price $1,251.03

3. Yield to maturity 5.36%


4. Coupon rate 8.34%
5. Price € 1,067.18
6. Yield to maturity 2.43%
7. Price $4,391.30
8. Price $2,224.04
9. Price $4,881.80
10. Approximate real rate 1.80%, Exact real rate 1.76%
11. Treasury rate 6.19%
12. Inflation rate 4.63%
13. Real return 5.98%
14. This is a bond. Today's bid $13,522.66, Previous day price $13,462.50
15. The bond is at a premium. Current yield 3.398%,YTM 2.771%,Bid-Ask spread $3.13
16. Interest income $13.57
17. Price of Bond Miller Price of Bond Modigliani

13 $1,126.68 13 $883.33
12 $1,120.44 12 $888.52
10 $1,106.59 10 $900.29
5 $1,062.37 5 $939.92
1 $1,014.25 1 $985.90
0 $1,000.00 0 $1,000.00

All else held equal, the premium over par value for a premium bond declines as maturity approaches,
and the discount from par value for a discount bond declines as maturity approaches. This is called “pull
to par.” In both cases, the largest percentage price changes occur at the shortest maturity lengths.
18. %
19. % change in Faulk bond -13.89%, % change in Gonas bond -11.79% All else same, the lower the
coupon rate of the bond, the greater is its price sensitivity to changes in interest rates.
20. Current yield 5.96%,Yield to maturity 5.63%,Effective annual rate 5.71%
21. Yield to maturity 5.86%
22. Clean price $932.67
23. Invoice price $993.83
24. Years to maturity 8.0004391
25. Yield to maturity 6.55%,Current yield 6.87%
26. The maturity is indeterminate. A bond selling at par can have any length of maturity.
27. a)Price at issuance $263.92, b) First year deduction $14.44 c) Annual interest deduction $29.44
d) The company will prefer the straight-line method when allowed because the valuable
interest deductions occur earlier in the life of a bond.
28. a) # of coupon bonds needed 50,000,# of zeroes needed 294,580, b) Repayment of coupon
bonds $51,500,000,Repayment of zeroes $294,580,155 c)Year 1 interest payments: Coupon
bond $1,950,000 Cash outflow , Zero coupon bond $(1,065,750.00) Cash inflow

29.

Current yield of Bond P 7.69%


Capital gains yield of -0.69%
Bond P
Current yield of Bond D 6.15%
Capital gains yield of 0.85%
Bond D
30. a)Yield to maturity 5.84%, b)Price of bond when sold $1,003.64 Holding period yield 9.06%
31. a) Current price of Bond M $19,363.76 , b)Current price of Bond N $8,510.07
32.
33. Present value $7,193.18
34. Present value $7,050.75, Last withdrawal in nominal terms $60,963.34
35. Amount of withdrawal $88,905.29

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