MGMT E-2000 Problem Set 4 Fall 2014

MGMT E-2000 Problem Set 4 Fall 2014

MGMT E-2000

Fall, 2014

Problem Set 4

Answers

(100 points total)

All calculations must be shown

Subtract 1 point for arithmetic mistakes if all else is correct

1. Calculate the price of the following bonds, where F is the face value, c is the coupon rate, N is the number of years to maturity, and i is the interest rate (or discount rate, or yield):

a. 10 points

F = $100, c = 10%, N = 2, i = 8%

b. 10 points

F = $10,000, c = 6%, N = 3, i = 9%


c. 10 points

F = $1,000, c = 0%, N = 10, i = 6%

d. 10 points

F = $10,000, c = 7%, N ? ? (bond never matures), i = 6%

2. 20 pointsCalculate the yield on the following bonds:

    PB = $100.95, F = $100, c = 6%, N = 1

b. 20 points

PB = $712.99, F = $1,000, c = 0%, N = 5

c. 20 points

PB = $1,176.47, F = $1,000, c = 10%, N ? ? (bond never matures)