1. Given a five year, 8% coupon bond with a face value of $1,000 and coupon payments made annually:

 

a. What is the bond value if it is trading at the yield of 6%? b. What is the bond value if it is trad at the yield of 8%?

c. What is the bond value if it is trading at the yield of 10%?

d. Comment on the price and yield relation you observe. What are the percentage changes in value when the yield goes from 6% to 8% and when it goes from 8% to 10%?

2. Suppose an investor bought a 10-year, 10% annual coupon bond at par (face value of $1,000 and paying coupons annually) and then sold it 3.5 years later at a yield of 8%. 

a. What is the full price? 

b. What is the accrued interest the investor would receive when he sold the bond? (Use a 30/360-day count convention)

c. What is the clean price?

3. A zero-coupon Treasury bill maturing in 150 days is trading at $98 per $100 face value. Determine the following rates for the T-bill:

a. Dealers annual discount yield? (Use 360-day count convention).

b. Yield to maturity? (Use an actual 365-day count convention).

c. Logarithmic return (use an actual 365-day count convention).

4. Calculate both Macaulay and modified durations of the eight-year, 8.5% coupon bond given a flat yield curve at 10%.