Assignment 2

Please answer all questions clearly, and show your work. You may work in pairs. Please make sure only one member per pair submits the completed assignment. 25 points total.

1. A firm issues bonds with a maturity of 15 years, a 10% coupon rate, and a face value of $1,000. The bonds make annual coupon payments. If the yield to maturity is 12.5%, what is the price of the bond? (4 points)

2. A bond has a face value of $1,000 and a price of $950. The bond matures in 15 years, has a coupon rate of 11%, and pays interest annually.

a. What is the bonds yield to maturity? (4 points)

b. What is the bonds current yield? (2 points)

3. A firm issues 8-year bonds with a 5% coupon rate, paid semiannually, and a face value of $1,000. The price of the bonds is $1,125. What is the yield to maturity?

(4 points)

4. Robix Inc. has a 7.5% coupon bond with a face value of $1,000 that matures in 9 years. The bond pays interest semiannually. If the yield to maturity is 12%, what is the price of the bond? (4 points)

5a. Smirch Corp. issues a 7-year bond with a face value of $1,000, an 8% coupon rate, and a yield to maturity of 9%. The bond pays interest semiannually. What is the price of the bond? (4 points)

5b. What will the price of the Smirch Corp. bond be 2 years from today, assuming the yield to maturity remains at 9%? (2 points)