Problem One.

A $1,000 unit bond has a coupon rate of 4% (interest paid yearly at $40 per year). The bond has five years left until it matures. The current market interest rate equals 5%. Compute the bonds market value today.

Problem Two. You can use the same fact situation as problem one. The only item that has change is current market interest rate equals 3%. Compute the bonds market value today.

Problem Three. Industries bond has a 10 % coupon rate and a $1,000 face value. Interest is paid semiannually, and the bond has 20 years to maturity. If investors require a 12 % annual yield, what is the bonds value? (when we are dealing with semiannual payments, simply find semiannual yield from annual yield).

Problem Four. A Macrohard Corp. bond carries an 8% coupon, paid semiannually. The par value is $1,000 and the bond matures in 6 years. If the bond currently sells for $911.37, what is its yield to maturity?

Problem Five. The Sutherland Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $30,000 per year forever. If the required return on this investment is 5.8%, how much will you pay for the policy?