1. CH9-Inclass- Solution

2. Q. 12
1175 = 80(PVIFA ytm,15) + 1,000(PVIF ytm,15)
YTM = 6.18%

3. Q.19
A. 80(PVIFA 7%, 20) (PVIF 7%, 20) =
B. 80(PVIFA 10%, 20) (PVIF 10%, 20) =
80(PVIFA 6%, 20) (PVIF 6%, 20) =
C. When YTMs are low, bonds’ prices are more interest-rate sensitive than when YTMs are high.
D. When TTM are long, bonds’ prices are more interest-rate sensitive than when TTM are short.
E. In all cases, when YTM falls, price rises. However, the effect is greater in percentage terms for the 20-year bond than for the 10-year bond.

4. Q.22
A. 85(PVIFA 9%, 15) (PVIF 9%, 15) =
B. 85(PVIFA 11%, 15) (PVIF 11%, 15) = $
Or 85(PVIFA 7%, 15) (PVIF 7%, 15) = $ ,
Buy when 7%.

5. Q. 4 and Q. 3 4. Vb = 120(PVIFA 14%, 15) + 1000(PVIF14%,5) = 895.67
3. at I =10%
Va = 100(PVIFA 10%,20) (PVIF 10%, 20)
= 1,000
Vb = 100(PVIFA 10%,10) (PVIF 10%, 10)
 At I = 8%
Va = 100(PVIFA 8%,20) (PVIF 8%, 20) =
Vb = 100(PVIFA 8%,10) (PVIF 8%, 10) =