1. UNIT 5 QUIZ REVIEW
1. The ACME Company's bonds mature in 10 years have a par value of $1,000 and an annual coupon payment of $50.  The market interest rate for the bonds is 10%.  What is the price of these bonds?

2. USE PV FUNCTION IN EXCEL

3. PV#2 PROBLEM
ACE Ventures' recently issued bonds that mature in 20 years.  They have a par value of $1,000 and an annual coupon of 5%.  If the current market interest rate is 7%, at what price should the bonds sell?

4. PV#2 PROBLEM

5. RATE#3 PROBLEM
UBS Incorporated issued BBB bonds two years ago that provided a yield to maturity of 12%. 
Long-term risk-free government bonds were yielding 9% at that time. 
The current risk premium on BBB bonds versus government bonds is half of what it was two years ago. 
If the risk-free long-term government bonds are currently yielding 8%,
then at what rate should Rollincoast expect to issue new bonds?

6. Risk Premium
Risk Premium=Corporate yield minus the LT Risk free Government bonds
If Corp yield is 10% and LT Govt. rate is 5% then Risk premium is 5%
So corporate bonds will sell at the current LT rate of bonds plus the risk premium.
YTM= Risk Premium
+ Current long term rate on Bonds.
New Yield to maturity

7. Risk Premium Risk Premium=Corporate yield 12%
MINUS LT Risk free Govt bonds %
Risk premium was %
Now LT Risk free Govt bonds %
Risk premium is half of last year %
So it should be issued rate of %

8. #4Yield to maturity
A 10-year, $1,000 face value bond has an 8.5% annual coupon.  The bond has a current yield of 8%.  What is the bond’s yield to maturity?
Step 1: Calculate the bond's current price from information given in the current yield.

9. Yield to maturity Current yield = Coupon/Price 0.08 = $85/Price
If you use financial calculator by entering the following data as inputs:
N = 10; PV = ; PMT = 85; FV = 1000; and then solve for I/YR = %  or about 7.59%.

10. YTM WHAT RATE OF INTEREST DO YOU EARN IF YOU HELD IT TO MATURUTY?
PV..PAID $
TIME 10 YRS
FV $1000
INT PYMNT $85
IN EXCEL- CLICK ON RATE- ENTER

11. #5PROBLEM PV
You wish to purchase a 20-year, $1,000 face value bond that makes semiannual interest payments of $40.  If you require a 10% nominal yield to maturity, what price should you be willing to pay for the bond?

12. #5PROBLEM PV- COMP PERIODS
With semiannual coupon payments, you need to double the number of payments that you will receive over the twenty years.  20*2=40
You also need to divide the annual interest in half. (YTM) 10%/2=.05

13. 5PROBLEM PV- COMP PERIODS
you could use the formula:
VB = COUPON [{1 – 1 / (1 + iN}} / i] + FV / (1 + i)N
VB = $40 [{1 – (1 / ( )^40) }/ .05 ] + $1,000 / ( )^40

14. #6 PV OF BOND
Rio Corporation issued 15-year, 7% annual coupon bonds at their par value of $1,000 one year ago.  Today, the on these bonds has dropped to market interest rate 6%.  What is the new price of the bonds, given that they now have 15 years to maturity?

15. PV OF BOND

16. #7 YTM
Brown Enterprises’ bonds currently sell for $1,025.  They have a 9-year maturity, an annual coupon of $80, and a par value of $1,000.  What is their yield to maturity
PV=-1025
FV=1000
INT PYMNT=$80,TYPE=0,TIME=9YRS

17. #7 YTM-CALC RATE PAID PV OF $1025 GET INT PYMT OF $80 FV=1000
TERM 9YRS
YTM IS 7.61%- RATE OF RETURN YOU ARE EARNING

18. #8 Bond’s Price
Best Corporation's bonds have a 10-year maturity, a 10% semiannual coupon, and a par value of $1,000.  The going interest rate (rd) is 14%, based on semiannual compounding. 
What is the bond’s price?

19. Bond’s Price
Par Value          $1, Coupon Rate           10.00% Periods/year                   2 Yrs to Mat                      10 N=periods                      20 Annual Rate              14.00% Periodic Rate           7.00% PMT/period                 $50 PV                      ???????

20. Bond’s Price