1. You are considering buying a bond that matures in 10
years from today. The par value of the bond is $10,000 and the
coupon rate is 7%. If the current market interest rates are 5%,
what is the bond price today if the coupon is paid annually?
2. A Zero Coupon bond has a par value of $1000 and matures
in 20 years. Investors require a 10% annual return on these bonds.
For what price should the bond sell? (Note: Zero coupon bonds do
not pay interest)
3. Suppose there are two bonds you are considering:
Bond A
Bond B
Maturity (years)
20
30
Coupon Rate (%) paid Semiannually
12
8
Par Value
$1000
$1000
a. If both bonds had a required rate of return of 10%, what
would the bonds price be?
b. Explain what it means when a bond is selling at a
discount, a premium, or at its face amount (par value). Based on
results in part (a), would you consider both bonds to be selling at
discount, premium or at par?
c. Re-calculate the prices of the bonds if the required
returns falls to 9%?
6. An Investor is considering two bonds. One is a
corporate bond yielding 12% and is currently selling at par. The
marginal tax rate is 28%. The other is a municipal bond with
a coupon rate of 9.50%. Which should the investor choose?
15. A 15 year $5000 par value bond has a 12% semiannual coupon
and a nominal yield to maturity of 8.5%. What is the price of the
bond?