Math 420 Bonds Problem Set 5a 1. A 1000 bond with annual coupons is redeemable at par at the end of 10 years. At a purchase price of 870, the yield rate is i. The coupon rate is i – 0.02. Calculate i. 2. A 1000 par value 10-year bond with semiannual coupons and redeemable at 1100 is purchased at 1135 to yield 12% convertible semiannually. The first coupon is X. Each subsequent coupon is 4% greater than the preceding coupon. Calculate X. 3. A 1000 par value 3-year bond with annual coupons of 50 for the first year, 70 for the second year and 90 for the third year is bought to yield a force of interest dt = (2t – 1) / (2t2 – 2t + 2) for t ³ 0 Calculate the price of this bond. 4. A bond with coupons equal to 40 sells for P. A second bond with the same maturity value and term has coupons equal to 30 and sells for Q. A third bond with same maturity value and term has coupons equal to 80. All prices are based on the same yield rate and all coupons are paid at the same frequency. Determine the price of the third bond, and express it in terms of P and Q. 5. An n – year zero coupon bond with par value 1000 was purchased for 600. An n – year 1000 par value bond with semiannual coupons of X was purchased for 850. A 3n-year 1000 par value bond with semiannual coupons of X was purchased for P. All three bonds have the same yield rate. Calculate P. 6. Ted buys three 14-year bonds, each with par value 1000, to yield an effective annual interest rate of i on each bond. Each bond is redeemable at par. The first bond is an accumulation bond priced at 195.63. The second bond has 9.4% semiannual coupons and is priced at 825.72. The third bond has 10% annual coupons and is priced at P. Calculate P. 7. An n-year 1000 par value bond has coupons of 82. At a price of 891.62, the yield to the purchaser is 10%, convertible semiannually. Compute n. 8. Kim buys 1000 par value 10-year bond with 10% annual coupons at a price to yield an annual effective rate of 10%. The coupons were reinvested an annual effective rate of 8%. Immediately after receiving the 4th coupon payment, Kim sells the bond to Dave for a price of P. P assumes an annual effective yield of I to the buyer. Tim's annual effective yield from the date of purchase to the date of sale was 8%. Calculate P. 9. Ken has a 5-year 1,000,000 bond with coupons at 6% convertible semiannually. Barbie buys a 10-year bond with face amount X and coupons at 6% convertible semiannually. Both bonds are redeemable at par. Ken and Barbie both buy their bonds to yield 4% compounded semiannually and immediately sell them to an investor to yield 2% compounded semiannually. The both earn the same amount of profit. Calculate X.