Question

1. The Fishing Pier has 6.20 percent, semi-annual bonds outstanding that mature in 12 years. The bonds have a face value of $1,000 and a market value of $1,007. What is the yield to maturity? 5.84 percent 6.05 percent 6.12 percent 5.89 percent

2. The 6 percent, semi-annual bonds issued by Black Water Mills mature in 9 years and have a face value of $4,600. What is the current value of one of these bonds if the market rate of return is 13.5 percent? $2,835.28 $2,835.59 $2,833.06 $2,831.62

3. Sue purchased a bond one year ago. Today, she sold the bond and realized a 9.4 percent rate of return on her investment. What was her real rate of return if the inflation rate was 5.9 percent for this past year? 3.51 percent 3.55 percent 3.31 percent 5.63 percent

4. Say you own an asset that had a total return last year of 10.5 percent. If the inflation rate last year was 4.5 percent, what was your real return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Real return %

Please answer all the questions. Thank you.

Answer 1

1). To find the YTM, we need to put the following values in the financial calculator:

INPUT	12x2=24		-1,007	(6.2%/2)x1,000=31	1,000
TVM	N	I/Y	PV	PMT	FV
OUTPUT		3.06

Hence, YTM = 2r = 2 x 3.06% = 6.12%

Thus, Option "C" is correct.

2). To find the bond price, we need to put the following values in the financial calculator:

INPUT	9x2=18	13.5/2=6.75		(6%/2)x4,600=138	4,600
TVM	N	I/Y	PV	PMT	FV
OUTPUT			-2,833.06

Hence, Bond Price = $2,833.06

Thus, Option "C" is correct.

3). R_real = [(1 + R_nominal) / (1 + inflation)] - 1

= [1.094 / 1.059] - 1 = 1.0331 - 1 = 0.0331, or 3.31%

Thus, Option "C" is correct.

4). R_real = [(1 + R_nominal) / (1 + inflation)] - 1

= [1.105 / 1.045] - 1 = 1.0574 - 1 = 0.0574, or 5.74%

Thus, Option "C" is correct.