Question

1) You need to determine the market value of a $1,000 face value bond maturing in 5 years. The market yield (interest rate) for this type of bond is 3.1%. What is its market value? (Round to the nearest penny).

2) A year ago, you purchased a $1,000 face value bond for $1024. A year later you sold the bond for $1,007 after receiving a coupon payment of $55. What was your rate of capital gain? (Answer in tenth of a percentage i.e. 3.7 & include a minus sign if it is a negative return).

3) A $1,060 face value bond is selling in the market place for $927. It matures in 3 years. If keep to maturity, what is the bond's yield to maturity? (Round to the nearest thousands and convert to a percentage).

4) Fred bought a $1,000 face value bond issued by Zest Corporation for $1,200. The bond matures in 2020 and pays him an annual interest payment of $55. What is the bond's coupon rate? (Round to the nearest thousands place of a percent i.e. 0.037 is 3.7%)

5) A banker must earn at least a 3.5% return after expected inflation on short term loans. The inflation rate for the past 6 months has averaged 4.3%. The expected inflation rate for the next twelve months is 4.7%. Nominal interest rates for short term loans were 6.7% last month. What is the minimum nominal interest rate that he should charge for a one year loan?

Answer 1