Chapter 4 Valuing Bonds Chemistry Worksheet With Answers Page 14
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21Conversion Price: 50 * 25 = 1,250
Pure Bond Price: Coupon Rate = Yield ===> 1,000
Max(1,000, 1,250) = 1,250
DIF: M
REF: 4.3 Types of Bonds
54. You own a bond that pays a 12% annualized semi-annual coupon rate. The bond has 10 years to
maturity. If the discount rate suddenly moves from 14% to 16%, then what is the dollar increase
(decrease) in value for the bond?
a. ($90.42)
b. ($89.01)
c. $89.01
d. $90.42
ANS: A
Price before shift: 60PVIFA(7%,20) + 1000PVIF(7%,20) = 894.06
Price after shift: 60PVIFA(8%,20) + 1000PVIF(8%,20) = 803.64
Difference: Price after shift - Price before shift = 803.64 - 894.06 = -90.42
DIF: H
REF: 4.2 Bond Prices and Interest Rates
55. You own a bond that pays a 12% annualized semi-annual coupon rate and has 10 years to maturity. If
the discount rate increases from 14% to 16% during the next two years of the bonds life, then what is
the dollar increase (decrease) in value for the bond during the two year period?
a. ($69.42)
b. ($71.09)
c. $69.42
d. $71.09
ANS: B
Price before: 60PVIFA(7%,20) + 1000PVIF(7%,20) = 894.06
Price after 2 years: 60PVIFA(8%,16) + 1000PVIF(8%,16) = 822.97
Difference: Price after 2 years - Price before = 822.97 - 894.06 = -71.09
DIF: H
REF: 4.2 Bond Prices and Interest Rates
56. Oogle Corp. has decided to do things differently with respect to their corporate bond issue. They
have a bond outstanding that makes quarterly coupon payments instead of semi-annually. The stated
coupon rate on the bond is 10% and the yield to maturity on the 5-year bond is 12%. What is the
price of the bond?
a. $927.90
b. $926.40
c. $925.61
none of the above
d.
ANS: C
Price : 25PVIFA(3%,20) + 1000PVIF(3%,20) = 925.61
DIF: M
REF: 4.2 Bond Prices and Interest Rates
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