74 Review Problems

Chapter 7 Review Problems

1. A $1,000 Expo Corp. bond has a coupon rate of 5%, pays interest semiannually, and matures in six years. If the yield to maturity is 7%, what is the bond’s value today?

2. A $1,000 Omega Corp. bond has an 8% coupon rate that is paid semiannually. The bond matures in three years. If the current price of the bond is $1,125, what is the yield to maturity?

3. You are considering buying a bond that is currently priced at $830, has a face value of $1,000, and matures in seven years. If interest is paid semiannually and the bond has a yield to maturity of 6%, what is the bond’s annual coupon rate?

4. A $1,000 Noah Corp. bond has a coupon rate of 5% with semiannual payments, matures in 10 years, and has a yield to maturity of 6.5%. What is the bond’s current price?

5. Chronowerx Inc. has issued a bond that has a face value of $1,000, a 3% coupon rate (with semiannual interest), and a maturity date four years from now. If the bond’s current price is $895, what is its yield to maturity?

6. You are considering adding a $1,000, 25-year bond to your portfolio. It has a coupon rate of 8%, which is paid annually, and your required return is 10%. What is the current price of the investment?

7. A Cameron Corp. bond has a $1,000 par value, a 5 percent coupon rate paid semiannually, and nine years until maturity. If similar investments yield 6%, what is the current value of Cameron Corp. bonds?

8. McLaren Motors just issued a series of $1,000.00 bonds with a 10-year maturity and an 8% coupon rate, paid quarterly. If you purchase a McLaren bond at a price of $920.00, what is your required rate of return?

9. Three years ago, Petty Partners Inc. issued 15-year, $1,000 bonds that are currently priced at $911.37. If the prevailing rate of return on similar investments is 5%, what is the coupon rate on Petty Partners bonds, and what is the annual interest payment?

10. A $1,000 Riker Corp. bond has a 20-year maturity and a 6% coupon rate, with interest paid annually. If similar bonds from Riker Corp. are yielding 4%, what is the current market value of the Riker issue?

11. A $1,000 bond that matures in eight years, has quarterly coupon payments of $25, and is currently priced at $962.00 will have a yield to maturity of ________.