1. You have been told that the yield on a particular 10yr bond is 2.5%. This bond pays an 3.5% coupon with semi-annual compounding (i.e., it is a US Treasury bond). What will its price be?
2. Rounded to two decimal places (e.g. x.xx%), what is the yield to maturity on a 30 year US Treasury bond with a 3% coupon and a market price of 93.41? [HINT: if you don’t have a financial calculator, you will have to use trial and error to solve this.]
3. Exactly one year ago you borrowed $300,000 to finance the purchase of an investment property via a 30 year 3.9% mortgage. Interest compounds monthly, and you make monthly payments on the mortgage. (i) To the nearest dollar, what are the montly payments? (ii) To the nearest dollar, how much do you now owe the lender? In other words, what is the current principal balance on the loan? What is the interest component that you have paid to the bank so far (i.e., over the one year life of the loan to date)?
4. The 5.75% coupon, 10-yr US Treasury bond is priced at 100.83, with a yield of 5.64%. (i) Its DV01 (dollar duration) is 8.00. If its yield moves instantaneously to 5.69%, what will its price be (as estimated using DV01)? (ii) What is its “real” new price (using the price-yield formula)?