Instructions: Show all of your work with formulas. For questions with a financial calculator – show your entries, i.e., 1000 FV, 9 i/yr, etc)

1. The corporate bond of Blue Sky Industrial currently sells at $1,094.00. The bond has an annual coupon rate of 6% and a face value of $1,000. There are 12 years remaining to maturity.

a) What is the current yield of the bond?

b) What is the bond’s yield-to-maturity? (You may show calculator entries here).

c) What is the capital gains yield of the bond? (Show this in two ways ).

2. The ABC bond has an annual coupon rate of 7%, pays interest semi-annually and has a face value of $1,000. If there are 27 years to maturity and your required rate of return on bonds of this risk level is 9%, what is the bonds value to you? (With this problem solve for its present value and show all work with the formula).

3. A bond with 3 years remaining to maturity has an annual coupon rate of 8.5%, and a face value of $1,000. Assume the yield to maturity is 7.00% and answer the questions below. (You may use a financial calculator to get the PV of the bond in this problem – but show your calculator entries, i.e., 1000 FV, etc).

a) What is the duration of this bond?

b) If interest rates fall 0.15% from the given YTM, by what percent will the bond change in value? Show these 2 ways as we did in class; (using modified duration and the capital gains formula method).