QI Company C also issues bonds with face value of $1,000 which pay interest of $X annually. They are redeemable at 105 in 8 years. Find the value of $X that will also yield j1 = 7% on a $1,000 bond from company C, if such a bond costs $960.
Q2
A bond with face value of $1,000 issued by company A has half-yearly interest payments at j2 = 7.2%. It is redeemable at par in 14 years. Find the price of a $1,000 bond from company A to yield j1 = 7%.
(As the interest payments are half-yearly you will need to use the equivalent j2/2 value for the half-yearly yield when calculating the price. Use the unrounded yield (store it in the memory of your calculator) or your answer will probably be marked as incorrect.)
Q3
Mr Morgan buys a bond with face value of $1,000 that pays bond interest at j2 = 6.6% and is redeemable at par in 20 years. The price he pays will give him a yield of j2 = 7.8% if he holds the bond to maturity. After 3 years, Mr Morgan sells this bond to Ms Grenfell who wants a yield to maturity of j2 = 5.4% on her investment.
Use the APPROXIMATE formula to calculate the yield, j2, earned by Mr Morgan on his investment (as a %, 2 decimal places).
(The C term in the formula will be the sale price in the previous question and the n term will be the time between purchase by Mr Morgan and sale by Mr Morgan.)
Q4
Mr Morgan buys a bond with face value of $1,000 that pays bond interest at j2 = 6.6% and is redeemable at par in 20 years. The price he pays will give him a yield of j2 = 7.8% if he holds the bond to maturity. After 3 years, Mr Morgan sells this bond to Ms Grenfell who wants a yield to maturity of j2 = 5.4% on her investment.
What price did Ms Grenfell pay?
(She is assumed to hold the bond for (20 - 3) years to maturity.)
Q5
Mr Morgan buys a bond with face value of $1,000 that pays bond interest at j2 = 6.6% and is redeemable at par in 20 years. The price he pays will give him a yield of j2 = 7.8% if he holds the bond to maturity. After 3 years, Mr Morgan sells this bond to Ms Grenfell who wants a yield to maturity of j2 = 5.4% on her investment.
What price did Mr Morgan pay?
(The information about Ms Grenfell is not relevant to this question but will be required in the next question.)
Q6
A bond with face value $2,000, paying interest at j2 = 11%, is purchased 12 years before redemption for $1934. If redemption is at par, use LINEAR INTERPOLATION to calculate the yield, j2, to maturity (as a %, 2 decimal places).
(The required answer is the j2 value and not the half-yearly yield. For the half-yearly yield use starting points of 5.5% and 6%.)
Q7
A bond with face value $2,000, paying interest at j2 = 11%, is purchased 12 years before redemption for $1951. If redemption is at par, use the APPROXIMATE formula to calculate the yield, j2, to maturity (as a %, 2 decimal places).
(The required answer is the j2 value and not the half-yearly yield.
When a question says to use the approximate formula, linear interpolation is not required.)