Q FINE 332 Corporate Finance I Module 4 Problem Set Interest Rates and Bond Valuation 1. What is the annual yield of a 9-year, 3.4% semi-annual coupon-paying bond priced today at $666? Par is $1,000. 2. What is the annual yield of a 15-year, 2.75% annual coupon-paying bond priced today at $785? Par is $1,000. 3. Show cash flows and prices for these semi-annual bonds, each with par value of $1,000: # Coupon Rate Years to Maturity Market Yield A 3.25% 11 4.25% B 4.6% 12 4.0% C 4.8% 12 4.35% D 0.0% 8.5 4.25% Which would you prefer to hold and why? (Answer in the box provided.) 4. Consider a semi-annual bond with an annual coupon = 4.2%, maturity = 12 years, par value = $1,000, and a market price today = $663: a. What is its yield to maturity (YTM)? b. If it can be called at $750 at the end of year 5, what is its yield to call? 5. You have two bonds with the following characteristics: Characteristics Bond A Bond B Coupon 4.5% 5.0% Years to Maturity 10 8 Par Value $1,000 $1,000 Price $880.00 $911.00 a. What are the bond durations? b. If rates rise to 5.5%, what are the new prices for each bond? FINE 332 | Jan ’22 | worldwide.erau.edu All rights are reserved. The material contained herein is the copyright property of Embry -Riddle Aeronautical University, Daytona Beach, Florida, 32114. No part of this material may be reproduced, stored in a retrieval system, or transmitted in any form, electronic, mechanical, photocopying, recording or otherwise without the prior written consent of the University.