# BA350 / FI515 Financial Management: Week 6 Assignment (Q5-1, P5-1, P5-9, P5-13)

BA350 / FI515 Financial Management

Week 6 Assignment:

Question 5-1

Problems 5-1, 5-4, 5-9, 5-13

Question 5-1

Define each of the following terms:

Bond

Treasury bond

Corporate Bond

Municipal Bond

Foreign Bond

Par Value

Maturity date

Coupon Payment

Coupon Interest Rate

P5-1: Bond Valuation with Annual Payments

Jackson Corporationâ€™s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds?

P5-4: Determinant of Interest Rates

The real risk-free rate of interest is 4%. Inflation is expected to be 2% this year and 4% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? What is the yield on 3-year Treasury securities?

P5-9: Bond Valuation and Interest Rate Risk

The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year.

a. What will be the value of each of these bonds when the going rate of interest is: (1) 5%, (2) 8%, and (3) 12%? Assume that there is only one more interest payment to be made on Bond S.

b. Why does the longer-term (15-year) bond fluctuate more when interest rates change than does the shorter-term bond (1 year)?

P5-13: Yield to Maturity and Current Yield

You just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%. What is the bondâ€™s yield to maturity?

Week 6 Assignment:

Question 5-1

Problems 5-1, 5-4, 5-9, 5-13

Question 5-1

Define each of the following terms:

Bond

Treasury bond

Corporate Bond

Municipal Bond

Foreign Bond

Par Value

Maturity date

Coupon Payment

Coupon Interest Rate

P5-1: Bond Valuation with Annual Payments

Jackson Corporationâ€™s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds?

P5-4: Determinant of Interest Rates

The real risk-free rate of interest is 4%. Inflation is expected to be 2% this year and 4% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? What is the yield on 3-year Treasury securities?

P5-9: Bond Valuation and Interest Rate Risk

The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year.

a. What will be the value of each of these bonds when the going rate of interest is: (1) 5%, (2) 8%, and (3) 12%? Assume that there is only one more interest payment to be made on Bond S.

b. Why does the longer-term (15-year) bond fluctuate more when interest rates change than does the shorter-term bond (1 year)?

P5-13: Yield to Maturity and Current Yield

You just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%. What is the bondâ€™s yield to maturity?

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