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Bond Yields

A 30-year Treasury bond is issued with par value of $1,000, paying interest of $80 per year. If market yields increase shortly after the T-bond is issued, what happens to the bond s:

a. coupon rate

b. price

c. yield to maturity

d. current yield

2. Bond Yields. If a bond with par value of $1,000 and a coupon rate of 8 percent is selling at a price of $970, is the bond s yield to maturity more or less than 8 percent? What about the current yield?

3. Bond Yields. A bond with par value $1,0 00 has a current yield of 7.5 percent and a coupon rate of 8 percent. What is the bond s price?

4. Bond Pricing. A 6-year Circular File bond pays interest of $80 annually and sells for $950. What is its coupon rate, current yield, and yield to maturity?

5. Bond Pricing. If Circular File (see question 4) wants to issue a new 6-year bond at face value, what coupon rate must the bond offer?

6. Bond Yields. An AT&T bond has 10 years until maturity, a coupon rate of 8 percent, and sells for $1,050.

a. What is the current yield on the bond?

b. What is the yield to maturity?

7. Coupon Rate. General Matter s outstanding bond issue has a coupon rate of 10 percent and a current yield of 9.6 percent, and it sells at a yield to maturity of 9.25 percent. The firm wishes to issue additional bonds to the public at par value. What coupon rate must the new bonds offer in order to sell at par?

8. Financial Pages. Refer to Figure 3.2. What is the current yield of the 61вЃ„4 percent, August 2002 maturity bond? What was the closing ask price of the bond on the previous day?

9. Bond Prices and Returns. One bond has a coupon rate of 8 percent, another a coupon rate of 12 percent. Both bonds have 10-year maturities and sell at a yield to maturity of 10 percent. If their yields to maturity next year are still 10 percent, what is the rate of return on each bond? Does the higher coupon bond give a higher rate of return?

10. Bond Returns.

a. If the AT&T bond in problem 6 has a yield to maturity of 8 percent 1 year from now, what will its price be?

b. What will be the rate of return on the bond?

c. If the inflation rate during the year is 3 percent, what is the real rate of return on the bond?

11. Bond Pricing. A General Motors bond carries a coupon rate of 8 percent, has 9 years untit l maturity, and sells at a yield to maturity of 9 percent.

a. What interest payments do bondholders receive each year?

b. At what price does the bond sell? (Assume annual interest payments.)

c. What will happen to the bond price if the yield to maturity falls to 7 percent?

12. Bond Pricing. A 30-year maturity bond with face value $1,000 makes annual coupon payments and has a coupon rate of 8 percent. What is the bond s yield to maturity if the bond is selling for

a. $900

b. $1,000

c. $1,100

13. Bond Pricing. Repeat the previous problem if the bond makes semiannual coupon payments.

14. Bond Pricing. Fill in the table below for the following zero-coupon bonds. The face value of each bond is $1,000.