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- Exam 2 Review

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If you own an asset that had a total return last year of 11.4%, and the inflation rate last year was 4.8% then what was your real return?

Use the Fisher Equation

1+R=(1+r)*(1+h)

r=(1+R)/(1+h)

r=1.114/1.048

r=6.3%

If you buy a 4% coupon, 20 year bond today when it's first issued, interest rates suddenly raise to 9% , what happens to the value of your bond?

The value of your bond falls because the coupon payments you're getting are as valuable as interest rates rise.

There is a 7.5 % coupon bond that has 10 years left to maturity. The bond makes annual payments. If the YTM on these bonds is 8.75% what is the current bond price?

N = 10

COMPUTE PV = $918.89

I/Y = 8.75

PV = ?

PMT = 75

FV = 1000

COMPUTE PV = $918.89

A company has 9% coupon bonds on the market that have 9 years left to maturity. The bond makes annual payments. If the bond currently sells for $934 what is the YTM>

N=9

I/Y=?

PV=-934

PMT=90

FV=1000

COMPUTE I/Y = 10.15

There is a bond that makes annual payments, with 13 years to maturity, and selling from $1,045. At this price the bond yields 7.5%. What is the coupon rate on the bonds?

N=13

I/Y=7.5%

PV=-$1,045

PMT = ?

FV= $1,000

COMPUTE PMT = 80.54

80.54/1000 = 8.05%1

A company issued 11 year bonds one year ago at a coupon rate of 6.9%. The bonds make semi-annual payments. If the YTM on these bonds is 7.4%, what is the current bond price?

N=10

COMPUTE PV= $965.52

I/Y=7.4

PV=?

PMT=69

FV=1000

COMPUTE PV= $965.52

What is the exact real rate for the values above

All other things being equal are bonds with high or low coupon payments more at interest rate risk?

What should the coupon rate be equal to if a company wants the band to sell at par?

What is the equation for a "clean price" of a bond?

What's the relationship between the price of a bond and it's Yield To Maturity?

What effect does the coupon rate have on whether or not a bond is offered at a premium?

What is an unsecured bond called?

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