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Answer the questions showing all of your work.Questions are in the attached file.
chapter_3_homework_assignment.docx

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1. Calculate the present value of a \$1,000 zero-coupon bond with 10 years to maturity if the required
annual interest rate is 6.5%.
2. A lottery claims its grand prize is \$25 million, payable over 25 years at \$1,000,000 per year. If the
first payment is made immediately, what is this grand prize really worth? Use a discount rate of
7%.
3. Consider a bond with an 8% semiannual coupon and a face value of \$1,000. Complete the
following table:
Years to Maturity
3
3
6
9
9
Discount Rate
5
8
8
5
9
Current Price
What relationship do you observe between yield to maturity and the current market value?
4. Consider a coupon bond that has a \$1,000 par value and a coupon rate of 10%. The bond is
currently selling for \$1,235 and has 8 years to maturity. What is the bond’s yield to maturity?
5. You are willing to pay \$14,412 now to purchase a consol bond which will pay you and your heirs
\$1,225 each year, starting at the end of this year. If your required rate of return does not change,
how much would you be willing to pay if this were a 20-year, annual payment, ordinary annuity