1. Determine the value of a $1,000 denomination Bell South bond with a 7 percent coupon rate maturing in 20 years for an investor whose required rate of return is:
  2. 8 percent
  3. 7 percent
  4. 5 percent
  5. Consider Allied Signal Corporation’s 9 percent bonds that mature on June 1, 2010. Assume that the interest on these bonds is paid and compounded annually. Determine the value of a $1,000 denomination Allied Signal Corporation bond as of June 1, 2004, to an investor who holds the bond until maturity and whose required rate of return is:
  6. 7 percent
  7. 9 percent
  8. 11 percent
  9. What would be the value of the Allied Signal Corporation bonds at an 8 percent required rate of return if the interest were paid and compounded semiannually?
  10. Southern Bell has issue 4 percent bonds that mature on August 1, 2011. Assume that the interest is paid and compounded annually. Determine the yield to maturity if an investor purchases a $1,000 denomination bond for $853.75 on August 1, 2004.
  11. Consider the Allied Signal Corporation zero compound money multiplier notes of 2008. The bonds were issued on July 1, 1990 for $100. Interest is paid every July 1 and the bond mature on July 1, 2008. Determine the yield to maturity if the bonds are purchased at the:
  12. Issue price in 1990
  13. Market price as of July 1, 2004, of $750
  14. Explain why the returns calculated in (a) and (b) are different.
  15. If you purchase a zero coupon bond today for $225 and it matures at $1,000 in 11 years, what rate of return will you earn on that bond (to the nearest 10th of the 1 percent?
  16. AT&T Corporation has several issues of bonds outstanding. One of the outstanding bonds has a 5 percent coupon and matures in 2004. The bonds mature on April 1 in the maturity year. Suppose an investor bought this bond on April 1, 1999, and assume interest is paid annually on April 1. Calculate the yield to maturity assuming the investor buys the bond at the following price, as quoted in the financial press:
  17. 100
  18. 90
  19. 105
  20. The following bond quotations are taken from the Walls Street Journal dated Friday, September 5, 2003:

CompanyCouponMaturityLast PriceYield

International Paper (IP)6,750Sep 01, 2011108,1985,468

Sara Lee (SLE)3,875Jun 15, 201389, 7005,235

Wells Fargo (WFC)7,250Aug 24, 2005109, 6452,191

General Motors (GM)7,125Jul 15, 2013101, 2016,952

Lincoln National (LNG) 6,200Dec 15, 2011105,9035,307

  1. Explain why the international Paper Bond is selling at a premium but the Sara Lee is selling at a discount.
  2. Why is the yield (yield to maturity) on the General Motors bond so much higher than the yield on the Sara Lee bond?
  3. Why is the yield (yield to maturity) on the Wells Fargo Bank bond so much less than yield on the Lincoln National Corp. bond?