Chapter 7 Review

Chapter 7 Review

1.)  Suppose you buy a 7 percent coupon, 20-year bond today when it’s first issued. If interest rates suddenly rise to 15 percent, what happens to the value of your bond? Why?

2.)  Carpenter, Inc., has 8 percent coupon bonds on the market that have 10 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 9 percent, what is the current bond price?

3.)  Linebacker Co. has 7 percent coupon bonds on the market with nine years left to maturity. The bonds make annual payments. If the bond currently sells for $1,080, what is its YTM?

4.)  Hawk Enterprises has bonds on the market making annual payments, with 16 years to maturity, and selling for $870. At this price, the bonds yield 7.5 percent. What must the coupon rate be on the bonds?

5.)  Cutler Co. issued 11-year bonds a year ago at a coupon rate of 7.8 percent. The bonds make semiannual payments. If the YTM on these bonds is 8.6 percent, what is the current bond price?