FIN 305 WEEK 5 EXAM 3 REQUIRES
RESPONDUS LOCKDOWN BROWSER AND
WEBCAM 2026 EXAM PREPARATION
WORKBOOK CASE PROBLEMS AND
SOLUTIONS A+
◉ Treasury bills are currently paying 8 percent and the inflation rate
is 3.50 percent.
What is the approximate real rate of interest?
What is exact real rate of interest? Answer: 4.5%=approx
8-3.5=4.5
4.35%=exact
1.08/1.035=.04347
◉ Bond X is a premium bond making semiannual payments. The
bond pays a 8 percent coupon, has a YTM of 6 percent, and has 12
years to maturity. Bond Y is a discount bond making semiannual
payments. This bond pays a 6 percent coupon, has a YTM of 8
percent, and also has 12 years to maturity.
,What is the value of each bond today? Answer: Bond X:
FV=1000
PMT=40
N=24
I/Y=3 (YTM)
PV=?--->$1,169.36
Bond Y:
FV:1000
PMT:30
N:24
I/Y: 4
PV:?--->$847.53
◉ Bond J is a 4 percent coupon bond. Bond K is a 10 percent coupon
bond. Both bonds have 17 years to maturity, make semiannual
payments, and have a YTM of 7 percent.
If interest rates suddenly rise by 2 percent, what is the percentage
price change of these bonds? What if they fall by 2%? Answer: J:
FV=1000, N=34, PMT=20, I/Y=3.5, PV=?--->704.49
,Rise by 2%
FV=1000, N=34, PMT=20, I/Y=4.5, PV=?-->568.83
704.49 - 568.83 = 135.66/704.49= -19.26% change
Fall by 2%
FV=1000, N=34, PMT=20, I/Y=2.5, PV=?--->886.38
886.38 - 704.49 = 181.89/704.49 = 25.82% change
K: FV=1000, N=34, PMT=50, I/Y=3.5, PV=?--->1295.51
Rise by 2%
FV=1000, N=34, PMT=50, I/Y=4.5, PV=?--->1086.23
1295.51 - 1086.23 = 209.28/1295.51= -16.15% change
Fall by 2%
FV=1000, N=34, PMT = 50, I/Y= 2.5, PV=?--->1568.09
1568.09 - 1295.51 = 272.58/1295.51 = 21.04% Change
◉ Martin Software has 11.2 percent coupon bonds on the market
with 20 years to maturity. The bonds make semiannual payments
and currently sell for 108.4 percent of par?
, NO SOLVING FOR YTM Answer: YTM:
N=40 ---->(20 x 2=40)
FV=1000 (par)
PV=-1084 ---->(1.084 x 1000=1084)
PMT=56 ---->(11.2 x 100=112/2=56)
I/Y=?--->5.1035
YTM= 10.21% ------>(5.1035 x 2 = 10.21)
Effective Annual Yield=10.47%
(1-.051035)^2 = 1.1047
1.1047 -1 = .1047-----> 10.47%
Current Yield: 10.33%
11.2 x 100 = 112
112/1084= 10.33%
◉ Bond P is a premium bond with a 9 percent coupon. Bond D is a 4
percent coupon bond currently selling at a discount. Both bonds
make annual payments, have a YTM of 6 percent, and have four
years to maturity
RESPONDUS LOCKDOWN BROWSER AND
WEBCAM 2026 EXAM PREPARATION
WORKBOOK CASE PROBLEMS AND
SOLUTIONS A+
◉ Treasury bills are currently paying 8 percent and the inflation rate
is 3.50 percent.
What is the approximate real rate of interest?
What is exact real rate of interest? Answer: 4.5%=approx
8-3.5=4.5
4.35%=exact
1.08/1.035=.04347
◉ Bond X is a premium bond making semiannual payments. The
bond pays a 8 percent coupon, has a YTM of 6 percent, and has 12
years to maturity. Bond Y is a discount bond making semiannual
payments. This bond pays a 6 percent coupon, has a YTM of 8
percent, and also has 12 years to maturity.
,What is the value of each bond today? Answer: Bond X:
FV=1000
PMT=40
N=24
I/Y=3 (YTM)
PV=?--->$1,169.36
Bond Y:
FV:1000
PMT:30
N:24
I/Y: 4
PV:?--->$847.53
◉ Bond J is a 4 percent coupon bond. Bond K is a 10 percent coupon
bond. Both bonds have 17 years to maturity, make semiannual
payments, and have a YTM of 7 percent.
If interest rates suddenly rise by 2 percent, what is the percentage
price change of these bonds? What if they fall by 2%? Answer: J:
FV=1000, N=34, PMT=20, I/Y=3.5, PV=?--->704.49
,Rise by 2%
FV=1000, N=34, PMT=20, I/Y=4.5, PV=?-->568.83
704.49 - 568.83 = 135.66/704.49= -19.26% change
Fall by 2%
FV=1000, N=34, PMT=20, I/Y=2.5, PV=?--->886.38
886.38 - 704.49 = 181.89/704.49 = 25.82% change
K: FV=1000, N=34, PMT=50, I/Y=3.5, PV=?--->1295.51
Rise by 2%
FV=1000, N=34, PMT=50, I/Y=4.5, PV=?--->1086.23
1295.51 - 1086.23 = 209.28/1295.51= -16.15% change
Fall by 2%
FV=1000, N=34, PMT = 50, I/Y= 2.5, PV=?--->1568.09
1568.09 - 1295.51 = 272.58/1295.51 = 21.04% Change
◉ Martin Software has 11.2 percent coupon bonds on the market
with 20 years to maturity. The bonds make semiannual payments
and currently sell for 108.4 percent of par?
, NO SOLVING FOR YTM Answer: YTM:
N=40 ---->(20 x 2=40)
FV=1000 (par)
PV=-1084 ---->(1.084 x 1000=1084)
PMT=56 ---->(11.2 x 100=112/2=56)
I/Y=?--->5.1035
YTM= 10.21% ------>(5.1035 x 2 = 10.21)
Effective Annual Yield=10.47%
(1-.051035)^2 = 1.1047
1.1047 -1 = .1047-----> 10.47%
Current Yield: 10.33%
11.2 x 100 = 112
112/1084= 10.33%
◉ Bond P is a premium bond with a 9 percent coupon. Bond D is a 4
percent coupon bond currently selling at a discount. Both bonds
make annual payments, have a YTM of 6 percent, and have four
years to maturity
