Fin 305 Exam 2 2024/2025 With Questions And Answers
Written CORRECTLY
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? - correct 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%? - correct 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 - correct 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
1. What is the current yield for bond P and bond D?
2. If interest rates remain unchanged, what is the expected capital gains yield over the next year for
bond P and bond D? - correct answer <<<<<💕💕💕✔✔Bond P:
N=4, I/Y=6, PMT=90, FV=1000, PV=?--->1103.95
1 year later (1 period closer to maturity)
N=3, I/Y=6, PMT=90, FV=1000, PV=?--->1080.19
Change in price=$23.76
Current yield=8.15% (90/1103.95)
Cap Gain/Loss= - 2.15% (23.76/1103.95)
Total Return = 6%
Bond D:
N=4, I/Y=6, PMT=40, FV=1000, PV=?--->930.70
1 year later:
N=3, I/Y=6, PMT=40, FV=1000, PV=?--->946.54
Change in price=$15.8393
Written CORRECTLY
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? - correct 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%? - correct 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 - correct 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
1. What is the current yield for bond P and bond D?
2. If interest rates remain unchanged, what is the expected capital gains yield over the next year for
bond P and bond D? - correct answer <<<<<💕💕💕✔✔Bond P:
N=4, I/Y=6, PMT=90, FV=1000, PV=?--->1103.95
1 year later (1 period closer to maturity)
N=3, I/Y=6, PMT=90, FV=1000, PV=?--->1080.19
Change in price=$23.76
Current yield=8.15% (90/1103.95)
Cap Gain/Loss= - 2.15% (23.76/1103.95)
Total Return = 6%
Bond D:
N=4, I/Y=6, PMT=40, FV=1000, PV=?--->930.70
1 year later:
N=3, I/Y=6, PMT=40, FV=1000, PV=?--->946.54
Change in price=$15.8393
