2 Finance questions
For all questions, assume that all interest rates or yields and payment frequencies are compounded semi-armually and that the redemption price equals the face value.
Mechanics
1. A Province of Alberta $100,000 face value bond carrying a 5.03% coupon was issued on December 17, 1998, with 20 years until maturity. What was its purchase price on June 17, 2005, when market yields were 4.29%2
2. A Government of Canada $50,000 face value bond carrying a 5.75% coupon was issued on Jtme 1, 2008, with 25 years until maturity. What was its market price on November 21, 2009, when market rates were 3.85%?
3. A $35,000 face value bond carrying a 7% coupon will mature on October 3, 2019. If it is purchased on April 3, 2006, for $46,522.28, what is its yield to maturity?
4. A $55,000 face value bond carrying a 4% coupon is purchased for $33,227.95 on March 29, 1997. The bond is later sold on September 29, 2007, for $60,231.63. Calculate the semi-annual investor’s yield.
5. A Province of Manitoba 1250,0000!! value bond carrying a 2% coupon was issued on December 1, 2006, with 30 years until maturity. On January 10, 2010, when market yields were 4.19%, what were its market price, accrued interest, cash price, and premium or discount?
6. Carlyle needs to save up $20,000 to meet the down payment requirement on his new home. He wants to make semiannual deposits at the beginning of each six months for the next four years, putting them into a fund earning 6.12% compounded semi-armually. Construct a complete sinlcing fund due schedule.
7. A $15 million face bond carrying an 8.5% coupon has nine years until maturity. The bond issue has a sinlcing fund provision requiring semi-annual payments, and the full bond value must be saved by its maturity date. If the fund can eam 7.35% compounded semi-armually, calculate the annual cost of the bond debt.
8. When market yields are 16%, a $65,000 face value bond carrying a 6.75% coupon is purchased three years before maturity. Construct a complete bond discount accrual table for the bondholder.
Applications
1. When posted market rates are 9.65%, a $75,000 face value bond carrying a 7% coupon is purchased with 23V2 years to maturity. With eight years remaining until maturity the bond is then sold, when posted market rates are 3.5%. Calculate the investor’s yield.
2. A 3275,000 face value Province of British Columbia bond carrying a 10.6% coupon is issued on September 5, 1990, with 30 years tmtil maturity. The bond is purchased on March 5, 2002, when posted rates are 5.98%. Calculate the purchase price of the bond. What is the amount of its premium or discount?
3. A $40,000 face value bond carrying a 7.6% coupon is purchased with four years until maturity. Posted rates are then 4.9%. Construct an appropriate complete table for the capital gain or loss. What is the total gain accrued or loss amortized in the third year?
4. A $50 million face value bond carrying a 4.83% coupon with 25 years until maturity is issued. The bond has a sinking fund requirement with semi-annual payments designed to retire the full face value upon maturity. If the sinlcing fund is expected to eam 3.89% compounded semi-annually, calculate the annual cost of the bond debt. What is the book value of the debt after 10 years?
5. A $62,000 face value bond carrying an 8.88% coupon is purchased on July 15, 2011. The bond matures on November 13, 2027. At the time of purchase, the market rate on the bond was 4.44%. Calculate the market price, accrued interest, and cash price of the bond. Determine the amount of the bond premium or discount.
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