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1. Jackson Corporation's bonds have 6 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 7.5%. The bonds have a yield to maturity of 11%. What is the current market price of these bonds? Round your answer to the nearest cent.
2. The real risk-free rate is 4%. Inflation is expected to be 1% this year and 4% during the next 2 years. Assume that the maturity risk premium is zero.
a) What is the yield on 2-year Treasury securities? Round your answer to two decimal places.
b) What is the yield on 3-year Treasury securities? Round your answer to two decimal places.
3. The real risk-free rate is 3%, and inflation is expected to be 4% for the next 2 years. A 2-year Treasury security yields 8.8%. What is the maturity risk premium for the 2-year security?
4. Thatcher Corporation's bonds will mature in 20 years. The bonds have a face value of $1,000 and an 12% coupon rate, paid semiannually. The price of the bonds is $850. The bonds are callable in 5 years at a call price of $1,050. Round your answers to two decimal places.
a) What is their yield to maturity?
B) What is their yield to call?
5. The Brownstone Corporation's bonds have 7 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%.
a) What is the yield to maturity at a current market price of $858? Round your answer to two decimal places.
b) What is the yield to maturity at a current market price of $1,154? Round your answer to two decimal places
6. A 30-year, 10% semiannual coupon bond with a par value of $1,000 may be called in 4 years at a call price of $1,100. The bond sells for $1,050. (Assume that the bond has just been issued.)
a) What is the bond's yield to maturity? Round your answer to two decimal places.
b) What is the bond's current yield? Round your answer to two decimal places
c) What is the bond's capital gain or loss yield? Round your answer to two decimal places.
d)What is the bond's yield to call? Round your answer to two decimal places.
7. A bond that matures in 9 years sells for $950.The bond has a face value of $1,000 and a yield to maturity of 9.8764%. The bond pays coupons semiannually. What is the bond's current yield? Round your answer to two decimal places.
8. Assume that the real risk-free rate, r*, is 4% and that inflation is expected to be 8% in Year 1, 6% in Year 2, and 4% thereafter. Assume also that all Treasury securities are highly liquid and free of default risk. If 2-year and 5-year Treasury notes both yield 10%, what is the difference in the maturity risk premiums (MRPs) on the two notes; that is, what is MRP5 minus MRP2? Round your answer to two decimal places.
9. Because of a recession, the inflation rate expected for the coming year is only 3%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 3%. Assume that the real risk-free rate is r* = 2% for all maturities and that there are no maturity premiums. If 3-year Treasury notes yield 2 percentage points more than 1-year notes, what inflation rate is expected after Year 1?
10. Renfro Rentals has issued bonds that have a 8% coupon rate, payable semiannually. The bonds mature in 11 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds? Round your answer to the nearest cent.