ACST101 Problem Set 6 1. “Other things being equal, a lower bond price implies a higher yield to maturity.” True or false? Explain. 2. Firm ABC issues a 4-year bond with a par value of $1,000 and a coupon rate of 7.5%. Coupon payments are made semi-annually. If the nominal interest rate is 6.0% per annum, calculate the market price of the bond. 3. Steve is considering to purchase a 5-year zero-coupon bond. Calculate the max- imum price that he is willing to pay for the bond if his desired nominal yield is 10.5% compounded semi-annually. 4. Bond XYZ is a 4% semi-annual coupon bond with a term to maturity of 8 years and is currently trading at par. (a) Calculate the percentage change in the bond’s price if the interest rate falls by 0.5%. (b) A year later, the nominal yield to maturity of the bond is 3.7%, calculate the capital gain yield for the holding period of one year. 5. “The yield to maturiy of a premium bond is greater than its coupon rate.” True or false? Explain.
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