1.

Construct a bond amortization schedule for a $100 par value 2-year

bond with 7% coupons paid semiannually, redeemable at par and
bought to yield 4% per annum.

2. The following shows the information of a government bond traded in

the secondary market.

Type of Bond Government bond

Issue Date May 16, 2006
Maturity Date May 16, 2016
Face Value $100
Redemption Value $108
Coupon Rate 5% payable semiannually
Yield Rate 8% convertible semiannually
Construct the bond amortization schedule for year 5 and year 6
(i.e., for the 9th coupon through the 12th coupon).

3. Consider the bond in the Exercise 6.7 and assume the coupon dates
are May 16 and November 16 each year. On September 20, 2010, an
investor purchased the bond to yield 7% convertible semiannually.
Find the purchase price, the accrued interest and the quoted price
of the bond at the date of purchase.
4. Find the coupon rate of a 5-year $100 par semiannual coupon bond
redeemable at par, yielding 5.7% convertible semiannually, if its
price is the same as that of a zero-coupon bond with face value
$100 maturing in 5 years and yielding 3.5% compounded annually.

5. Two $1,000 par value bonds both with 6% coupon rate payable
annually are selling at $1,000. Bond A matures in 3 years while
bond B matures in 10 years. Find the price of the two bonds if the
market interest rate goes up or down by 1 percentage point. Which
bond is more sensitive to the change in the prevailing interest
rate?

6. You own a $1,000 face value 10-year bond with semiannual coupons
that will mature in 6 years. Immediately after receiving the 8th
coupon of $46, you sell the bond and purchase another newly issued
$1,000 face value 10-year bond with semiannual coupons of $47.5
each. Given that the prevailing market interest rate is r(2)=9% and
the bond you originally owned is redeemable at 104%, find
redemption value of the new bond that you purchase.
7. Fill in the missing values of the following bond amortization
schedule for a $100 par value 2-year bond with semiannual
coupons:

Half- Coupon Effective Amortized amount Book Value

year payment interest earned of premium
0
1
2 94.26
3 -1.05 95.31
4 3.34 -1.9 96.40

8. Fill in the missing values of the following excerpt of a bond

amortization schedule for a $100 par value 10-year bond with
semiannual coupons and redeemable at par:

Half- Coupon Effective Amortized amount Book Value

year payment interest earned of premium
8
9
10 2.62 0.38 104.38
11
9. The following shows the information of an investment-grade bond
when it was issued in 2002.

Type of Bond Corporate bond

Issue Date Oct 28, 2002
Maturity Date Oct 28, 2012
Face Value $1,000
Coupon Rate 6.8% payable semiannually
Yield Rate 7.4% convertible semiannually
The bond is redeemable at par and coupons are payable on October
28 and April 28 every year. An investor purchased the bond October
28, 2007 immediately after the coupon was paid at a purchase price
of $967.5 under the prevailing interest rate, and sold the bond on
March 30, 2008. Assuming that the market interest rate is constant
in the holding period, calculate the bond’s dirty price.

10. A $100 par value bond has semiannual coupons of 5% per annum
and is callable at the end of the 7th through the 10th year at par.
Find the most defensive price of the bond if
a) the yield rate is 6% compounded semiannually,
b) the yield rate is 4.5% compounded semiannually.

11. A $1,000 par value 10-year bond with annual coupons is

redeemable at $1,055, and has a purchase price of $986 at a yield
rate 4% per annum. The coupons are non-level and increase at a
rate of 3% per year. Find the amount amortized or discounted for
the 5th coupon.
12. Two $1,000 bonds, redeemable on the same date at par to yield
4.5% have annual coupon rate of r and 2r. If the total purchase
price of the two bonds is $2,153.52 and the difference of the bond
prices is $307.04, find r.

13. A $100 par value 5% bond with annual coupons has a call
protection period of 5 years. The bond is callable at $109 at the
end of year 6, 7 and 8; at $104 at the end of year 9, 10 and 11,
and at $100 at the end of year 12.
a) If the yield rate is 6%, what is the optimal call date for
the issuer?
b) If the yield rate is 3%, what is the optimal call date for
the issuer?

14. A $100 par value 8-year annual-coupon bond is redeemable at

105%. The coupon rate is 3% in the first 4 years and increases to
5% afterwards. Construct the amortization schedule for the bond in
the 4th, 5th and 6th year, given that the price of the bond is
$96.3.
15. A $100 par value bond maturing in n years with 5% annual
coupons is sold at $103.3. Another bond with an annual coupon rate
of 3% but otherwise the same is sold at $90.1. Both bonds are
redeemable at par. Find the writeup/writedown of the book value
for the second bond during the 5th year.

16. A $1,000 par value 16-year bond with m coupons per annum has
a price of $910.63. If the total write-up value in the book value
of the bond in the first 8 years is $54 and the yield rate of the
bond is 5.0945% effective per annum, find the redemption value of
the bond.

17. One method of calculating the write-up or write-down of the

book value of a bond is the straight-line method. This method is
used for taxation purpose in the US for the bonds purchased at
premium and issued before the Tax Reform Act 1986. Under the
straight-line method, the book value decreases from the purchase
price to the redemption value linearly over the life of the bond.
For the bond considered in Table 6.1, construct the bond
amortization schedule using the straight-line method. Is this
method consistent with the theory of compound interest or simple
interest?
18. A $100 par value 20-year callable bond paying 5.5% coupons
annually has a call protection period of 10 years. The bond is
redeemable
a) at the end of the 11th to the 15th year, at 10.4%,
b) at the end of the 16th to the 20th year, at par.
c) Find the price of the bond if the yield rate of the bond is
not less than 5.3%.

19. For a $1,000 par value 10-year bond with annual coupons, you
are given the following information:

Time (in Coupon Effective Amortized amount Book Value

year) payment interest earned of premium
⋮ ⋮
5 54.099
6 54.945
7 55.842
⋮ ⋮
Find the sum of the premiums or discounts in the last 2 years of
the term of the bond.

20. For a $100 par value 5-year bond with 8% coupons paid
semiannually and bought to yield 10% compounded semiannually,
calculate the amount of premium or discount 2 years and 10 months
after the date of purchase. Assume that each month has exactly 30
days.
21. A 10-year $100 par value bond bearing a 10% coupon rate
payable semiannually and redeemable at $105 is bought to yield 8%
convertible semiannually. Find the price. Verify that all four
formulas produce the same answer.

22. For the bond in Example 7.3, determine the following:

a) Nominal yield, based on the par value.
b) Nominal yield, based on the redemption value.
c) Current yield.
d) Yield to maturity.

23. Two $100 par value bonds both with 8% coupon rates payable
semiannually are currently selling at par. Bond A matures in 5
years at par, while Bond B matures in 10 years at par. If
prevailing market rates of interest suddenly go to 10% convertible
semiannually, find the percentage change in the price of:
a) Bond A.
b) Bond B.
c) Justify from general reasoning the relative magnitude of the
answers to (a) y (b).
24. Two $1000 bonds redeemable at par at the end of the same
period are bought to yield 4% convertible semiannually. One bond
costs $1136.78 and has a coupon rate of 5% payable semiannually.
The other bond has a coupon rate of 2 ½% payable semiannually.
Find the price of the second bond.

25. A $1000 bond with a coupon rate of 9% payable semiannually is

redeemable after an unspecified number of years at $1125. The bond
is bought to yield 10% convertible semiannually. If the present
value of the redemption value is $225 at this yield rate, find the
purchase price.

26. A $1000 par value n-year bond maturing at par with $100
annual coupons is purchased for $1110. If K=450, find the base
amount G.
27. An investor owns a $1000 par value 10% bond with semiannual
coupons. The bond will mature at par at the end of 10 years. The
investor decides that an 8-year bond would be preferable. Current
yield rates are 7% convertible semiannually. The investor uses the
proceeds from the sale of the 10% bond to purchase a 6% bond
semiannual coupons, maturing at par at the end of 8 years. Find
the par value of the 8–year bond.

28. An n-year $1000 par value bond matures at par has a coupon
rate of 12% convertible semiannually. It is bought at a price to
yield 10% convertible semiannually. If the term of the bond is
doubled, the price will increase by 50. Find the price of then-
year bond.

29. For a $1 bond the coupon rate is 150% of the yield rate and
the premium is p. For another $1 bond with the same number of
coupons and the same yield rate, the coupon rate is 75% of the
yield rate. Find the price of the second bond.
30. For a certain period a bond amortization schedule shows that
the amount for amortization of premium is $5 and that the required
interest is 75% of the coupon. Find the amount of the coupon.

31. A 10-year bond with semiannual coupons is bought at a

discount to yield 9% convertible semiannually. If the amount for
accumulation of discount in the next-to-last coupon is $8, find
the total amount for accumulation of discount during the first
four years in the bond amortization schedule.

32. A $1000 par value five-year bond with a coupon rate of 10%
payable semiannually and redeemable at par is bought to yield 12%
convertible semiannually. Find the total of the interest paid
column in the bond amortization schedule.