FINANCE Investment Analysis and Portfolio Management CHAPTER 18 PROBLEMS
1 Four years ago your firm issued $1,000 par, 25-year bonds, with a 7 percent coupon rate and a 10 percent call premium.
a. lf these bonds are now called, what is the approximate yield to call for the investors who originally purchased them?
b. If these bonds are now called, what is the actual yield to call for the investors who originally purchased them at par?
c If the current interest rate is 5 percent and the bonds were not callable, at what price would each bond sell?
2. Assume that you purchased an 8 percent, 20-year,$1,000 par, semiannual payment bond priced at $l,012.50 when it has 12 years remaining until maturity. Compute ：
a. Its promised yield to maturity
b. Its yield to call if the bond is callable in three years with an 8 percent premium.
3. Calculate the duration of an 8 percent, $1,000 par bond that matures in three years if the bond's YTM is 10 percent and interest is paid semiannually.
a. Calculate this bond's modified duration.
b. Assuming the bond's YTM goes from 10 percent to 9.5 percent calculate an estimate of the price change.
4. Two years ago, you acquired a 10-year zero coupon,$ 1,000 par value bond at a 12 percent YTM Recently you sold this bond at an 8 percent YTM. Using semiannual compounding, compute the annualized horizon return for this investment.
5. A bond for the Chelle Corporation has the following characteristics ：
Maturity--12 years
Coupon--10%
Yield to maturity--9.50%
Macaulay duration--5.7 years
Convexity--48
Noncallable
a. Calculate the approximate price change for this bond using only its duration assuming its yield to maturity increased by 150 basis points. Discuss the impact of the calculation including the convexity effect.
b. Calculate the approximate price change for this bond (using only its duration) if its yield to maturity declined by 300 basis points. Discuss (without calculations) what would happen to your estimate of the price change if this was a callable bond.
USA 
India