Utah State UniversityFINANCE 3200 1) Suppose the real rate is 2

Utah State UniversityFINANCE 3200

1) Suppose the real rate is 2.5 percent and the inflation rate is 4.1 percent. What rate would you expect to see on a Treasury bill?

2) You purchase a bond with a coupon rate of 7.3 percent and a clean price of $945. If the next semiannual coupon payment is due in two months, what is the invoice price?

3) Suppose the following bond quotes for IOU Corporation appear in the financial page of today’s newspaper. Assume the bond has a face value of $1,000 and the current date is April 19, 2012.

Company         Coupon            Maturity           Last Price         Last Yield        EST Vol

IOU                     6.2          April 19,2028       108.96                      ??            1,827

1. What is the yield to maturity of the bond?

2. What is the current yield?

4) Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 25 years to maturity, and a coupon rate of 6.4 percent paid annually. If the yield to maturity is 7.5 percent, what is the current price of the bond?