Expert Solutions

1. What is the yield to maturity on a corporate bond scheduled to pay annual interest of $100 and $1,000 upon maturity 3 years from now? The bond is selling for $1,025.31. Round the yield to maturity to the nearest percent.

2. A bond will pay principal of $1,000 upon maturity in 10 years from now, plus it will pay $60 every six months, including the date of maturity and starting six months from now. What price would you expect to pay for the bond if comparable bonds yield 8 percent?

3. What is the present value of a share of preferred stock that you own indefinitely? The stock’s dividend is $5. The appropriate discount rate is 6 percent.

4. What is the yield to maturity on a municipal bond scheduled to pay $10,000 upon maturity 5 years from now? This is a zero coupon bond selling for $8,220. Round the yield to maturity to the nearest percent.

5. What is the duration of a bond that will pay $50 per year in coupon payments and $1,000 after four years? Use a discount rate of 10 percent.

6. To participate in the U.S. national mortgage market by investing in bonds, the best way would be to invest in

7. One of the benefits of the laddered approach to managing interest rate risk in a bond portfolio is that