(Valuation of Bonds and Shares)

1. Verbrugge Company has a level-coupon bond outstanding that pays coupon interest of $120 per year and has 10 years to maturity. The face value of the bond is $1,000. If the yield for similar bonds is currently 14%, what is the bond 's current market value? [Ans: $ 895.68]

2. For the Verbrugge Company bond described in Problem 1, find the bond 's value if the yield for similar bonds decreases to 12%. [Ans: $ 1,000]

3. For the Verbrugge Company bond described in Problem 1, find the bond 's value if the yield for similar bonds decreases to 9%. [Ans: 1192.53]

4. What conclusions can you draw out of the solutions of the problems 1, 2 and 3 ?

5. Suppose the Verbrugge bond paid interest semiannually. What would its value be if the yield is 14%? [Ans: $ 894.06]

6. Sasha Company has a level-coupon bond with a 9% coupon rate; interest is paid annually. The bond has 20 years to maturity and a face value of $1,000; similar bonds currently yield 7%. By prior agreement the company will skip the coupon interest payments in years 8, 9, and 10. These payments will be repaid, without interest, at maturity. What is the bond 's value? [Ans: $ 1134.56]

7. The market price of a Rs 1,000 par value bond carrying a coupon rate of 14 % and maturing after 5 years is Rs 1,050. What is the yield to maturity on this bond ? What is the approximate YTM ? [Ans: 12.60 %, 12.62 %]

8. A firm issues a bond today with a $1,000 face value, an 8% coupon interest rate, and 25-year maturity. An investor purchases the bond for $1,000. What is the yield to maturity (YTM)? [Ans: 8%]

9. Suppose the investor bought the bond described in the previous problem for $900. What is the YTM? [Ans: 9.0197]

10. Suppose the bond described in the previous two problems has a price of $1,100 five years after it is issued. What is the YTM at that time? [Ans: 7.0522]

11. If the real rate is 4% and the inflation rate is 10%, what is the