1.Consider a coupon bond that has a $1000 par value and a coupon rate of 12%The bond is currently selling…

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    1.Consider a coupon bond that has a $1000 par value and a coupon rate of 12%The bond is currently selling for $1280 and has 12 years to maturity. What is thebonds yield to maturity?
    2.Consider a bond that promises the following cash flows.Year : 0 1 2 3 4Promised Payments: 150 170 210 260Assuming all market interest rates are 14% what is the duration of this bond?
    3.You are willing to pay $25000 now to purchase a perpetuity which will pay youand your heirs $2200 each year forever starting at the end of this year. If yourrequired rate of return does not change how much would you be willing to pay if this were a 15-year annual payment ordinary annuity instead of a perpetuity?
    4. The demand curve and supply curve for bonds are estimated using the following equations:
    Demand: P = – (5/6)Q + 1400
    Supply: P = (1/3)Q + 700
    As the stock market continued to rise the Federal Reserve felt the need toincrease the interest rates. As a result the new market interest rate increased to14% but the equilibrium quantity remained unchanged. What are the new demand and supply equations? Assume parallel shifts in the equations.
    5. The one-year interest rate over the next 10 years will be 3% 4.5% 6% 7.5% 9% 10.5% 13% 14.5% 16% 17.5%. Using the pure expectations theory what will be the interest rates on a 4-year bond 7-year bond and 10-year bond?
    6. A bank has two 3-year commercial loans with a present value of $80 million.The first is a $30 million loan that requires a single payment of $37.8 million in 3 years with no other payments until then. The second is for $50 million. Itrequires an annual interest payment of $4.5 million. The principal of $50 million is due in 3 years. The general level of interest rates is 7%. What is the duration of the banks commercial loan portfolio?
    7.One-year T-bill rates are 3% currently. If interest rates are expected to go up after 4 years by 3% every year what should be the required interest rate on a 10-year bond issued today?
    8.Calculate the present value of a $1000 zero-coupon bond with 8 years to maturity if the required annual interest rate is 12%.
    9.Calculate the duration of a $1000 5% coupon bond with three years to maturity. Assume that all market interest rates is 8% for next three years.
    10.An economist has estimated that near the point of equilibrium the demand curveand supply curve for bonds can be estimated using the following equations:Demand: P =-(2/7)Q + 1000
    Supply: P = (1/7)Q + 700
    a. What is the expected equilibrium price and quantity of bonds in this market?b. Given your answer to part (a) which is the expected interest rate in this market?

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