FIN 310 HW 4
FIN310 Week 4 HW Problems P 5.1 You are considering a car loan with a stated APR of 6% based on monthly compounding. What is the effective annual rate of this loan? P 5.20 You have decided to refinance your mortgage. You plan to borrow whatever is outstanding on your current mortgage. The current monthly payment is $2,356 and you have made every payment on time. The original term of the mortgage was 30 years, and the mortgage is exactly four years and eight months old. You have just made your monthly payment. The mortgage interest rate is 6.375% (APR). How much do you owe on the mortgage today? P 6.6 What is the price per $100 face value of a four-year, zero-coupon, risk-free bond if the yield to maturity on a 4-year bond is 5.95%? P 6.10 The yield to maturity of a $1,000 bond with a 7.0% coupon rate, semiannual coupons, and two years to maturity is 7.6%APR, compounded semiannually. What is its price? P 6.12 Suppose a ten-year, $1,000 bond with an 8.0% coupon rate and semiannual coupons is trading for $1,034.74. a. What is the bond’s yield to maturity (expressed as an APR with semiannual compounding)? b. If the bond’s yield to maturity changes to 9.0% APR, what will be the bond’s price? P 6.23 Consider the following bonds: Bond A B C D Coupon Rate (annual payments) 0% 0% 4% 8% Maturity (yr.s) 15 10 15 10 What is the percentage change in the price of each bond if its yield to maturity falls from 6% to 5%? P 6.26 The following table summarizes the yields to maturity on several one-year, zero-coupon securities: Security Yield (%) Treasury 3.1 AAA Corporate 3.2 BBB Corporate 4.2 B Corporate 4.9 a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with an AAA rating? b. What is the credit spread on AAA-rated corporate bonds? c. What is the credit spread on B-rated corporate bonds? d. How does the credit spread change with the bond rating? Why?
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