Math 365

Quiz on Chapter 7

Due Wed. December 3

 

This is an open-book quiz, use any resource you like. Please show all of your work on a separate sheet or sheets. No work/no credit.

 

Name:______________________________

 

A $10,000 8% bond is purchased by A to yield 6.5% when there is exactly 20 years to maturity. After exactly 12 years and 2 months pass, A sells the bond to B at a price to yield 5% to maturity. Answer the following questions to the nearest whole dollar, or to the nearest basis point (0.01%). Be careful! You may need to hold more accuracy in the early answers in order to achieve the required accuracy on the later answers.

 

  1. What premium arises in As original purchase? $____________

 

  1. How much premium does A amortize during the first 12 years? $___________

 

  1. How much premium does A amortize during the final 2 months? $__________

 

  1. What interest does A earn during the final 2 months? $__________

 

  1. What flat price does B pay? $_______________

 

  1. What is As capital gain or (loss) on the sale? $______________

 

  1. What premium arises in Bs purchase? $_______________

 

  1. How much of Bs 1st coupon goes to amortize premium? $_______________

 

  1. How much of it goes to return what B paid A for the coupon? $_______________

 

  1. How much of it goes to interest for the first 4 months? $____________________

 

  1. What annual rate of simple interest does A earn during the final 2 months?____%

 

  1. What annual rate of simple interest does B earn during the first 4 months?_____%

 

  1. What annual effective rate does A earn during the final 2 months?_______%

 

  1. What annual effective rate does B earn during the first 4 months?________%