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 A’s 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 A’s capital gain or (loss) on the sale? \$______________

1. What premium arises in B’s purchase? \$_______________

1. How much of B’s 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?________%