**Math 365**

**Quiz on Chapter 7**

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.

- What premium arises in A’s original purchase? $____________

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

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

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

- What flat price does B pay? $_______________

- What is A’s capital gain or (loss) on the sale? $______________

- What premium arises in B’s purchase? $_______________

- How
much of B’s 1
^{st}coupon goes to amortize premium? $_______________

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

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

- What
annual rate of
interest does A earn during the final 2 months?____%__simple__

- What
annual rate of
interest does B earn during the first 4 months?_____%__simple__

- What annual
rate does A earn during the final 2 months?_______%__effective__

- What annual
rate does B earn during the first 4 months?________%__effective__