1. Is the YTM (yield to maturity) on a bond the same thing as the required return? Is YTM the same thing as the coupon rate? Suppose today a 10 percent coupon bond sells at par. Two years from now, the required return on the same bond is 8 percent. What is the coupon rate on the bond now? The YTM?
2. Suppose you buy a 7 percent coupon, 20-year bond today at par when it’s first issued. If interest rates suddenly rise to 15 percent, what happens to the value of your bond? Why?
3. Timmons, Inc., has 9 percent coupon bonds on the market that have 12 years left to maturity. The bonds make annual payments. If the YTM on these bond is 8 percent, what is the current bond price? (Note: In general, corporate bonds in the United States have a par value of $1,000.)
4. Carhart Co. has 7 percent coupon bonds on the market with 8 years left to maturity. The bonds make annual payments. If the bond currently sells for $902.25, what is its YTM?
5. Merton Enterprises has bonds on the market making annual payments, with 13 years to maturity, and selling for $905. At this price, the bonds yield 8.5 percent. What must the coupon rate be on Merton’s bonds?
6. Mullineaux Co. issued 10-year bonds one year ago at a coupon rate of 7.50 percent. The bonds make semiannual payments. If the YTM on these bonds is 8.6 percent, what is the current bond price?
7. Lambert Co. issued 15-year bonds two years ago at a coupon rate 8.4 percent. The bonds make semiannual payments. If these bonds currently sell for 84 percent of par value, what is the YTM?
8. Joe Kernan Co. has bonds on the market with 10.5 years to maturity, an YTM of 8.5 percent, and a current price of $1,090. The bonds make semiannual payments. What must the coupon rate be on Kernan’s bonds?