【正文】 greater than the current yield, then the bond offers the prospect of price appreciation as it approaches its maturity date. Therefore, the bond must be selling below par value.17. The coupon rate is less than 9%. If coupon divided by price equals 9%, and price is less than par, then price divided by par is less than 9%.18.TimeInflation in Year Just EndedPar ValueCouponPaymentPrincipalRepayment0$1,12%1,$$ 23%$1,$$ 31%$1,$$1,The nominal rate of return and real rate of return on the bond in each year are puted as follows: Nominal rate of return = Real rate of return = Second YearThird YearNominal returnReal returnThe real rate of return in each year is precisely the 4% real yield on the bond.19. The price schedule is as follows:YearRemaining Maturity (T).Constant Yield Value $1,000/()TImputed Interest (increase in constantyield value)0 (now)20 years$119$218191200 1,20. The bond is issued at a price of $800. Therefore, its yield to maturity is: %Therefore, using the constant yield method, we find that the price in one year (when maturity falls to 9 years) will be (at an unchanged yield. $, representing an increase of $. Total taxable ine is: $ + $ = $21. a. The bond sells for $1, based on the % yield to maturity.[n = 60。 I = 4。 PV = –price。 FV = 1000。 FV = 1,。 COMP iThis results in: YTM = %Realized pound yield: First, find the future value (FV. of reinvested coupons and principal:FV = ($80 * *. + ($80 * . + $1,080 = $1,Then find the rate (yrealized . that makes the FV of the purchase price equal to $1,:$ 180。 $48 Coupon payments Current yield: 6. a. Effective annual rate for 3month Tbill:b. Effective annual interest rate for coupon bond paying 5% semiannually:(—1 = or %Therefore the coupon bond has the higher effective annual interest rate.7. The effective annual yield on the semiannual coupon bonds is %. If the annual coupon bonds are to sell at par they must offer the same yield, which requires an annual coupon rate of %.8. The bond price will be lower. As time passes, the bond price, which is now above par value, will approach par.9. Yield to maturity: Using a financial calculator, enter the following:n = 3。Chapter 14 Bond Prices and YieldsCHAPTER 14: BOND PRICES AND YIELDSPROBLEM SETS 1. a. Catastrophe bond—A bond that allows the issuer to transfer “catastrophe risk” from the firm to the capital markets. Investors in these bonds receive a pensation for taking on the risk in the form of higher coupon rates. In the event of a catastrophe, the bondholders will receive only part or perhaps none of the principal payment due to them at maturity. Disaster can be defined by total insured losses or by criteria such as wind speed in a hurricane or Richter level in an earthquake. b. Eurobond—A bond that is denominated in one currency, usually that of the issuer, but sold in other national markets.c. Zerocoupon bond—A bond that makes no coupon payments. Investors receive par value at the maturity date but receive no interest payments until then. These bonds are issued at prices below par value, and the investor’s return es from the difference between issue price and the payment of par value at maturity (capital gain).d. Samurai bond—Yendominated bonds sold in Japan by nonJapanese issuers.e. Junk bond—A bond with a low credit rating due to its high default risk。 PV = 。 (1 + yrealized .3 = $1, 222。 PMT = 0。 PV = –950。 PMT = 80]The resulting yields for the three bonds are:Bond PriceBond Equivalent Yield =Effective Annual Yield$950%1,0001,050The yields puted in this case are lower than the yields calculated with semiannual payments. All else equal, bonds with annual payments are less attractive to investors because more time elapses before payments are received. If the bond price is the same with annual payments, then the bond39。 N = 6. Solve for PV = $1,.If the market interest rate remains 4% per half year, price six months from now is:[$50 Annuity factor (4%, 5)] + [$1,000 PV factor (4%, 5)] = $1,Alternatively, PMT = $50。 i = 。 FV = 1100。 PMT = 40]22. The stated yield to maturity, based on promised payments, equals %.[n = 10。 *$50) = $1,25. Factors that might make the ABC debt more attractive to investors, therefore justifying a lower coupon rate and yield to maturity, are:i. The ABC debt is a larger issue and therefore may sell with greater liquidity.ii. An option to extend the ter