Unit 07 · Homework

Homework — Bonds and the Price of Debt

Bonds and the Price of Debt · Kenya · KSh

One required question per video, turned in to the TAs. The optional extras are on the practice problems page.

Homework for Week 7. Each set belongs to the video of the same number. One question in each set is required; answer it and turn it in to the TAs. The rest are optional practice, and worked answers to those are published alongside the set. A full set takes about twenty minutes. Work them before the case session.

Homework · 7.1

1. A bond has face value KSh 200,000, a 12% annual coupon, and 4 years to maturity. Draw the full cash-flow timeline, labelling each amount.

Homework · 7.2

1. Price a 4-year bond with a 10% annual coupon and face value 100, at required yields of 8%, 10%, and 12%.

Homework · 7.3

1. A bond's price falls 8% in a week. Give three possible explanations and describe what evidence would distinguish between them.

Homework · 7.4

1. A corporate bond yields 19.5% while the comparable sovereign yields 13.5%. State the spread in basis points, and compute the implied annual default probability assuming 35% recovery.

Homework · 7.5

1. Price a 3-year and a 12-year bond, both with 10% annual coupons and face value 100, at yields of 10% and 13%. Compute the percentage price change for each.