January 5, 2018
###### Jane wants to endow an annual exhibition at the art gallery of her alma mater. She allocates \$20,000 per year forever to this event. If the university earns 12% per year on its investments, and if the event is in one year’s time, how much will she need to donate to endow the exhibition?
January 5, 2018

a) On January 1, 2012 you purchased a \$1,000 par, 10 year U.S. Treasury note with as semiannual coupon rate of 3%. If the bond is currently trading at \$945.50, what is its yield to maturity (YTM)?

b) Consider two coupon bonds, each of which pays semiannual coupon payments and has 5 years left until maturity. The first bond has a coupon rate of 5% and the second bond has a coupon rate of 10%. Both bonds have a yield to maturity of 8%. By what percentage will the price of each bond change if its yield to maturity decreases from 8% to 6%?

c) A bond that matures in 8 years has a par value of \$10,000, an annual coupon payment of \$700; its market interest rate is 9%. What is its price?

d) Last year a firm issued 20-year, 8% annual coupon bonds at a par value of \$1,000. Suppose that one year later the going rate drops to 6%. What is the new price of the bonds assuming that they now have 19 years to maturity?