Question 1
Bank of America bonds are currently trading at $952.31. The bonds have a face value of $1,000, a coupon rate of 8% with payments made semi-annually, and mature in 20 years. What is the yield to maturity?
◦ 7.0%
◦ 7.5%
◦ 8.0%
◦ 8.5%
◦ 9.0%
Question 2
| Bond | Maturity | FV | Coupon | Yield | Price |
| Zero1 | 1 | 100 | 0 | 1% | $99.0099 |
| Zero2 | 2 | 100 | 0 | 2% | $96.1169 |
| Coupon2 | 2 | 100 | 4% | n.a. | $101 |
Given the bond prices in the table, you should
◦ buy the two zeros and sell the coupon bond.
◦ buy the coupon bond and sell the two zeros.
◦ do nothing. The prices are consistent. There is no arbitrage opportunity.
◦ buy the underpriced asset and sell the equivalent fairly priced asset.
