Question

1)Bonds issued by the Asian Development Bank (ADB) would most likely be:

quasi-government bonds.

supranational bonds

global bonds.

2)

Will Smith, is estimating a value for an infrequently traded bond with 6 years to maturity, an annual coupon of 7%, and a single-B credit rating. Kate obtains yields-to-maturity for more liquid bonds with the same credit rating:

7% coupon, 8 years to maturity, yielding 7.20%.

7% coupon, 5 years to maturity, yielding 6.40%.

The infrequently traded bond is most likely trading at:

par value.

a discount to par value.

a premium to par value.

3)

1. Antonio Banderas is estimating a value for an infrequently traded bond. Using matrix pricing, he wants to estimate the approximate YTM for 7 year Bond with a par value equal to $1000 that pays coupons annually. The coupon rate equals 5%. There are other bonds that are characterized by a similar credit risk, the YTM for them are:

Bond	Maturity	YTM
A	6	6%
B	9	7,5%

The approximate YTM for infrequently traded six-year bond is

6.5%

6%

7%

4)

A corporate bond is quoted at a spread of +226 basis points over an interpolated 15-year U.S. Treasury bond yield. This spread is a(n):

G-spread.

I-spread.

Z-spread.

Answer 1

Answer (1) :

Bonds issued by the Asian Development Bank (ADB) would most likely be Global Bonds.

Answer (2) :

Interpolated YTM for the infrequently traded bond :

~ YTM of similar rated bonds:

5 years to maturity = 6.40% YTM

8 years to maturity = 7.20% YTM

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3 years maturity increase (From 5 to 8) = 0.8% YTM increase (From 6.40 to 7.20%)

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Now we want YTM increase for our 6 year maturity bond, that is 1 year increase from the 5 year bond,

Therefore,

3 years maturity increase = 0.8% YTM increase

1 year maturity increase = ? YTM increase

= 1 x 0.8% / 3

= 0.266% YTM increase compared to the 5 year bond

Therefore, YTM for our 6 year bond = YTM of 5 year bond + 0.266% = 6.40% + 0.266% = 6.66%

~Coupon Rate = 7%

YTM = 6.66%

Since, YTM < Coupon, therefore, the bond trades at Premium to Par Value.

~ Therefore, the infrequently traded bond is most likely trading at a Premium to Par Value.

Answer (3) :

Interpolated YTM for the infrequently traded bond :

~ YTM of similar rated bonds:

6 years to maturity = 6.00% YTM

9 years to maturity = 7.5% YTM

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3 years maturity increase (From 6 to 9) = 1.5% YTM increase (From 6.00 to 7.50%)

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Now we want YTM increase for our 7 year maturity bond, that is 1 year increase from the 6 year bond,

Therefore,

3 years maturity increase = 1.5% YTM increase

1 year maturity increase = ? YTM increase

= 1 x 1.5% / 3

= 0.5% YTM increase compared to the 6 year bond

Therefore, YTM for our 7 year bond = YTM of 6 year bond + 0.5%

= 6.00% + 0.5% = 6.5%

The approximate YTM for infrequently traded bond is 6.5%

Answer (4) :

A corporate bond is quoted at a spread of +226 basis points over an interpolated 15-year U.S. Treasury bond yield. This spread is an I-spread.