Question

QUESTION 1

Last year, you purchased a 5-year bond, pays semiannually, and has a coupon rate of 6%. If the yield in the market is currently 5%, calculate the price of the bond today.

		$1083.31
		$1250.95
		$1077.22
		$845.57
		None of the above

QUESTION 2

A bond will mature in 10 years, has a YTM of 6.5%, and makes annual payments. If the bond price is $1104 today, what is the coupon rate?

		79.47%
		6.50%
		7.95%
		7.44%
		None of the above

QUESTION 3

A bond will mature in 10 years, has a YTM of 6.5%, and makes semiannual payments. If the bond price is $1104 today, what is the coupon rate?

		7.93%
		6.50%
		8.97%
		7.44%
		None of the above

QUESTION 4

A zero coupon bond will mature in 8 years and has a yield of 7%. If this bond pays annually, what is the price of this bond?

		1000
		582.01
		583.49
		338.73
		None of the above

QUESTION 5

Calculate the price of this bond: Yield = 5.55%, Time to maturity = 7 years, Coupon rate = 4.6%, Pays = annually.

		948.85
		990.87
		690.83
		946.11
		None of the above

Answer 1

Ques 1)

Year	Coupons	Principal	Total cash flows	Discounting Factor @ 5%	Present value
0.5	30		30	0.975609756	29.27
1	30		30	0.951814396	28.55
1.5	30		30	0.928599411	27.86
2	30		30	0.905950645	27.18
2.5	30		30	0.883854288	26.52
3	30		30	0.862296866	25.87
3.5	30		30	0.841265235	25.24
4	30		30	0.820746571	24.62
4.5	30		30	0.800728362	24.02
5	30	1000	1030	0.781198402	804.63
					1043.76

The answer is none of the above

Ques 2)

Price of bond = Principal * discounting factor + coupons * ( PVAF,R,N)

PVAF = Present value of annuity factor

R= ytm

n = years to maturity

1104 = 1000 * 1 / (1.065)^10 + coupon ( PVAF , 6.5%,10)

1104 = 1000 * 0.532726 + Coupon * 7.18883

Coupon = (1104 - 532.726) / 7.18883

= 79.47

Coupon rate = coupon / face value = 79.47 / 1000 = 7.95%

Ques 3)

Here the coupon is paid semiannually hence r will be 6.5/ 2 = 3.25 and N = 10*2 =20

1104 = 1000 * Discounting factor + Coupon * (PVAF , 3.25%,20)

1104 = 1000 * 0.527471 + Coupon * 14.53935

Coupon = ( 1104 - 527.471 ) / 14.53935

= 39.65

Annual coupon = 39.65*2 =79.31

Coupon rate = 79.31 / 1000 = 7.93%

Ques 4)

Price of zero coupon bond = Face value / ( 1 + R)^N where r = rate of interest and n = no years till maturity.

= 1000 / ( 1 + 0.07)^8

= $582.01