Baran

The correct answer is A

The continuously compounded rate = er ? 1 = e0.09 ? 1 = 0.09417, or 9.42%.
Calculator Keystrokes for et: Using the TI BA, enter [0.09] [2nd] [ex] (this is the key with LN on the face of the button). On the HP, enter [0.09] [g] [ex] (this key is located in blue on the key with 1/x in white print).

Baran

 The correct answer is B

The accrued interest is paid by the new owner of the bond to the seller of the bond. If the buyer must pay the seller accrued interest, the bond is said to be trading cum-coupon. Otherwise, it is trading ex-coupon.

Baran

AIM 2: Distinguish among simple, semiannual, monthly, daily, and continuously compounded rates and compute simple, semiannual, monthly, daily, and continuously compounded rates given a discount factor or market interest rate for a specified period.

1、A Treasury bill, with 45 days until maturity, has an effective annual yield of 12.50%. The bill's holding period yield is closest to:

A) 1.57%.
 
 
B) 12.50%.
 
 
C) 1.46%.
 
 
D) 1.54%.

Baran

 The correct answer is C

The effective annual yield (EAY) is equal to the annualized holding period yield (HPY) based on a 365-day year. EAY = (1 + HPY)365/t ? 1. HPY = (EAY + 1)t/365 ? 1 = (1.125)45/365 ? 1 = 1.46%.

Baran

2、Use a stated rate of 9% compounded periodically to answer the following three questions. Select the choice that is the closest to the correct answer.

The semi-annual effective rate is:

A) 9.00%.
 
B) 9.20%.
 
C) 10.25%.
 
D) 9.31%.

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9、Austin Traynor is considering buying a $1,000 face value, semi-annual coupon bond with a quoted price of 104.75 and accrued interest since the last coupon of $33.50. If Traynor pays the dirty price, how much will the seller receive at the settlement date?

A) $1,081.00.
 
B) $1,047.50.
 
C) $1,014.00.
 
D) $1,033.50.

Baran

 The correct answer is A

The dirty price is equal to the agreed upon, or quoted price, plus interest accrued from the last coupon date. Here, the quoted price is 1,000 × 104.75%, or 1,000 × 1.0475 = 1,047.50. Thus, the dirty price = 1,047.50 + 33.50 = 1,081.00.

Baran

10、Scott Malooly recently paid 109.05 for a $1,000 face value, semi-annual coupon bond with a quoted price of 105.19. Assuming that transaction costs are zero, which of the following statements is most accurate?

A) The price Malooly paid covers the amount of the next coupon payment not earned by the seller.
 
B) The bond was trading ex-coupon. 
 
C) Malooly purchased the bond between coupon dates.
 
D) The price Malooly paid includes the discounted amount of accrued interest due to seller.

Baran

The correct answer is C

When a bond trades between two consecutive coupon dates, the seller is entitled to receive interest earned from the previous coupon date until the date of the sale. The price paid includes accrued interest and is referred to as the “dirty price.”

The other statements are false. The price Malooly paid includes the amount of the next coupon payment that he, the buyer, has not earned. When a security trades ex-coupon, the buyer pays the clean price, which is the quoted price without accrued interest. Accrued interest is not discounted when calculating the dirty price of a bond.

 

Baran

11、Which of the following statements regarding accrued interest is most accurate?

A) The accrued interest is paid by the seller of the bond to the buyer (new owner) of the bond. 
 
B) The bond is trading flat if the bond issuer is in default and the bond is trading without accrued interest. 
 
C) If the seller must pay the buyer accrued interest, the bond is said to be trading cum-par. 
 
D) If the buyer must pay the seller the accrued interest, the bond is said to be trading ex-coupon.