Baran

3、A 16-year, 11 percent semiannual coupon bond with $100 par value currently yields 8 percent. Compute the price of the bond.

A) $126.81.
 
B) $95.91.
 
C) $109.54.
 
D) $129.50.

Baran

 The correct answer is A

I/Y = 8/2 = 4; FV = 100; N = 16x2 = 32; PMT = 0.11/2 x 100 = 5.50; PV = -126.81.

Baran

The correct answer is B

PV = -148; N = 20; FV = 1,000; PMT = 0; CPT → I = 10.02.

Baran

5、Which of the following statements concerning the yield-to-maturity on a bond is CORRECT? Yield to maturity (YTM) is:

A) the discount rate that will set the present value of the payments equal to the bond price.
 
B) always larger than current yield of the bond.
 
C) based on the assumption that any payments received are reinvested at the current yield.
 
D) below the current yield minus capital gain when the bond sells at a discount, and above the current yield plus capital loss when the bond sells at a premium.

Baran

The correct answer is A

When a bond is selling at a premium, the current yield will be larger than the YTM.   Reinvestments occur at the YTM. The YTM will find the present value of a future value and associated payments.

Baran

AIM 5: Compute the realized return on a bond position.

 

1、The price of a semiannual pay, $1,000 face value bond with an 8 percent coupon rate with 10 years to maturity that currently yields 6.25 percent is closest to:

A) $1,000.00.
 
B) $1,092.38.
 
C) $1,179.40.
 
D) $1,128.69.

Baran

The correct answer is B

N = 40; PV = 300; FV = 1,000; CPT → I = 3.055 × 2 = 6.11.

Baran

3、A 20-year, 9 percent annual coupon bond selling for $1,098.96 offers a yield of:

A) 10%.
 
B) 8%.
 
C) 9%.
 
D) 11%.

Baran

The correct answer is B

N = 20, PMT = 90, PV = -1,098.96, FV = 1,000, CPT I/Y

Baran

4、A zero coupon bond with a face value of $1,000 has a price of $148. It matures in 20 years. Assuming annual compounding periods, the yield to maturity of the bond is:

A) 9.68%.
 
B) 10.02%.
 
C) 11.24%.
 
D) 14.80%.