prashantsahni

A 2-year option-free bond (par value of $10,000) has an annual coupon of 15%. An investor determines that the spot rate of year 1 is 16% and the year 2 spot rate is 17%. Using the arbitrage-free valuation approach, the bond price is closest to:

A) $8,401.

B) $11,122.

C) $9,694.

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We can calculate the price of the bond by discounting each of the annual payments by the appropriate spot rate and finding the sum of the present values. Price = [1,500/(1.16)] + [11,500/(1.17)2] = $9,694. Or, in keeping with the notion that each cash flow is a separate bond, sum the following transactions on your financial calculator:N=1, I/Y=16.0, PMT=0, FV=1,500, CPT PV=1,293
N=2, I/Y=17.0, PMT=0, FV=11,500, CPT PV=8,401
Price = 1,293 + 8,401 = $9,694.

prashantsahni

Assume that there are no transaction costs and that securities are infinitely divisible. If an 8% coupon paying Treasury bond that has six months left to maturity trades at 97.54, and there is a Treasury bill with six months remaining to maturity that is correctly priced using a discount rate of 9%, is there an arbitrage opportunity?

A) The coupon bond is not correctly priced but no arbitrage trade can be set up using the T-bill.

B) Yes, the coupon bond price is too high.

C) Yes, the coupon bond price is too low.

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The coupon bond has a cash flow at maturity of 104, which discounted at 9% results in a bond price of 99.52. Therefore, the bond is underpriced. An arbitrage trade can be set up by short-selling 1.04 units of the T-bill at 99.52 and then using the proceeds to buy 1.02 units of the coupon bond.

mrcon

thanks for sharing  

不过R57这一节整个8页的习题质量都很一般  非常基础