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 D

N = 20; I/Y = 3.125; PMT = 40; FV = 1,000; CPT → PV = $1,128.69

Baran

2、What is the semiannual-pay bond equivalent yield on an annual-pay bond with a yield to maturity of 12.51 percent?

A) 12.00%.
 
 
B) 12.14%.
 
 
C) 11.49%.
 
 
D) 12.51%.

Baran

The correct answer is B

The semiannual-pay bond equivalent yield of an annual-pay bond = 2 * [(1 + yield to maturity on the annual-pay bond)0.5 – 1] = 12.14%.

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

4、A 3-year, 8 percent semiannual coupon bond with $100 par value currently yields 8.50 percent. What would be the price of the bond?

A) $95.49.
 
B) $99.24.
 
C) $119.50.
 
D) $98.70.

Baran

 The correct answer is D

I/Y = 8.50/2 = 4.25; FV = 100; N = 3x2 = 6; PMT = 0.08/2 x 100 = 4; PV = -98.70.

Baran

5、An investment pays $75 annually into perpetuity and yields 5%. Which of the following is closest to the price?

A) $1,000.
 
B) $375.
 
C) $750.
 
D) $1,500.

Baran

The correct answer is D

PV = C/I = $75 / 0.05 = $1,500.