Question 101

With market interest rates at 6%, an analyst observes a 5-year, 5% coupon, $1,000 par value callable bond selling for $950. At the same time the analyst observes a non-callable bond, identical in all other respects to the callable bond, selling for $980. The analyst should estimate that the value of the call option on the callable bond is closest to:

A)    $20.

B)   $50.

C)   $30.

D)   $80.

If the volatility of interest rates increases, the prices of a putable bond and a callable bond will most likely:

Putable bond           Callable bond

A)    Increase          Increase

B)   Decrease         Increase

C)   Increase           Decrease

D)   Decrease         Decrease

An investor is interested in buying a 4-year, $1,000 face value bond with a 7% coupon and semi-annual payments. The bond is currently priced at $875.60. The first put price is $950 in 2 years. The yield to put is closest to:

A)    14.4%.

B)   8.7%.

C)   11.9%.

D)   10.4%.

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.

Anne Warner wants to buy zero-coupon bonds in order to protect herself from reinvestment risk. She plans to hold the bonds for fifteen years and requires a rate of return of 9.5%. Fifteen-year Treasuries are currently yielding 4.5%. If interest is compounded semiannually, the price Warner is willing to pay for each $1,000 par value zero-coupon bond is closest to:

A)    $498.

B)   $256.

C)   $503.

D)   $249.

[此贴子已经被作者于2008-11-7 17:20:00编辑过]

答案和详解如下！

Question 101

With market interest rates at 6%, an analyst observes a 5-year, 5% coupon, $1,000 par value callable bond selling for $950. At the same time the analyst observes a non-callable bond, identical in all other respects to the callable bond, selling for $980. The analyst should estimate that the value of the call option on the callable bond is closest to:

A)    $20.

B)   $50.

C)   $30.

D)   $80.

The correct answer was C) $30.

The difference in price between the two bonds is the value of the option: $980 − $950 = $30.

This question tested from Session 16, Reading 69, LOS b

Question 102

If the volatility of interest rates increases, the prices of a putable bond and a callable bond will most likely:

Putable bond           Callable bond

A)    Increase          Increase

B)   Decrease         Increase

C)   Increase           Decrease

D)   Decrease         Decrease

The correct answer was C)  Increase       Decrease

In general, an increase in interest rate volatility increases the values of both put options and call options. A more valuable put option increases the price of a putable bond. A more valuable call option decreases the price of a callable bond.

This question tested from Session 15, Reading 63, LOS n

Question 103

An investor is interested in buying a 4-year, $1,000 face value bond with a 7% coupon and semi-annual payments. The bond is currently priced at $875.60. The first put price is $950 in 2 years. The yield to put is closest to:

A)    14.4%.

B)   8.7%.

C)   11.9%.

D)   10.4%.

The correct answer was C) 11.9%.

N = 2 × 2 = 4; PV = -875.60; PMT = 70/2 = 35; FV = 950; CPT → I/Y = 5.94 × 2 = 11.88%.

This question tested from Session 16, Reading 68, LOS b, (Part 1)

Question 104

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.

The correct answer was C) Malooly purchased the bond between coupon dates.

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.

This question tested from Session 15, Reading 62, LOS c

Question 105

Anne Warner wants to buy zero-coupon bonds in order to protect herself from reinvestment risk. She plans to hold the bonds for fifteen years and requires a rate of return of 9.5%. Fifteen-year Treasuries are currently yielding 4.5%. If interest is compounded semiannually, the price Warner is willing to pay for each $1,000 par value zero-coupon bond is closest to:

A)    $498.

B)   $256.

C)   $503.

D)   $249.

The correct answer was D) $249.

Note that because the question asks for how much Warner is willing to pay, we will want to use her required rate of return in the calculation.

N = 15 × 2 = 30, FV = $1,000, I/Y = 9.5 / 2 = 4.75, PMT = 0; CPT → PV = -248.53.

The difference between the bond’s price of $249 that Warner would be willing to pay and the par value of $1,000 reflects the amount of interest she would earn over the fifteen year horizon.

This question tested from Session 16, Reading 67, LOS e

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