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Reading 65:Yield Measures, Spot Rates, and Forward Rates-

 

LOS d: Compute and interpret the bond equivalent yield of an annual-pay bond, and the annual-pay yield of a semiannual-pay bond.

Q1. Consider a 6-year $1,000 par bond priced at $1,011. The coupon rate is 7.5% paid semiannually. Six-year bonds with comparable credit quality have a yield to maturity (YTM) of 6%. Should an investor purchase this bond?

A)   Yes, the bond is undervalued by $64.

B)   Yes, the bond is undervalued by $38.

C)   No, the bond is overvalued by $64.

 

Q2. Sysco Foods has a 10-year bond outstanding with an annual coupon of 6.5%. If the bond is currently priced at $1,089.25, which of the following is closest to the bond-equivalent yield of the bond?

A)   5.26%.

B)   5.33%.

C)   5.42%.

 

Q3. What is the semiannual-pay bond equivalent yield on an annual-pay bond with a yield to maturity of 12.51%?

A)   12.14%.

B)   12.00%.

C)   12.51%.

 

Q4. The yield to maturity for a semiannual-pay, 10-year corporate bond is 5.25%. What is the bond's annual equivalent yield?

A)   5.00%.

B)   5.25%.

C)   5.32%.

 

Q5. What is the annual-pay yield for a bond with a bond-equivalent yield of 5.6%?

A)   5.60%.

B)   5.68%.

C)   5.52%.

 

Q6. What is the bond-equivalent yield given if the monthly yield is equal to 0.7%?

A)   8.65%.

B)   8.40%.

C)   8.55%.

 

Q7. What is the bond-equivalent yield if the monthly yield is equal to 0.5%?

A)   6.00%.

B)   6.12%.

C)   6.08%.

 

Q8. The yield to maturity on an annual-pay bond 5.6%, what is the bond equivalent yield for this bond?

A)   5.43%.

B)   5.60%.

C)   5.52%.

 

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