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LOS e, (Part 2): Compute the value of a bond using spot rates.
Q1. An investor gathers the following information about a 2-year, annual-pay bond:
- Par value of $1,000
- Coupon of 4%
- 1-year spot interest rate is 2%
- 2-year spot interest rate is 5%
Using the above spot rates, the current price of the bond is closest to:
A) $983.
B) $1,000.
C) $1,010.
Q2. Given the following spot rate curve:
Spot Rate
1-yr zero = 9.50%
2-yr zero = 8.25%
3-yr zero = 8.00%
4-yr zero = 7.75%
5-yr zero = 7.75%
What will be the market price of a five-year, 9% annual coupon rate bond?
A) $1,067.78.
B) $1,047.68.
C) $1,000.00.
Q3. Using the following spot rates, what is the price of a three-year bond with annual coupon payments of 5%?
- One-year rate: 4.78%
- Two-year rate: 5.56%
- Three-year rate: 5.98%
A) $97.47.
B) $98.87.
C) $93.27.
Q4. Assume that a callable bond's call period starts two years from now with a call price of $102.50. Also assume that the bond pays an annual coupon of 6% and the term structure is flat at 5.5%. Which of the following is the price of the bond assuming that it is called on the first call date?
A) $100.00.
B) $102.50.
C) $103.17.
Q5. Can spot interest rates be used to value a callable bond?
A) Yes.
B) No.
C) It depends on the slope of the term structure.
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发表于 2009-3-4 09:29
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