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LOS i: Calculate the value of a putable bond, using an interest rate tree.
Q1. A putable bond with a 6.4% annual coupon will mature in two years at par value. The current one-year spot rate is 7.6%. For the second year, the yield volatility model forecasts that the one-year rate will be either 6.8% or 7.6%. The bond is putable in one year at 99. Using a binomial interest rate tree, what is the current price?
A) 98.885.
B) 98.190.
C) 98.246.
Q2. Using the following tree of semiannual interest rates what is the value of a putable bond that has one year remaining to maturity, a put price of 99, coupons paid semiannually with payments based on a 5% annual rate of interest?
7.59%
6.35%
5.33%
A) 98.75.
B) 99.00.
C) 97.92.
Q3. Dawn Adams, CFA, along with her recently hired staff, have responsibilities that require them to be familiar with backward induction methodology as it is used with a binomial valuation model. Adams, however, is concerned that some of her staff, particularly those not enrolled in the CFA program, are a little weak in this area. To assess their understanding of the binomial model and its uses, Adams presented her staff with the first two years of the binomial interest rate tree for an 8% annually compounded bond (shown below). The forward rates and the corresponding values shown in this tree are based on an assumed interest rate volatility of 20%.
A member of Adams' staff has been asked to respond to the following:
Compute V1L, the value of the bond at node 1L.
A) $101.05.
B) $95.99.
C) $103.58.
Q4. Compute V1U, the value of the bond at node 1U.
A) $91.72.
B) $99.01.
C) $99.13.
Q5. Compute V0, the value of the bond at node 0.
A) $99.07.
B) $104.76.
C) $101.35.
Q6. Assume that the bond is putable in one year at par ($100) and that the put will be exercised if the computed value is less than par. What is the value of the putable bond?
A) $103.04.
B) $95.38.
C) $105.17.
Q7. Assume that the bond is putable in one year at par ($100) and that the put will be exercised if the computed value is less than par. What is the value of the put option?
A) $1.86.
B) $3.70.
C) $0.42.
Q8. Which of the following statements regarding the option adjusted spread (OAS) is least accurate?
A) The OAS for a corporate bond must be calculated using a binomial interest rate model.
B) The OAS is equal to the Z-spread plus the option cost.
C) The OAS is the spread on a bond with an embedded option after the embedded option cost has been removed.
Q9. Which of the following is the appropriate "nodal decision" within the backward induction methodology of the interest tree framework for a putable bond?
A) Max(par value, discounted value).
B) Max(put price, discounted value).
C) Min(put value, discounted value).
Q10. Using the following tree of semiannual interest rates what is the value of a putable semiannual bond that has one year remaining to maturity, a put price of 98 and a 4% coupon rate? The bond is putable today.
7.59%
6.35%
5.33%
A) 98.00.
B) 98.75.
C) 97.92. | 
发表于 2009-3-20 17:32
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