honeycfa

Assuming the risk-free rate is 5% and the appropriate risk premium for an A-rated issuer is 4%, the appropriate discount rate for an A-rated corporate bond is:

A) 9%.

B) 1%.

C) 5%.

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The yield on a risky bond = appropriate risk-free rate + appropriate risk premium.

[此贴子已经被作者于2010-4-25 13:20:21编辑过]

honeycfa

An investor gathered the following information on two zero-coupon bonds:

1-year, $800 par, zero-coupon bond valued at $762
2-year, $10,800 par, zero-coupon bond valued at $9,796

Given the above information, how much should an investor pay for a $10,000 par, 2-year, 8%, annual-pay coupon bond?

A) $9,796.

B) $10,558.

C) $10,000.

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A coupon bond can be viewed simply as a portfolio of zero-coupon bonds. The value of the coupon bond should simply be the summation of the present values of the two zero-coupon bonds. Hence, the value of the 2-year annual-pay bond should be $10,558 ($762 + $9,796).

honeycfa

An investor gathered the following information on two zero-coupon bonds:

1-year, $800 par, zero-coupon bond valued at $762
2-year, $10,800 par, zero-coupon bond valued at $9,796

Given the above information, how much should an investor pay for a $10,000 par, 2-year, 8%, annual-pay coupon bond?

A) $9,796.

B) $10,558.

C) $10,000.

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A coupon bond can be viewed simply as a portfolio of zero-coupon bonds. The value of the coupon bond should simply be the summation of the present values of the two zero-coupon bonds. Hence, the value of the 2-year annual-pay bond should be $10,558 ($762 + $9,796).

honeycfa

Given a required yield to maturity of 6%, what is the intrinsic value of a semi-annual pay coupon bond with an 8% coupon and 15 years remaining until maturity?

A) $1,095.

B) $1,196.

C) $1,202.

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This problem can be solved most easily using your financial calculator. Using semiannual payments, I = 6/2 = 3%; PMT = 80/2 = $40; N = 15 × 2 = 30; FV = $1,000; CPT → PV = $1,196.

honeycfa

An investor has the following options available to them:

• They can buy a 10% semi annual coupon, 10-year bond for $1,000.
• The coupons can be reinvested at 12%.
• They estimate the bond will be sold in 3 years $1,050.

Based on this information, what would be the average annual rate of return over the 3 years?

A) 13.5%.

B) 9.5%.

C) 11.5%.

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1. Find the FV of the coupons and interest on interest:

N = 3(2) = 6; I = 12/2 = 6; PMT = 50; CPT → FV = 348.77

2. Determine the value of the bond at the end of 3 years:

1,050.00 (given) + 348.77 (computed in step 1) = 1,398.77

3. Equate FV (1,398.77) with PV (1,000) over 3 years (N = 6); CPT → I = 5.75(2) = 11.5%

honeycfa

What is the present value of a three-year security that pays a fixed annual coupon of 6% using a discount rate of 7%?

A) 92.48.

B) 97.38.

C) 100.00.

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This value is computed as follows:

Present Value = 6/1.07 + 6/1.07² + 106/1.07³ = 97.38

The value 92.48 results if the coupon payment at maturity of the bond is neglected. The coupon rate and the discount rate are not equal so 100.00 cannot be the correct answer.

honeycfa

Assume an option-free 5% coupon bond with annual coupon payments has two years remaining to maturity. A putable bond that is the same in every respect as the option-free bond is priced at 101.76. With the term structure flat at 6% what is the value of the embedded put option?

A) 3.59.

B) 1.76.

C) -3.59.

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The value of the embedded put option of the putable bond is the difference between the price of the putable bond and the price of the option-free bond.

The value of the option-free bond is computed as follows: PMT = 5; N = 2; FV = 100; I = 6; CPT → PV = -98.17(ignore sign).

The option value = 101.79 ? 98.17 = 3.59.

honeycfa

Assume that an option-free 5% coupon bond with annual coupon payments has two years to maturity. A callable bond that is the same in every respect as the option-free bond is priced at 91.76. With the term structure flat at 6% what is the value of the embedded call option?

A) 6.41.

B) -8.24.

C) 4.58.

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The option value is the difference between the option-free bond price and the corresponding callable bond price.

The value of the option free bond is computed as follows: PMT = 5; N = 2; FV = 100; I = 6; CPT → PV = -98.17(ignore sign).

The option value = 98.17 – 91.76 = 6.41.

honeycfa

Using the following spot rates for pricing the bond, what is the present value of a three-year security that pays a fixed annual coupon of 6%?

• Year 1: 5.0%
• Year 2: 5.5%
• Year 3: 6.0%

A) 100.10.

B) 95.07.

C) 102.46.

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This value is computed as follows:

Present Value = 6/1.05 + 6/1.055² + 106/1.06³ = 100.10

The value 95.07 results if the coupon payment at maturity of the bond is neglected.

honeycfa

If an investor purchases a 8 1/2s 2001 Feb. $10,000 par Treasury Note at 105:16 and holds it for exactly one year, what is the rate of return if the selling price is 105:16?

A) 8.50%.

B) 8.00%.

C) 8.06%.

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Purchase Price = [(105 + 16/32)/100] x 10,000 = $10,550.00

Selling price = [(105 + 16/32)/100] x 10,000 = $10,550.00

Interest = 8 1/2% of 10,000 = $850.00

Return = (P_end - P_beg + Interest)/P_beg = (10,550.00 - 10,550.00 + 850.00)/10,550.00 = 8.06%