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

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发表于 2010-4-25 18:41 | 只看该作者

A 30-year, 12% bond that pays interest annually is discounted priced to yield 14%. However, interest payments will be invested at 12%. The realized compound yield on this bond must be:

A)	greater than 14.0%.

B)	between 12.0% and 14.0%.

12.0%.

Since you are reinvesting the current income at 12%, you will have a return of at least 12%. And since the bond is priced to yield 14%, you will earn no more than 14%.

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If an investor holds a bond for a period less than the life of the bond, the rate of return the investor can expect to earn is called:

A)	approximate yield.

B)	expected return, or horizon return.

C)	bond equivalent yield.

The horizon return is the total return of a given horizon such as 5 years on a ten year bond.

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An investor purchased a 10-year zero-coupon bond with a yield to maturity of 10% and a par value of $1,000. What would her rate of return be at the end of the year if she sells the bond? Assume the yield to maturity on the bond is 9% at the time it is sold and annual compounding periods are used.

16.00%.

19.42%.

15.00%.

Purchase price: I = 10; N = 10; PMT = 0; FV = 1,000; CPT → PV = 385.54

Selling price: I = 9; N = 9; PMT = 0; FV = 1,000; CPT → PV = 460.43

% Return = (460.43 ? 385.54) / 385.54 × 100 = 19.42%

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A 6-year annual interest coupon bond was purchased one year ago. The coupon rate is 10% and par value is $1,000. At the time the bond was bought, the yield to maturity (YTM) was 8%. If the bond is sold after receiving the first interest payment and the bond's yield to maturity had changed to 7%, the annual total rate of return on holding the bond for that year would have been:

7.00%.

8.00%.

11.95%.

Price 1 year ago N = 6, PMT = 100, FV = 1,000, I = 8, Compute PV = 1,092

Price now N = 5, PMT = 100, FV = 1,000, I = 7, Compute PV = 1,123

% Return = (1,123.00 + 100 ? 1,092.46)/1,092.46 x 100 = 11.95%

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An investor purchased a 6-year annual interest coupon bond one year ago. The coupon interest rate was 10% and the par value was $1,000. At the time he purchased the bond, the yield to maturity was 8%. If he sold the bond after receiving the first interest payment and the yield to maturity continued to be 8%, his annual total rate of return on holding the bond for that year would have been:

7.82%.

9.95%.

8.00%.

Purchase price N = 6, PMT = 100, FV = 1,000, I = 8

compute PV = 1,092.46

Sale price N = 5, PMT = 100, FV = 1,000, I = 8

compute PV = 1,079.85

% return = [(1,079.85 - 1,092.46 + 100) / 1,092.46] x 100 = 8%

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发表于 2010-4-25 18:43 | 只看该作者

A bond is selling at a discount relative to its par value. Which of the following relationships holds?

A)	coupon rate < current yield < yield to maturity.

B)	yield to maturity < coupon rate < current yield.

C)	current yield < coupon rate < yield to maturity.

When a bond is selling at a discount, it means that the bond has a larger YTM (discount rate that will equate the PV of the bond's cash flows to its current price) than its current yield (coupon payment/current market bond price) and coupon payment.