hinsafdar

A bond with a 12% coupon, 10 years to maturity and selling at 88 has a yield to maturity of:

A) between 13% and 14%.

B) over 14%.

C) between 10% and 12%.

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PMT = 120; N = 10; PV = -880; FV = 1,000; CPT → I = 14.3

hinsafdar

A coupon bond that pays interest annually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 10%. What is the value of the bond today if the coupon rate is 8%?

A) $2,077.00.

B) $924.18.

C) $1,500.00.

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FV = 1,000
N = 5
I = 10
PMT = 80
Compute PV = 924.18.

hinsafdar

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) 95.07.

B) 102.46.

C) 100.10.

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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.

hinsafdar

An investor plans to buy a 10-year, $1,000 par value, 8% semiannual coupon bond. If the yield to maturity of the bond is 9%, the bond’s value is:

A) $934.96.

B) $1,067.95.

C) $935.82.

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N = 20, I = 9/2 = 4.5, PMT = 80/2 = 40, FV = 1,000, compute PV = $934.96

hinsafdar

An investor purchased a 6-year annual interest coupon bond one year ago. The coupon rate of interest was 10% and par value was $1,000. At the time she purchased the bond, the yield to maturity was 8%. The amount paid for this bond one year ago was:

A) $1,125.53.

B) $1,198.07.

C) $1,092.46.

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N = 6
PMT = (0.10)(1,000) = 100
I = 8
FV = 1,000
PV = ?
PV = 1,092.46

hinsafdar

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) 97.38.

B) 92.48.

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.

hinsafdar

Assume a city issues a $5 million bond to build a hockey rink. The bond pays 8% semiannual interest and will mature in 10 years. Current interest rates are 6%. What is the present value of this bond?

A) $5,000,000.

B) $5,743,874.

C) $3,363,478.

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Since current interest rates are lower than the coupon rate the bond will be issued at a premium. FV = $5,000,000; N = 20; I/Y = 3; PMT = (0.04)($5,000,000) = $200,000. Compute PV = $-5,743,874

hinsafdar

An investor buys a 25-year, 10% annual pay bond for $900 and will sell the bond in 5 years when he estimates its yield will be 9%. The price for which the investor expects to sell this bond is closest to:

A) $964.

B) $1,122.

C) $1,091.

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This is a present value problem 5 years in the future.
N = 20, PMT = 100, FV = 1000, I/Y = 9
CPT PV = -1,091.29
The $900 purchase price is not relevant for this problem.

hinsafdar

What value would an investor place on a 20-year, 10% annual coupon bond, if the investor required an 11% rate of return?

A) $879.

B) $1,035

C) $920.

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N = 20, I/Y = 11, PMT = 100, FV = 1,000, CPT PV

hinsafdar

What is the present value of a 7% semiannual-pay bond with a $1,000 face value and 20 years to maturity if similar bonds are now yielding 8.25%?

A) $879.52.

B) $1,000.00.

C) $878.56.

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N = 20 × 2 = 40; I/Y = 8.25/2 = 4.125; PMT = 70/2 = 35; and FV = 1,000.
Compute PV = 878.56.