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LOS d: Compute and interpret the bond equivalent yield of an annual-pay bond, and the annual-pay yield of a semiannual-pay bond.ffice ffice" />
Q1. Consider a 6-year $1,000 par bond priced at $1,011. The coupon rate is 7.5% paid semiannually. Six-year bonds with comparable credit quality have a yield to maturity (YTM) of 6%. Should an investor purchase this bond?
A) Yes, the bond is undervalued by $64.
B) Yes, the bond is undervalued by $38.
C) No, the bond is overvalued by $64.
Correct answer is A)
FV = 1,000
PMT = 37.5
N = 12
I/Y = 3%
CPT PV = 1,074.66
1,074.66 – 1,011 = 64
Q2. Sysco Foods has a 10-year bond outstanding with an annual coupon of 6.5%. If the bond is currently priced at $1,089.25, which of the following is closest to the bond-equivalent yield of the bond?
A) 5.26%.
B) 5.33%.
C) 5.42%.
Correct answer is A)
First, find the annual yield to maturity of the bond as: FV = $1,000; PMT = $65; N = 10; PV = –1,089.25; CPT → I/Y = 5.33%. Then, find the BEY as: 2 × [(1 + YTM)0.5 – 1] = 0.0526 = 5.26%.
Q3. What is the semiannual-pay bond equivalent yield on an annual-pay bond with a yield to maturity of 12.51%?
A) 12.14%.
B) 12.00%.
C) 12.51%.
Correct answer is A)
The semiannual-pay bond equivalent yield of an annual-pay bond = 2 × [(1 + yield to maturity on the annual-pay bond)0.5 – 1] = 12.14%.
Q4. The yield to maturity for a semiannual-pay, 10-year corporate bond is 5.25%. What is the bond's annual equivalent yield?
A) 5.00%.
B) 5.25%.
C) 5.32%.
Correct answer is C)
The annual equivalent yield is equal to [1 + (nominal yield/number of payments per year)]number of payments per year – 1 = (1 + 0.0525/2)2 - 1 = 5.32%.
Q5. What is the annual-pay yield for a bond with a bond-equivalent yield of 5.6%?
A) 5.60%.
B) 5.68%.
C) 5.52%.
Correct answer is B)
The annual-pay yield is computed as follows:
Annual-pay yield = [(1 + 0.056 / 2)2 – 1
Q6. What is the bond-equivalent yield given if the monthly yield is equal to 0.7%?
A) 8.65%.
B) 8.40%.
C) 8.55%.
Correct answer is C)
The bond equivalent yield (BEY) is computed as follows:
BEY = 2 × [(1 + monthly yield)6 ? 1] = 2 × [(1 + 0.007)6 ? 1] = 8.55%
Q7. What is the bond-equivalent yield if the monthly yield is equal to 0.5%?
A) 6.00%.
B) 6.12%.
C) 6.08%.
Correct answer is C)
The bond equivalent yield (BEY) is computed as follows:
BEY = 2 × [(1 + monthly yield)6 ? 1] = 2 × [(1 + 0.005)6 ? 1] = 6.08%
Q8. The yield to maturity on an annual-pay bond 5.6%, what is the bond equivalent yield for this bond?
A) 5.43%.
B) 5.60%.
C) 5.52%.
Correct answer is C)
The bond-equivalent yield is computed as follows:
Bond-equivalent yield = 2[(1 + 0.056)0.5 – 1] = 5.52%
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发表于 2009-3-4 09:24
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