Exercises On Bond Valuation

 

  Exercises on Bond Valuation 1. The current yield on a bond is e qual to ________. A) annual interest divided by the current market price B) the yield to maturity C) annual interest divided by the par value D) the internal rate of return E) none of the above Answer: A 2. If a 7% coupon bond is tr ading for $975.00, it has a current yield of ____ ________ percent. A) 7.00 B) 6.53 C) 7.24 D) 8.53 E) 7.18 Answer: E Difficulty: Easy Rationale: 70/975 = 7.18. 3.A coupon bond that pays interest annually is selling at par value of $1,000, matures in 5 years, years, and has a coupon rate of 9%. The yield to maturity on this bond is: A) 8.0% B) 8.3% C) 9.0% D) 10.0% E) none of the above Answer: C Difficulty: Easy Rationale: When a bond sells at p ar value, the coupon rate is equal to t he yield to maturity. 4. A coupon bond that pays interest annually has a par value value of $1,000, matures in 5 years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be ______ if the coupon rate is 7%. A) $712.99 B) $620.92 C) $1,123.01 D) $886.28 E) $1,000.00 Answer: D Difficulty: Moderate Rationale: FV = 1000, PMT = 7 0, n = 5, i = 10, PV = 886.28. 5.

A coupon bond that pays interest annually, has a par value of $1,000, matures matures in 5 years, and ha hass a yield to maturity of 1 10%. 0%. The intrinsic value of the  bond today will be _________ if the coupon r ate is 12%. A) $922.77 B) $924.16 C) $1,075.82 D) $1,077.20 E) none of the above Answer: C Difficulty: Moderate Rationale: FV = 1000, PMT = 1 20, n = 5, i = 10, PV = 1075.82

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A coupon bond that pays interest semi-annually has a par value of $1,000, matures matures in 5 years, and has a yield to ma maturity turity of 10%. The intrinsic value of  the bond today will be __________ if the coupon rate i s 8%. A) $922.78 B) $924.16 C) $1,075.80 D) $1,077.20 E) none of the above Answer: A Difficulty: Moderate Rationale: FV = 1000, PMT = 4 0, n = 10, i = 5, PV = 922.78

7. A coupon bond that pays interest of $100 annually annually has a par value of $1,000, matures in 5 years, and is selling today at a $72 discount from par value. The yield to maturity on this bond is __________. A) 6.00% B) 8.33% C) 12.00% D) 60.00% E) none of the above Answer: C Difficulty: Moderate Rationale: FV = 1000, PMT = 1 00, n = 5, PV = -928, i = 1 1.997%

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You purchased an annual interest coupon coupon bond one year ago that now has 6 years remaining u until ntil maturity. The coupon ra rate te of interest was 10% and par  value was $1,000. At the time you purchased the bond, the yield to maturity was 8%. The amount you paid for this bond one year ago was A) $1,057.50. B) $1,075.50. C) $1,088.50. D) $1.092.46. E) $1,104.13. Answer: E Difficulty: Moderate Rationale: FV = 1000, PMT = 1 00, n = 7, i = 8, PV = 1104.13

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  9. Consider two bonds, bonds, A and B. Both bonds presently are sselling elling at their par value of $1,000. $1,000. Each pays interest of $120 annually. annually. Bond A will mature in 5 years while bond B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to 10%, ____________. A) both bonds bonds will increase in value, but bond A will increase more than bond B B) both bonds will increase increase in value, but but bond B will will increase more than bond A C) both bonds will decrease decrease in value, b but ut bond bond A will decrease decrease more more than bond B D) both bonds bonds will decrease in value, bu butt bond B will decrease more than bond A E) none of the above Answer: B Difficulty: Moderate Rationale: The longer the matu rity, the greater the price change when interest rates change. 10.

A zero-coupon bond has has a yield to maturity of 9% and a par valu valuee of $1,000. If the bond matures in 8 y years, ears, the bond should sell for a price price of _______  today. A) 422.41 B) $501.87 C) $513.16 D) $483.49 E) none of the above Answer: B Difficulty: Moderate Rationale: $1,000/(1.09)8 = $501.87

11. A coupon bond pays interest semi-annually, matures i n 5 years, has a par value of $1,000 and a coupon rate of 12%, and an effective annual yield t o maturity of  10.25%. The price the bond should should sell for today is ________. A) $922.77 B) $924.16 C) $1,075.80 D) $1,077.20 E) none of the above Answer: D Difficulty: Moderate Rationale: (1.1025)1/2 - 1 = 5%, N=10, I=5%, PMT=60, FV=1000, PV=1,077.22. Use the following to answer questions 1 2-15: Consider the following $1,000 par value zero-coupon bonds:

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The yield yield to maturity o on n bond A is ____________. A) 10% B) 11% C) 12% D) 14% E) none of the above Answer: A Difficulty: Moderate Rationale: ($1,000 - $909.09)/$909.09 = 10%.

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The yield yield to maturity o on n bond B is _________. A) 10% B) 11% C) 12% D) 14% E) none of the above Answer: B Difficulty: Moderate Rationale: ($1,000 - $811.62)/$811.62 = 0.2321; (1.2321)1/2 - 1.0 = 11%.

14.The yield to maturity on bond C is __ __________. A) 10% B) 11% C) 12% D) 14% E) none of the above Answer: C Difficulty: Moderate Rationale: ($1,000 - $711.78)/$711.78 = 0.404928; (1.404928)1/3 - 1.0 = 12%. 15.

The yield yield to maturity o on n bond D is _______. A) 10% B) 11% C) 12% D) 14% E) none of the above Answer: C Difficulty: Moderate Rationale: ($1,000 - $635.52)/$635.52 = 0.573515; (1.573515)1/4 - 1.0 = 12%.

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