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Fixed Income Ch. 3 Problems
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A portfolio manager is considering the purchase of a bond with a 5.5% coupon rate that pays interest annually and matures in three years. If the required rate of return on the bond is 5%, the price of the bond per 100 of par value is closest to:
a. 98.65
b. 101.36
c. 106.43
b
A bond with two years remaining until maturity offers a 3% coupon rate with interest paid annually. At a market discount rate of 4%, the price of this bond per 100 of par value is closest to:
a. 95.34
b. 98.00
c. 98.11
c
An investor who owns a bond with a 9% coupon rate that pays interest semiannually and matures in three years is considering its sale. If the required rate of return on the bond is 11%, the price of the bond per 100 par value is closest to:
a. 95.00
b. 95.11
c. 105.15
a
A bond offers an annual coupon rate of 4%, with interest paid semiannually. The bond matures in two years. At a market discount rate of 6%, the price of this bond per 100 par value is closest to:
a. 93.07
b. 96.28
c. 96.33
b
A bond offers an annual coupon rate of 5%, with interest paid semiannually. The bond matures in seven years. At a market discount rate of 3%, the price of this bond per 100 of par value is closest to:
a. 106.60
b. 112.54
c. 143.90
b
A zero-coupon bond matures in 15 years. At a market discount rate of 4.5% per year and assuming annual compounding, the price of the bond per 100 of par value is closest to:
a. 51.30
b. 51.67
c. 71.62
b
Consider the following two bonds that pay interest annually: (coupon rate, time-to-maturity)
Bond A - 5%, 2 years
Bond B - 3%, 2 years
At a market discount rate of 4%, the price difference between Bond A and Bond B per 100 of par value is closest to:
a. 3.70
b. 3.77
c. 4.00
b
Consider the following information: (price, coupon rate, time-to-maturity)
Bond A - 101.886, 5%, 2 years
Bond B - 100.000, 6%, 2 years
Bond C - 97.327, 5%, 3 years
Which bond offers the lowest yield-to-maturity?
a. Bond A
b. Bond B
c. Bond C
a
Consider the following information: (price, coupon rate, time-to-maturity)
Bond A - 101.886, 5%, 2 years
Bond B - 100.000, 6%, 2 years
Bond C - 97.327, 5%, 3 years
Which bond will most likely experience the smallest percent change in price if the market discount rates for all three bonds increase by 100 bps?
a. Bond A
b. Bond B
c. Bond C
b
Suppose a bond's price is expected to increase by 5% if its market discount rate decreases by 100 bps. If the bond's market discount rate increases by 100 bps, the bond price is most likely to change by:
a. 5%
b. less than 5%
c. more than 5%
b
Consider the following information: (coupon rate, maturity [years])
Bond A - 6%, 10
Bond B - 6%, 5
Bond C - 8%, 5
Relative to Bond C, for a 200 basis point decrease in the required rate of return, Bond B will most likely exhibit a(n):
a. equal percentage price change
b. greater percentage price change
c. smaller percentage price change
b
Consider the following information: (coupon rate, maturity [years])
Bond A - 6%, 10
Bond B - 6%, 5
Bond C - 8%, 5
Which bond will most likely experience the greatest percentage change in price if the market discount rates for all three bonds increase by 100 bps?
a. Bond A
b. Bond B
c. Bond C
a
An investor considers the purchase of a 2-year bond with a 5% coupon rate, with interest paid annually. Assuming the sequence of spot rates shown below, the price of the bond is closest to: (time-to-maturity, spot rates)
1 year, 3%
2 years, 4%
a. 101.93
b. 102.85
c. 105.81
a
A 3-year bond offers a 10% coupon rate with interest paid annually. Assuming the following sequence of spot rates, the price of the bond is closest to: (time-to-maturity, spot rates)
1 year, 8.0%
2 years, 9.0%
3 years, 9.5%
a. 96.98
b. 101.46
c. 102.95
b
Consider the following information: (coupon rate, time-to-maturity, time-to-maturity, spot rates)
Bond X - 8%, 3 years, 1 year, 8%
Bond Y - 7% 3 years, 2 years, 9%
Bond Z - 6%, 3 years, 3 years, 10%
All three bonds pay interest annually.
Based upon the given sequence of spot rates, the price of Bond X is closest to:
a. 95.02
b. 95.28
c. 97.63
b
Consider the following information: (coupon rate, time-to-maturity, time-to-maturity, spot rates)
Bond X - 8%, 3 years, 1 year, 8%
Bond Y - 7% 3 years, 2 years, 9%
Bond Z - 6%, 3 years, 3 years, 10%
All three bonds pay interest annually.
Based upon the given sequence of spot rates, the price of Bond Y is closest to:
a. 87.50
b. 92.54
c. 92.76
c
Consider the following information: (coupon rate, time-to-maturity, time-to-maturity, spot rates)
Bond X - 8%, 3 years, 1 year, 8%
Bond Y - 7% 3 years, 2 years, 9%
Bond Z - 6%, 3 years, 3 years, 10%
All three bonds pay interest annually.
Based upon the given sequence of spot rates, the yield-to-maturity of Bond Z is closest to:
a. 9.00%
b. 9.92%
c. 11.93%
b
Bond dealers most often quote the:
a. flat price
b. full price
c. full price plus accrued interest
a
Bond G, described in the exhibit below, is sold for settlement on 16 June 2014.
Annual Coupon - 5%
Coupon Payment Frequency - Semiannual
Interest Payment Dates - 10 April and 10 October
Maturity Date - 10 October 2016
Day-Count Convention - 30/360
Annual Yield-to-Maturity - 4%
The full price that Bond G will settle at on 16 June 2014 is closest to:
a. 102.36
b. 103.10
c. 103.65
b
Bond G, described in the exhibit below is sold for settlement on 16 June 2014.
Annual Coupon - 5%
Coupon Payment Frequency - Semiannual
Interest Payment Dates - 10 April and 10 October
Maturity Date - 10 October 2016
Day-Count Convention - 30/360
Annual Yield-to-Maturity - 4%
The accrued interest per 1—of par value for Bond G on the settlement date of 16 June 2014 is closest to:
a. 0.46
b. 0.73
c. 0.92
c
Bond G, described in the exhibit below is sold for settlement on 16 June 2014.
Annual Coupon - 5%
Coupon Payment Frequency - Semiannual
Interest Payment Dates - 10 April and 10 October
Maturity Date - 10 October 2016
Day-Count Convention - 30/360
Annual Yield-to-Maturity - 4%
The flat price for Bond G on the settlement date of 16 June 2014 is closest to:
a. 102.18
b. 103.10
c. 104.02
a
Matric pricing allows investors to estimate market discount rates and prices for bonds:
a. with different coupon rates
b. that are not actively traded
c. with different credit quality
b
When underwriting new corporate bonds, matrix pricing is used to get an estimate of the:
a. required yield spread over the benchmark rate
b. market discount rate of other comparable corporate bonds
c. yield-to-maturity on a government bond having a similar time-to-maturity
a
A bond with 20 years remaining until maturity is currently trading for 111 per 100 of par value. The bond offers a 5% coupon rate with interest paid semiannually. The bond's annual yield-to-maturity is closest to:
a. 2.09%
b. 4.18%
c. 4.50%
b
The annual yield-to-maturity, stated for with a periodicity of 12, for a 4-year, zero-coupon bond priced at 75 per 100 of par value is closest to:
a. 6.25%
b. 7.21%
c. 7.46%
b
A 5-year, 5% semiannual coupon payment corporate bond is priced at 104.967 per 100 of par value. The bond's yield-to-maturity, quoted on a semiannual bond basis, is 3.897%. An analyst has been asked to convert to a monthly periodicity. Under this conversion, the yield-to-maturity is closest to:
a. 3.87%
b. 4.95%
c. 7.67%
a
A bond with 5 years remaining until maturity is currently trading for 101 per 100 of par value. The bond offers a 6% coupon rate with interest paid semiannually. The bond is first callable in 3 years, and is callable after that date on coupon dates according to the following schedule: (end of year, call price)
Year 3, 102
Year 4, 101
Year 5, 100
The bond's annual yield-to-maturity is closest to:
a. 2.88%
b. 5.77%
c. 5.94%
b
A bond with 5 years remaining until maturity is currently trading for 101 of 100 of par value. The bond offers a 6% coupon rate with interest paid semiannually. The bond is first callable in 3 years, and is callable after that date on coupon dates according to the following schedule: (end of year, call price)
Year 3, 102
Year 4, 101
Year 5, 100
The bond's annual yield-to-first-call is closest to:
a. 3.12%
b. 6.11%
c. 6.25%
c
A bond with 5 years remaining until maturity is currently trading for 101 of 100 of par value. The bond offers a 6% coupon rate with interest paid semiannually. The bond is first callable in 3 years, and is callable after that date on coupon dates according to the following schedule: (end of year, call price)
Year 3, 102
Year 4, 101
Year 5, 100
The bond's annual yield-to-second-call is closest to:
a. 2.97%
b. 5.72%
c. 5.94%
c
A bond with 5 years remaining until maturity is currently trading for 101 of 100 of par value. The bond offers a 6% coupon rate with interest paid semiannually. The bond is first callable in 3 years, and is callable after that date on coupon dates according to the following schedule: (end of year, call price)
Year 3, 102
Year 4, 101
Year 5, 100
The bond's yield-to-worst is closest to:
a. 2.88%
b. 5.77%
c. 6.25%
b
A two-year floating-rate note pays 6-month Libor plus 80 bps. The floater is priced at 97 per 100 of par value. Current 6-month Libor is 1.00%. Assume a 30/360 day-count convention and evenly spaced periods. The discount margin for the floater in basis points is closest to:
a. 180 bps
b. 236 bps
c. 420 bps
b
An analyst evaluated the following information relation to floating rate notes (FRNs) issued at par value that have 3-month Libor as a reference rate: (floating rate note, quoted margin, discount margin)
X - 0.40%, 0.32%
Y - 0.45%, 0.45%
Z - 0.55%, 0.72%
Based only on the information provided, the FRN that will be priced at a premium on the next reset date is:
a. FRN X
b. FRN Y
c. FRN Z
a
A 365-day year bank certificate of deposit has an initial principal amount od USD 96.5 million and a redemption amount due at maturity of USD 100 million. The number of days between settlement and maturity is 350. The bond equivalent yield is closest to:
a. 3.48%
b. 3.65%
c. 3.78%
c
The bond equivalent yield of a 180-day banker's acceptance quoted at a discount rate of 4.25% for a 360-day year is closest to:
a. 4.31%
b. 4.34%
c. 4.40%
c
Which of the following statements describing a par curve is incorrect?
a. a par curve is obtained from a spot curve
b. all bonds on a par curve are assumed to have difference credit risk
c. a par curve is a sequence of yields-to-maturity such that each bond is priced at par value
b
A yield curve constructed from a sequence of yields-to-maturity on zero-coupon bonds is the:
a. par curve
b. spot curve
c. forward curve
b
The rate, interpreted to be the incremental return for extending the time-to-maturity of an investment for an additional time period, is the:
a. add-on rate
b. forward rate
c. yield-to-maturity
b
Consider the following information: (time period, forward rate)
"0y1y", 0.80%
"1y1y", 1.12%
"2y1y", 3.94%
"3y1y", 3.28%
"4y1y", 3.14%
All rates are annual rates stated for periodicity of one (effective annual rates).
The 3-year implied spot rate is closest to:
a. 1.18%
b. 1.94%
c. 2.28%
b
Consider the following information: (time period, forward rate)
"0y1y", 0.80%
"1y1y", 1.12%
"2y1y", 3.94%
"3y1y", 3.28%
"4y1y", 3.14%
All rates are annual rates stated for periodicity of one (effective annual rates).
The value per 100 of par value of a two-year, 3.5% coupon bond, with interest payments paid annually, is closest to:
a. 101.58
b. 105.01
c. 105.82
b
The spread component of a specific bond's yield-to-maturity is least likely impacted by changes in:
a. its tax status
b. its quality rating
c. inflation in its currency of denomination
c
The yield spread of a specific bond over the standard swap rate in that currency of the same tenor is best described as the:
a. I-spread
b. Z-spread
c. G-spread
a
Consider the following information: (bond, coupon rate, time-to-maturity, price)
UK Government Benchmark Bond - 2%, 3 years, 100.25
UK Corporate Bond - 5%, 3 years, 100.65
Both bonds pay interest annually. The current three-year EUR interest rate swap benchmark is 2.12%.
The G-spread in basis points on the UK corporate bond is closest to:
a. 264 bps
b. 285 bps
c. 300bps
b
A corporate bond offers a 5% coupon rate and has exactly 3 years remaining to maturity. Interest is paid annually. The following rates are from the benchmark spot curve. (time-to-maturity, spot rate)
1 year, 4.86%
2 years, 4.95%
3 years, 5.65%
The bond is currently trading at a Z-spread of 234 bps. The value of the bond is closest to:
a. 92.38
b. 98.35
c. 106.65
a
An option-adjusted spread (OAS) on a callable bond is the Z-spread:
a. over the benchmark spot curve
b. minus the standard swap rate in that currency of the same tenor
c. minus the value of the embedded call option expressed in basis points per year
c
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