Question

**1. In the context of bond valuation, what does a
built-in put option do?**

Select one:

a. It gives the bond issuer the right buy the bond back from the bond holder prior to maturity.

b. It gives the bond holder the right to sell the bond back to the bond issuer prior to maturity.

c. Both of the above.

d. None of the above.

**2. Which of the following is mostly likely to lead to an
increase in the price of a bond?**

Select one:

a. A premium bond gets closer to maturity.

b. The bond issuer receives a ratings downgrade from one of the ratings agencies.

c. None of these are likely to lead to an increase in the price of a bond.

d. The general level of interest rates decreases.

**3. How would you describe a bond if the yield is not
greater than the coupon rate and the price is not greater than the
face value?**

Select one:

a. The bond is trading at a premium.

b. The bond is trading at a discount.

c. The bond is trading at par.

d. This is not possible.

**4. What is the price (per $100 of face value) of a bond
which makes quarterly coupon payments at a coupon rate of 6.3% p.a.
and which has 5 years to maturity, if the bond is trading at a
yield of 4.1% p.a.? (Please give working.)**

Select one:

a. $109.855

b. $109.767

c. $90.627

d. $109.900

**5. A $3000 bond makes semi-annual coupon payments at the
rate of 9.5% p.a. on the 1st of February and the 1st of August each
year. What would the accrued interest be on the bond if it was sold
on the 7th of April 2020? ( please give working)**

Select one:

a. $51.68

b. $51.96

c. $52.46

d. $51.17

Answer #1

**1.** b. It gives the bond holder the right to
sell the bond back to the bond issuer prior to maturity.

**2.** d. The general level of interest rates
decreases.

**3.** b. The bond is trading at a discount.

**4.**

FV = 100

N = 4 x 5 = 20

PMT = (100 x 6.3%)/4 = 1.575

I/Y = 4.1/4 = 1.025

calculating PV = $109.9

d. $109.900

**5.**

Number of days between 1st Feb and 1st August = 181 days

Number of days between 1st February and 7th April = 65 days

annual coupon payment = (3000 x 9.5%) = 142.5

Accrued interest = (65/181) x 142.5 = $51.17

d. $51.17

Question 1
The price of an outstanding bond will decline when
Select one:
a. the current level of interest rate increases.
b. there is an increase in the demand for the bond.
c. the current level of interest rate declines.
d. the yield is equal to the coupon rate.
Question 2
When a bond sells below its par value, it is called
Select one:
a. par value bond.
b. discount from par.
c. market value bond.
d. premium above par....

What is the value of a bond with a face value of $500, 7 years
to maturity and a quarterly coupon paid at a coupon rate of 8%, if
it is trading at a yield of 2% p.a.? Select one:
a. $695.51 b. $692.61 c. $694.16 d. $693.96 Feedback

A 2-year 10% annual coupon bond of a company is trading at
$1068.65 per $1000 face value. A 2-year zero coupon bond of the
same issuer is trading at $907.03 per $1000 face value. Use
no-arbitrage arguments to find what should be the price of a 1-year
zero coupon bond of the same issuer for $100 face value? Select
one: a. $68.65 b. $52.23 c. $62.00 d. $70.92 e. $59.27

A discount bond:
Select one:
a. Has a coupon rate which is greater than the yield to
maturity.
b. Has a par value which is less than the market value.
c. Has a coupon rate which is less than the market rate of
interest.
d. Is selling for more than face value.
e. Is the name given to a bond that has been called prior to
maturity.

Suppose a seven-year, $1,000 bond with a 7.6% coupon rate and
semiannual coupons is trading with a yield to maturity of
6.54%.
a. Is this bond currently trading at a discount, at par, or at
a premium? Explain.
b. If the yield to maturity of the bond rises to 7.33% (APR with
semiannual compounding), what price will the bond trade for?
a. Is this bond currently trading at a discount, at par, or at
a premium? Explain. (Select the best...

1. A $1,000 par value corporate bond that pays $60 annually in
interest was issued at par last year. The current price of the bond
is $996.20.
Pick the correct statement about this bond from below.
The bond is currently selling at a premium.
The current yield exceeds the coupon rate.
The bond is selling at par value.
The current yield exceeds the yield to maturity.
The coupon rate has increased to 7 percent.
2. Dot Inns is planning on...

Which of the following statements regarding “Sinking Fund
Provision” is most correct?
Select one:
a. A firm will choose to call back bonds for redemption at par
value if the bonds are traded at a discount.
b. In general, sinking fund bonds are issued with lower coupon
rate than otherwise similar bonds without sinking funds.
c. On balance, bonds that have a sinking fund are regarded as
being riskier than those without such a provision.
d. A sinking fund provision...

Suppose a seven-year, $1,000 bond with a 9.43%coupon rate and
semiannual coupons is trading with a yield to maturity of
6.87%.
a. Is this bond currently trading at a discount, at par, or at
a premuim? Explain. The bond is currently trading... (Select the
best choice below.)
A. ... at a premium because the yield to maturity is greater
than the coupon rate.
B... at par because the coupon rate is equal to the yield to
maturity
C... at a...

1. When a bond issuer terminates a bond prior to its original
maturity, it is exercising a privilege granted to the bond issuer
in the bond contract. That privilege is known as a _____.
a. preemptive right
b. sinking fund provision
c. call back provision
d. protective provision
2. At what tax rate (t) would an investor be indifferent to the
following two bonds: a taxable corporate bond yielding 4 percent
and a comparable nontaxable municipal bond yielding 3 percent?...

7)
The prices of several bonds with face values of $1,000 are
summarized in the following table:
Bond
A
B
C
D
Price
$905.72
$057.48
$1,179.66
$1,000.00
For each bond, provide an answer for whether it trades at a
discount, at par, or at a premium. Bond A trades at
(a).----------------?
Is it Discount, Par Or Premium?
(Select from the drop-down menu.)
5)
Suppose a 10-year, $1,000 bond with a 12% coupon rate and
semiannual coupons are trading for a...

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