Question

An investor is considering purchasing a new issue of 5-year bonds of $1,000 par value and an annual fixed coupon rate of 12%, while coupon payments are made semiannually. The minimum annual yield that the investor would accept is 6.75%. find the fair value of a bond?

Select one:

a. 717.5$

b. 1123.4$

c. 876.5$

d. 1219.7$

The price of a corporate bond which has a par value of $1000 and coupon payment is 5% and yield is 8%. The maturity of the bond is 10 years will be?

Select one:

a. Higher than the par value

b. Lower than the par value

c. Equal the par value

The price of a bond is 1000$, if the coupon rate increased, the price of this bond will?

Select one:

a. Increase.

b. Remain the same.

c. Decrease.

The price of a corporate bond which has a par value of $1000 and coupon payment is 5% and yield is 5%. The maturity of the bond is 10 years will be?

Select one:

a. Equal the par value

b. Lower than the par value

c. Higher than the par value

Answer 1

Answer No. 1

  

Tenure(In years)	5
Par Value	1000
Coupon Rate	0.12
Annual Yield	0.0675
Fair Value of Bond	=PV(B4,B1,-B3*B2,-B2)

Answer No. 2

b. Lower than the par value

Answer No. 3

a. Increase.

Answer No. 4

a. Equal the par value.

Explaination:-

Formulas Used:-

Tenure(In years)	5
Par Value	1000
Coupon Rate	0.05
Annual Yield	0.05
Fair Value of Bond	=PV(B4,B1,-B3*B2,-B2)

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