Question

Which of the following is the minimum price for a freely puttable bond? Assume the bond will remain freely puttable for the remainder of its life.

Select one:

A. Its PAR Value

B. Par Value minus Accrued Interest

C. Present Value of the PAR Value

D. Par Value plus Accrued Interest

E. The Put Price

Answer #1

ANS: Option **(C) ( Present value of PAR
Value)**

Puttable bond has a put option as holder has a right to demand the early repayment of the principal. Par value is mainly the face value of the bond. Present value of bond represents the sum of all future cash flows from a project, untill its maturity is at full repayment of par value. Suppose at 10%, the bond is invested at $ 100 for 1 year which is at its par value, so the present value of that par value is ($100 * 0.909) = 90.90. so, If $ 90.90 is invested at 10% for 1 year, the holder of bond at the end of 1 year gets a bond of value $ 100.

So, the present vaue of Par value is the minimum price for a freely puttable bond.

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Select one:
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b. The NPV of the investment is expected to be positive.
c. The NPV of the investment is expected to be zero.
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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....

Assume the following measure of price volatility Bond price
volatility = (Ending price of bond / Beginning price of bond) -1
What is the price volatility of a twelve-year, 8%, $1,000 par
value, when the yield to maturity increases from 5% to 7%?
(Interest is paid annually).

Ques 1 a) Assume an original issue bond with 30 years remaining
to maturity which has a coupon rate of 4.5 % and the going rate of
interest in the market is 4.5%. Its par value is $1000.
b. What would its price be? Show all calculations, either in
formulas or in Excel.
c. In a above, did you actually have to calculate the price?
Could make a reason that the price should be $1000.
Ques 2. a) If the...

Which of the following statements is incorrect?
a. If the coupon rate of a bond is below the investor's
required rate of return, the present value of the bond should be
above the par value.
b. If the coupon rate of a bond is above the investor's
required rate of return, the present value of the bond should be
above the par value.
c. If the coupon rate of a bond is below the investor's
required rate of return, the...

Which of the following option is false? Select the most suitable
answer. Select one:
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European call price plus the present value of the strike price.
b. For American options, put-call parity provides an upper and a
lower bound for the difference between call and put prices.
c. For American options without dividend payment, the difference
between call and put prices should be higher than or equal to the...

Consider a 20-year bond with an annual coupon of 10%.
The coupon rate will remain fixed until the bond matures. The bond
has a yield to maturity of 8%. Which of the following statements is
correct?
1) The bond should currently be selling at its par
value.
2) If market interest rates decline, the price of the
bond will also decline.
3) If market interest rates remain unchanged, the bond’s
price one year from now will be higher than it...

14. Which of the following statements is CORRECT?
a.
A bond is likely to be called if it sells at a discount below
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b.
A bond is likely to be called if it sells at a premium above
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c.
A bond is likely to be called if its market price is equal to
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d.
A bond is likely to be called if its market price is below its
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1. In the context of bond valuation, what does a
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Select one:
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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.
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price IV. The longer the maturity of the bond, the greater the
sensitivity of its price to fluctuations in the interest rate. A.
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