Question

a) Describe the key feature of a zero-coupon bond. (1 mark) b) “The price of a zero coupon bond should be equal to its face value.” True or false? Explain. c) “The yield to maturity of a discount bond is greater than its coupon rate.” True or false? Explain. d) You just purchased a 12-year semi-annual coupon bond with a par value of $1,000 and a coupon rate of 7%. The nominal yield to maturity is 6% per annum. Calculate the market price of the bond. e) Three years later, immediately after receiving the sixth coupon payment, you sell the bond to your best friend. Your best friend’s nominal yield to maturity is 8% per annum. Calculate the price paid by your best friend.

Answer #1

a] | The key feature of a zero-discount bond is that it does not pay | |

interest and is issued at a very low price, which price is the | ||

maturity value of the bond discounted at the market rate. | ||

b] | FALSE | |

c] | TRUE | |

d] | Price of the bond = 1000/1.03^24+35*(1.03^24-1)/(0.03*1.03^24) = | $ 1,084.68 |

e] | Price paid by the friend for the bond = 1000/1.04^18+35*(1.04^18-1)/(0.04*1.04^18) = | $ 936.70 |

a) Describe the key feature of a zero-coupon bond. (1 mark)
b) “The price of a zero coupon bond should be equal to its face
value.” True or false? Explain.
c) “The yield to maturity of a discount bond is greater than its
coupon rate.” True or false? Explain.
d) You just purchased a 12-year semi-annual coupon bond with a
par value of $1,000 and a coupon rate of 7%. The nominal yield to
maturity is 6% per annum. Calculate...

You purchase a bond issued by XYZ Ltd, which is a 8% semi-annual
coupon bond with a term to maturity of 10 years, and currently
trading at par. Four years later, immediately after receiving the
eighth coupon payment, you sell the bond to your best friend. You
best friend’s nominal yield to maturity is 7% per annum. Write down
an equation that can be solved to find your total realised return
over the 4-year holding period.

A semi-annual coupon bond with 2 years to maturity and 8% per
annum coupon rate has a face value of $1,000 with a yield to
maturity of 12% per annum (compounded semi-annually). Using the
bond’s modified duration, estimate the new bond price when the
yield to maturity immediately changes from 12% per annum to 8% per
annum.
Select one:
a. 66.27 dollars.
b. 996.97 dollars.
c. 930.70 dollars.
d. 864.43 dollars.
e. None of the statements is true.

Calculate the price of a 3.5 percent coupon bond, with 3.5 years
to maturity, and semi-annual payments. Zero-coupon spot (strip)
rates are as follows. YTM on a zero coupon security is a nominal
annual rate with semi-annual compounding.
Maturity YTM
6 months 1.20% per year
12 months 1.30%
18 months 1.40%
24 months 1.50%
30 months 1.50%
36 months 1.70%
42 months 1.90%
a. Calculate the price of this bond.
b. What is the yield to maturity of this coupon...

The yield of a 1-year zero-coupon bond is 5% per annum
(continuously compounded). A 2-year coupon bond with a coupon rate
of 7% per year (paid annually) has a price of £98 and a yield of
7.81% per annum (continuously compounded). The bonds have principal
value of £100. i) What is the forward rate over the 2nd year?
Provide the answer as a semi-annually compounded forward rate, as
well as a continuously compounded forward rate.

1)What is the price of a bond if the par value is $1000, the
coupon rate is 5%(paid semi-annually), has 20 years to maturity and
the market rate (yield to maturity per annum) is 8%?
A. $683.11 B. $703.11 C. $813.11 D. $923.11 E. 1063.11
2) What is the coupon rate of a bond with a par value of $1000,
it is currently selling for $800, has 15 years to maturity and the
market rate (yield to maturity) is 10%...

1. A 9-year zero coupon bond has a yield to maturity of
11.8 percent, and a par value of $1,000. What is the
price of the bond?
2. A 7-year bond has a 8 percent coupon rate with the interest
paid in semi annual payments. The yield to maturity of
the bond is 2.3 percent, and a face value of
$1,000. What is the price of the bond?
3. A 12-year bond has a 9 percent annual coupon, a yield to
maturity of...

True or false:
If interest rates fall by 1%, a 10-year, 3% coupon bond will
increase in percentage of price less than an otherwise equivalent
zero-coupon bond.
The term structure of interest rates defines the relation
between bond maturity and bond yield to maturity.
Nominal interest rates tend to increase when the economy
expands.
A pension fund would probably prefer a municipal security with
a yield of 2.5% to an equivalent corporate bond with a yield of
3%.

Atlantis Fisheries issues zero coupon bonds on the market at a
price of $415 per bond. Each bond has a face value of $1,000
payable at maturity in 17 years. What is the yield to maturity for
these bonds? Atlantis Fisheries issues zero coupon bonds on the
market at a price of $421 per bond. These are callable in 7 years
at a call price of $640. Using semiannual compounding, what is the
yield to call for these bonds?

What is the price of a $1000 face value zero-coupon bond with 4
years to maturity if the required return on these bonds is 3%?
Consider a bond with par value of $1000, 25 years left to
maturity, and a coupon rate of 6.4% paid annually. If the yield to
maturity on these bonds is 7.5%, what is the current bond
price?
One year ago, your firm issued 14-year bonds with a coupon rate
of 6.9%. The bonds make semiannual...

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