Question

A bond is a contract between the bond issuer and the bond holder.

1. True or False: For a conventional or "vanilla" bond, the bond's face value is set permanently by the contract until the maturity of the bond. The bond's face value cannot change.

2. True or False: For a conventional or "vanilla" bond, the bond's yield is set permanently by the contract until the maturity of the bond. The bond's yield cannot change.

3. True or False: For a conventional or "vanilla" bond, the bond's term is set permanently by the contract. The bond's term cannot change.

4. True or False: For a conventional or "vanilla" bond, the frequency of the bond's coupon payment (annual, semi-annual, quarterly, monthly, etc.) is set permanently by the contract until the maturity of the bond. The bond's coupon-payment frequency cannot change.

Answer #1

1. True

It is correct. The bond’s face value is normally fixed at the initial contract and it remains the same throughout the period or maturity of the bond. The bond’s face value does not change.

2. False.

The bonds yield is not fixed throughout the period. It can change as the market price of the bond changes. The price can be affected because of the liquidity in the market and market interest rate can change.

3. True

The term or the maturity of the bond is normally set at the beginning of the period and matures at that time period.

4. True

It is true that the frequency of the coupon payment is fixed at the beginning while issuing the bond and it does not change throughout the maturity of the bond.

1. Calculate bond price if the coupon payment is 8%, yield for
the bond is 10%, bond's face value is 1,000 and matures in 6, if
paid semi-annually
(Enter the answer in dollar format without $ sign or thousands
comma -> 3519.23 and not $3,519.23 or 3,519.23)
2. Calculate the annual coupon payment if the semi-annual coupon
paying bond price is $803, the yield for the bond is 5%, the bond's
face value is $1,000 and matures in 6 years....

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...

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...

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...

Consider the following bonds: Bond Issuer Time to maturity
Coupon rate Coupon frequency
1 US Treasury 3 years 8% Semi-annual
2 US Treasury 5 years 3% Annual
3 US Treasury 5 years Zero N/A
4 US Treasury 5 years 3% Semi-annual
All else being equal, rank the bonds (1,2,3,4) from highest to
lowest sensitivity to interest rate changes.

1. Compute the price of a $1,000 par value, 10 percent
(semi-annual payment) coupon bond with 27 years remaining until
maturity assuming that the bond's yield to maturity is 15 percent?
(Round your answer to 2 decimal places and record your answer
without dollar sign or commas).

1. Analyze the 20-year, 8% coupon rate (Semi-annual payment),
$1,000 par value bond. The bond currently sells for $1,218. What's
the bond's yield to maturity?
A. 5.06%
B. 5.68%
C. 5.38%
D. 6.10%
2. Analyze the 20-year, 8% coupon rate (Semi-annual payment),
$1,000 par value bond. The bond currently sells for $1,218. What's
the bond's current yield, and capital gain yield? (Please show your
work)
A. 6.57%, -0.47%
B. 6.07%, -0.69%
C. 6.57%, -0.47%
D. 6.07%, 0.69%

1. The face value of the bond is paid at the maturity of the
bond. True or false?
2. Which of the following is used as a discount rate while
calculating the bond price?
Yield to Maturity (YTM)
Coupon Rate
Face Value
None
3. Coupon payments are determined by multiplying face value of
the bond with the coupon rate. True or false?
4. Which of the following explains the differences in interest
rates?
The length of the investment (maturity premium)....

Which one of the following statements is true? Question 13
options: 1) A premium bond has a yield to maturity that is less
than the bond's coupon rate. 2) A discount bond has a coupon rate
that is higher than the bond's yield to maturity. 3) The yield to
maturity on a premium bond exceeds the bond's coupon rate. 4) The
current yield on a par value bond will exceed the bond's yield to
maturity. 5) The current yield on...

Compute the price of a $1,000 par value, 12 percent (semi-annual
payment) coupon bond with 21 years remaining until maturity
assuming that the bond's yield to maturity is 14 percent? (Round
your answer to 2 decimal places and record your answer without
dollar sign or commas).

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