An analyst observes a 5-year, 10% semiannual-pay bond. The face amount is 1,000. The analyst believes...

    

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An analyst observes a 5-year, 10% semiannual-pay bond. The face amount is £1,000. The analyst believes that the yield to maturity for this bond should be 15%. Based on this yield estimate, the price of this bond would be: A. £828.40 B. £832.39 C. £1,189.53 D. £1,193.04 Bond A is a 15-year, 10.5% semiannual-pay bond priced with a yield to maturity of 8%, while Bond B is a 15-year, 7% semiannual-pay bond priced with the same yield to maturity. Given that both bonds have par values of $1,000, the price of these two bonds would be: Bond A A. $1,216.15 B. $1,216.15 C. $746.61 D. $746.61 Bond B $913.54 $944.41 $944.41 $913.54 11. The following information is reported in the business section of a newspaper: Yield required by market 6% 7% 5.90% 8.50% Issue A B C D Issue A B CA Which issue has an error in their reported price? (No calculations are required). 12. All of the issues below are option-free bonds and the yield required by the market for each bond is the same. Which issue has the least interest rate risk? с Coupon Maturity 7.38% 6.75% 5.50% 8.50% D 16 years 4 years 20 years 18 years Coupon rate 5.25% 6.50% 4.75% 8.50% Price 114.02 99.14 104.15 100 Maturity 15 years 12 years 20 years 10 years 15. Consider the following two Treasury securities: Bond A B Which of the following statement is incorrect? A. for a 25-basis-point change in interest rates, bond A has a greater estimated dollar price volatility compared to bond B B. for a 25-basis-point change in interest rates, from an investor's point of view, every dollar invested in bond B has greater volatility C. The price volatility of bond B is greater than A. D. for a 25-basis-point change, the percentage change in price of B is 1.4% Price Modified duration (years) 6 7 $100 $80 18. Which of the following statement regarding the bond convexity is incorrect? A. As the yield increases (decreases), the convexity of a bond decreases (increases). B. The premium on the higher convexity bond will be same when there is more expected interest rate volatility. C. For a given yield and maturity, the lower the coupon, the greater the convexity of a bond. D. For a given yield and modified duration, the lower the coupon, the smaller the convexity You observe two most recently issued securities: 6-month T-Bill (zero coupon) with yield 5.25% p.a., and 2-year T-Note with coupon rate of 6% p.a. are selling at par of 100. All bonds in the market are semi-annual payments. Using this information to answer questions 19-20. 19. Which of the following information would be incorrect? A. The current 6-month spot rate is 5.25% p.a. B. The yield to maturity of 2-year T-note is 6% p.a. C. The correct market price of 1-year Treasury note with par of 100 and coupon rate of 5.5% should be about 100. D. The spot rate in 1.5-year's time should be 5.75% p.a. 20. Which of the following statement is incorrect? A. The 6-month forward rate 12 months from now is 6.273% B. The best forecast of spot rate 12 months from now is 6.273% C. The best forecast of spot rate in two year's time should be 6% D. The market expects that interest rates will go up in the next two years. 21. Which of the following regarding the dollar return of bonds is incorrect? A. For a given yield to maturity and a given coupon rate, the longer the maturity, the more dependent the bond's total dollar return is on the interest-on-interest component in order to realize the yield to maturity at the time of purchase. B. For a given maturity and a given yield to maturity, higher coupon rates will make the bond's total dollar return more dependent on the reinvestment of the coupon payments in order to produce the yield to maturity anticipated at the time of purchase. C. The dollar return is a promised yield at the time of purchase if the investor will hold the bond until maturity and all coupon interest payments are reinvested at the same yield D. The dollar return is a measure of yield that incorporates an explicit assumption about the reinvestment rate. An analyst observes a 5-year, 10% semiannual-pay bond. The face amount is £1,000. The analyst believes that the yield to maturity for this bond should be 15%. Based on this yield estimate, the price of this bond would be: A. £828.40 B. £832.39 C. £1,189.53 D. £1,193.04 Bond A is a 15-year, 10.5% semiannual-pay bond priced with a yield to maturity of 8%, while Bond B is a 15-year, 7% semiannual-pay bond priced with the same yield to maturity. Given that both bonds have par values of $1,000, the price of these two bonds would be: Bond A A. $1,216.15 B. $1,216.15 C. $746.61 D. $746.61 Bond B $913.54 $944.41 $944.41 $913.54 11. The following information is reported in the business section of a newspaper: Yield required by market 6% 7% 5.90% 8.50% Issue A B C D Issue A B CA Which issue has an error in their reported price? (No calculations are required). 12. All of the issues below are option-free bonds and the yield required by the market for each bond is the same. Which issue has the least interest rate risk? с Coupon Maturity 7.38% 6.75% 5.50% 8.50% D 16 years 4 years 20 years 18 years Coupon rate 5.25% 6.50% 4.75% 8.50% Price 114.02 99.14 104.15 100 Maturity 15 years 12 years 20 years 10 years 15. Consider the following two Treasury securities: Bond A B Which of the following statement is incorrect? A. for a 25-basis-point change in interest rates, bond A has a greater estimated dollar price volatility compared to bond B B. for a 25-basis-point change in interest rates, from an investor's point of view, every dollar invested in bond B has greater volatility C. The price volatility of bond B is greater than A. D. for a 25-basis-point change, the percentage change in price of B is 1.4% Price Modified duration (years) 6 7 $100 $80 18. Which of the following statement regarding the bond convexity is incorrect? A. As the yield increases (decreases), the convexity of a bond decreases (increases). B. The premium on the higher convexity bond will be same when there is more expected interest rate volatility. C. For a given yield and maturity, the lower the coupon, the greater the convexity of a bond. D. For a given yield and modified duration, the lower the coupon, the smaller the convexity You observe two most recently issued securities: 6-month T-Bill (zero coupon) with yield 5.25% p.a., and 2-year T-Note with coupon rate of 6% p.a. are selling at par of 100. All bonds in the market are semi-annual payments. Using this information to answer questions 19-20. 19. Which of the following information would be incorrect? A. The current 6-month spot rate is 5.25% p.a. B. The yield to maturity of 2-year T-note is 6% p.a. C. The correct market price of 1-year Treasury note with par of 100 and coupon rate of 5.5% should be about 100. D. The spot rate in 1.5-year's time should be 5.75% p.a. 20. Which of the following statement is incorrect? A. The 6-month forward rate 12 months from now is 6.273% B. The best forecast of spot rate 12 months from now is 6.273% C. The best forecast of spot rate in two year's time should be 6% D. The market expects that interest rates will go up in the next two years. 21. Which of the following regarding the dollar return of bonds is incorrect? A. For a given yield to maturity and a given coupon rate, the longer the maturity, the more dependent the bond's total dollar return is on the interest-on-interest component in order to realize the yield to maturity at the time of purchase. B. For a given maturity and a given yield to maturity, higher coupon rates will make the bond's total dollar return more dependent on the reinvestment of the coupon payments in order to produce the yield to maturity anticipated at the time of purchase. C. The dollar return is a promised yield at the time of purchase if the investor will hold the bond until maturity and all coupon interest payments are reinvested at the same yield D. The dollar return is a measure of yield that incorporates an explicit assumption about the reinvestment rate.

Answer rating: 100% (QA)

The detailed answer for the above question is provided below Answers to Bond Valuation and Interest Rate Risk Questions 1 Bond Price The price of the bond would be A 82840 To calculate the pricewe can ... View the full answer