1) Consider a 10-year bond trading at $1150 today. The bond has a face value of $1,000, and has a coupon rate of 8%. Coupons are paid semiannually, and the next coupon payment is exactly 6 months from now. What is the bond's yield to maturity?
2)A coupon-paying bond is trading below par. How does the bond's YTM compare to its coupon rate?
a. Need more info
b. YTM = Coupon Rate
c. YTM > Coupon Rate
d. YTM < Coupon Rate
3)A coupon-paying bond is trading at par. How does the bond's current yield compare to its coupon rate?
a. Need more info
b. YTM = Coupon Rate
c. YTM > Coupon Rate
d. YTM < Coupon Rate
4) Consider a bond with a coupon rate of 6% and a face value of $1,000. Coupons are paid semi-annually. Suppose there are 94 days to the next coupon payment date. Assuming a 30/360 day-count convention, what is the accrued interest on this bond today?
5) Consider a bond with a coupon rate of 7% and a face value of $1,000. Coupons are paid semi-annually. Suppose there are 52 days to the next coupon payment date, beyond which there are 2 years left to maturity (so that there are in total 1+2*2 number of coupon payments left). The bond is currently trading at a YTM of 4%. Assuming a 30/360 day-count convention, what is the bond's full (dirty) price?
6) When buying a bond, an investor pays the clean (or the quoted) price.
a.True
b. False
7)Coupon-bearing Treasury securities pay coupons semi-annually.
a. True
b.False
8)
Calculate the full (dirty) price of a bond, assuming the following.
Transaction settlement date is July 11th, 2018.
Bond maturity date is September 30th, 2020.
Coupon rate is 5%, and coupons are paid semi-annually.
The bond is trading at a YTM of 8%.
The day-count convention is 30/360.
Redemption value is 100.
Round your answer to the nearest cent (2 decimal places).
9)
Consider a corporate bond with a face value of $1,000, 2 years to maturity and a coupon rate of 6%. Coupons are paid semi-annually. The next coupon payment is to be made exactly 6 months from today. What is this bond's price assuming the following spot rate curve.
6-month spot rate: 3%.
12-month: 5%.
18-month: 5.5%.
24-month: 5.8%.
Round your answer to the nearest cent (2 decimal places).
10)
Consider a corporate bond with a face value of $1,000, 2 years to maturity and a coupon rate of 5%. Coupons are paid semi-annually. The next coupon payment is to be made exactly 6 months from today. What is this bond's YTM assuming the following spot rate curve.
6-month spot rate: 4%.
12-month: 5%.
18-month: 5.5%.
24-month: 5.8%.
11) What is the current yield of a 6-year Treasury note with a coupon rate of 5%, a face value of $100, and is currently trading at 100:10?
Answer to Question No. 1
Yeild to maturity (YTM) can be calculated using two methods:
a) Approximation Method
b) IRR Method
Both the methods gives approximately same results.
we are using approximation method to solve this question.
YTM= (C+(F-P)/n) / ((F+P)/2)
where C= Coupon Payment/Interest Payment
F= Face Value
P=Price
n=years to maturity
Putting Values in the equation above:
YTM= (1000*4%+(1000-1150)/20) / ((1000+1150)/2)
Coupon rate is 8% for an year; so 4% semi annually
years to maturity is 10 years; 20 semi annual
YTM=(40+(-7.5))/1075
YTM=3.02% semi annually
So YTM= 3.02%*2= 6.05% annually
Answer to question no.2
If a coupon paying bond is trading below par ; lets say 999
putting the above price in above formulla
YTM= (1000*4%+(1000-999)/20)/ ((1000+999)/2)
YTM= 4.01% semi annually
YTM= 8.01% annually
So correct answer is (C) YTM> Coupon Rate
Answer to Question No. 3
If a bond is trading at par; i.e 1000
YTM=(1000*4%+(1000-1000)/20)/((1000+1000)/2)
YTM=4 % semi annually
YTM= 8% annually
SO correct part is (b) YTM=Coupon Rate
Answer to Question 4
coupon rate= 6% annually , so 3% semi annually
Assumed 360 days in an year, so 180 days in 6 months
94 days left for the next coupon payment, it means we have already earned interest for 86 days (180 days-94 days)
Accrued Interest= 1000*3%*86/180
Accried Intererst = $14.33
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