ok here are some questions that I got wrong during my routine practice hope you like them, they are not horrible, just good review of tricks we must know well I’ll come back with answers tonight Consider a bond that pays 7% semiannually and has 8 years to maturity. The market requires an interest rate of 8% on bonds of this risk. What is this bond’s price? A. $91.15 B. $94.17 C. $94.25 D. $106.05 ---------------------------------------------------------------------------------------------------------------- What is the price change for a 10-year bond that has a 10% coupon, with payments made semiannually? The market rate is 10%, the bond sold for $100, and the market yield changes instantly to 11%. A. -$3.77 B. $3.77 C. -$5.97 D. $5.97 ---------------------------------------------------------------------------------------------------------------- Given the following spot rates: Period — year ----- annual spot rate 1 --------- 0.5 ---- 10.0000 2 --------- 1 ------ 10.4000 3 --------- 1.5 ---- 10.8230 4 --------- 2 ------ 10.2348 5 --------- 2.5---- 11.6000 The arbitrage-free value of a 5%, 2.5-year Treasury would be closest to A. $86.02 B. $86.10 C. $96.61 D. $100.00 ---------------------------------------------------------------------------------------------------------------- The amount one can potentially earn, if rates remain constant, on the second interest payment of a 5-year, 6% bond when a reinvestment rate of 8% is available is: A. $0.65 B. $1.11 C. $1.26 D. $1.73 ---------------------------------------------------------------------------------------------------------------- A corporate bond with a face value of $1,000 matures in 2 years and has a 10% coupon paid at the end of each year. The current price of the bond is $950. What is the yield to maturity for this bond? A. 7.69%. B. 10.26%. C. 10.52%. D. 13.00%. ---------------------------------------------------------------------------------------------------------------- A zero-coupon bond is selling for $50.26 and has 10 years remaining to maturity. What rate of interest is required by the market? A. 3.5% B. 5.0% C. 7.0% D. 7.13%
- B 2) C 3) A 4) B 5) D 6) C
not bad ! u are far better in this section than in dilluted EPS lol 
B C B (odd that there are two answers soo close, rounding error could justify either A or B) A (assumed semi annual N= 10 vs N=9 for $0.67 in capital gain) D C
Can someone show the work please??? Thanks
what’s right answer for Q4? ---------------------------------------------------------------------------- The amount one can potentially earn, if rates remain constant, on the second interest payment of a 5-year, 6% bond when a reinvestment rate of 8% is available is: A. $0.65 B. $1.11 C. $1.26 D. $1.73
this one has me a little perplexed… if it is asking for a reinvestment return then there is a $3 coupon payment for a $100 bond from the second period. If this is invested for the remainder of the bond term then there is a 4 year period the $3 will earn either 8% annually or 4% semiannually (question does not specify, although semi annual is the convention used for the exam). on semi annual interest earned N=8, I=4%, PV=$3 to give FV $4.105 ~ that less the $3 gives $1.105 in reinvestment income. on annual interest earned N=4, I=8%, PV=$3 to give FV $4.081 ~ that less the $3 gives $1.08 in reinvestment income. so perhaps b is the best answer at $1.11
The answer to 4 is as follows: {[(1.04)^8]*3} - 3 = 1.1057
Also…Char-Lee For # 3: Find PV of coupons as n = 4 pmt = 2.5 fv = 0 i = 5.8 Compute PV = 8.7026 Then PV of final payment as 102.5/(1.058)^5 = 77.3207 77.32 + 8.70 = 86.02
I hope u liked them, here are the answers 1) crrect asnwer: B. N=16, I/Y=4, PMT=3.5, FV=100, PV=?=94.17 2) Correct Answer: C. N=20, I/Y=5.5, PMT=5, FV=100, PV=?=94.03, diff. = 94.03 - 100 = -5.97 3)correct answer: B. Arbitrage-free value = 2.5/(1.05) + 2.5/(1.052))² + 2.5/(1.054115))^3 + 2.5/(1.056174))^4 + 102.5/(1.058))^5 = 86.10 nb: interest each 1/2 year = 2.5Spot rate / 2 = denominator (discount factor semi annual)Could split in to 6 different compenets if required 4) Correct Anwser: B. 3((1.04) - 1) = $1.11 here we have to assume semi annual interest rate also i do this with my TI : N=8, I/Y=4,PV=3, PMT=0 CPT FV = 4.1 4.1-3 = 1.1, earn 1.1 extra 5) Correct ans D 6) C
Ok…that makes sense. Value using zero-coupon spots. I should have know that. My fault Char-Lee. Looks like I was wrong.
formula and calculation are fair simple. difficulty is to dig out the intention behind words.