Ch 3_problems.pdf - CHAPTER 3 INTRODUCTION TO FIXED-INCOME VALUATION PROBLEMS This question set was created by Mark Bhasin CFA(New York NY Ryan C

Ch 3_problems.pdf - CHAPTER 3 INTRODUCTION TO FIXED-INCOME...

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11CHAPTER 3INTRODUCTION TO FIXED-INCOME VALUATIONPROBLEMSThis question set was created by Mark Bhasin, CFA (New York, NY), Ryan C. Fuhrmann, CFA (Carmel, IN), Louis Lemos, CFA (Louisville, KY), Susan Ryan, CFA (East Hartland, CT), and Michael Whitehurst, CFA (San Diego, CA). Copyright © 2013 by CFA Institute. 1. A portfolio manager is considering the purchase of a bond with a 5.5% coupon rate that pays interest annually and matures in three years. If the required rate of return on the bond is 5%, the price of the bond per 100 of par value is closestto: A. 98.65.B. 101.36.C. 106.43. 2. A bond with two years remaining until maturity offers a 3% coupon rate with interest paid annually. At a market discount rate of 4%, the price of this bond per 100 of par value is closestto: 3. An investor who owns a bond with a 9% coupon rate that pays interest semiannually and matures in three years is considering its sale. If the required rate of return on the bond is 11%, the price of the bond per 100 of par value is closestto:
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12 Part I: Learning Objectives, Summary Overview, and Problems 4. A bond offers an annual coupon rate of 4%, with interest paid semiannually. The bond matures in two years. At a market discount rate of 6%, the price of this bond per 100 of par value is closestto: 5. A bond offers an annual coupon rate of 5%, with interest paid semiannually. The bond matures in seven years. At a market discount rate of 3%, the price of this bond per 100 of par value is closestto: A. 106.60.B. 112.54.C. 143.90. 6. A zero-coupon bond matures in 15 years. At a market discount rate of 4.5% per year and assuming annual compounding, the price of the bond per 100 of par value is closestto: 7. Consider the following two bonds that pay interest annually:BondCoupon RateTime-to-MaturityA5%2 yearsB3%2 yearsAt a market discount rate of 4%, the price difference between Bond A and Bond B per 100 of par value is closestto: The following information relates to Questions 8 and 9BondPriceCoupon RateTime-to-MaturityA101.8865%2 yearsB100.0006%2 yearsC97.3275%3 years8. Which bond offers the lowest yield-to-maturity? 9. Which bond will most likely experience the smallest percent change in price if the market discount rates for all three bonds increase by 100 basis points (bps)? A. Bond A B. Bond B C. Bond C
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Chapter 3 Introduction to Fixed-Income Valuation 13 10. Suppose a bond’s price is expected to increase by 5% if its market discount rate decreases by 100 bps. If the bond’s market discount rate increases by 100 bps, the bond price is most likelyto change by:
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