Practice Question Chapter 1.2 - Chapter 1 Practice 1 Given...

Chapter 1
Practice 1
Given the information in the 1
st
and 3
rd
columns for the US investor, complete the
information in the 2 nd and 4 th columns:
Quoted Price Price per $1 of par
value
Par Value Dollar Price
103 1/4 $1,000
70 1/8 $5,000
87 5/16 $10,000
117 3/32 $100,000
Practice 2
A floating rate issue has the following coupon formula:
6 month Treasury rate + 50 basis points with a cap of 7%
The coupon rate is set every six months. Suppose that at the reset date the 6 month
Treasury rate is as shown below. Compute the coupon rate for the next 6 month period.
6 month Treasury Rate Coupon Rate
First reset 5.5%
Second reset 5.8%
Third reset 6.3%
Fourth reset 6.8%
Fifth reset 7.3%
Sixth reset 6.1%
Practice 3
Identify the following types of bonds based on their coupon structures:
a) coupon formula: coupon rate = 32% - 2 x (5 year treasury)
b) Coupon structure:
Years 1 – 3 5.1%
Years 4 – 9 5.7%
Years 10 – 20 6.2%
c) Coupon formula: coupon rate = change in the consumer price index + 3.1%

Chapter 2
Practice 1