Fixed-Income+Securities

Fixed-Income+Securities - coupon period has 181 days What...

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FINA 3104 Practice Problems Fall 2011 Fixed-Income Securities 1. True or False (a) A coupon bond that pays interest semi-annually is selling at par value and has a coupon rate of 5.6%. Without knowing the maturity, the discount rate of this bond cannot be determined. (b) Consider a 5-year bond with a 10% coupon that has a present discount rate of 8%. If interest rates remain constant, one year from now the price of this bond will be lower. (c) A zero-coupon bond may sell at premium. 2. Bond Pricing (a) Calculate the price of a 20-year bond with an annual coupon rate of 5% (paid semi- annually). The interest rate is constant at 7% APR (Annual Percentage Rate). The face value is $100. (b) You learn that 45 days have lapsed since the bond was issued and that each coupon period has 181 days. What is the approximate invoice price of the bond in (a) now? (c) You learn that 30 days have lapsed since the second coupon was paid and that each
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Unformatted text preview: coupon period has 181 days. What is the invoice price of the bond in (a) now? 3. Bond Prices and Interest Rates Consider the following three bonds: A, a 1-year zero-coupon bond; B, a 10-year zero-coupon bond; and C, a 10-year bond with a 5% coupon. The face value of all the three bonds is $1,000. Suppose the interest rate is 6% for all maturities. (a) The interest rate increases to 8% for all maturities. Will the prices of the three bonds increase or decrease? (No calculations necessary). (b) The interest rate increases to 8% for all maturities. Will the percentage change in the price of A bigger than that of B? Why or why not? (No calculations necessary). (c) The interest rate increases to 8% for all maturities. Will the percentage change in the price of B bigger than that of C? Why or why not? (No calculations necessary). 4. Recommended Problems from the Textbook (BKM) Effective annual yield: Chapter 14 Problems 6 and 7 (P.501)...
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This note was uploaded on 11/27/2011 for the course FINA 3104 taught by Professor Darwin during the Spring '11 term at HKUST.

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Fixed-Income+Securities - coupon period has 181 days What...

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