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Question 11 bond pricing
For a price of $100, Vera will sell you a 2 year bond paying semi-annual coupons of 10% pa. The face value of the bond is $100. Other bonds with similar risk, maturity and coupon characteristics trade at a yield of 8% pa.
Would you like to her bond or politely ?
For a price of $100, Carol will sell you a 5 year bond paying semi-annual coupons of 16% pa. The face value of the bond is $100. Other bonds with similar risk, maturity and coupon characteristics trade at a yield of 12% pa.
For a price of $100, Rad will sell you a 5 year bond paying semi-annual coupons of 16% pa. The face value of the bond is $100. Other bonds with the same risk, maturity and coupon characteristics trade at a yield of 6% pa.
Would you like to the bond or politely ?
For a price of $100, Andrea will sell you a 2 year bond paying annual coupons of 10% pa. The face value of the bond is $100. Other bonds with the same risk, maturity and coupon characteristics trade at a yield of 6% pa.
For a price of $95, Nicole will sell you a 10 year bond paying semi-annual coupons of 8% pa. The face value of the bond is $100. Other bonds with the same risk, maturity and coupon characteristics trade at a yield of 8% pa.
A three year bond has a face value of $100, a yield of 10% and a fixed coupon rate of 5%, paid semi-annually. What is its price?
(a) 87.31
(b) 86.92
(c) 76.37
(d) 74.62
(e) 58.63
Question 21 income and capital returns, bond pricing
A fixed coupon bond was bought for $90 and paid its annual coupon of $3 one year later (at t=1 year). Just after the coupon was paid, the bond price was $92 (at t=1 year). What was the total return, capital return and income return? Calculate your answers as effective annual rates.
The choices are given in the same order: ## r_\text{total},r_\text{capital},r_\text{income} ##.
(a) -0.0556, -0.0222, -0.0333
(b) 0.0222, -0.0111, 0.0333.
(c) 0.0333, 0.0556, 0.0222.
(d) 0.0556, 0.0222, 0.0333.
(e) 0.0556, 0.0333, 0.0222.
Question 23 bond pricing, premium par and discount bonds
Bonds X and Y are issued by the same US company. Both bonds yield 10% pa, and they have the same face value ($100), maturity, seniority, and payment frequency.
The only difference is that bond X and Y's coupon rates are 8 and 12% pa respectively. Which of the following statements is true?
(a) Bonds X and Y are premium bonds.
(b) Bonds X and Y are discount bonds.
(c) Bond X is a discount bond but bond Y is a premium bond.
(d) Bond X is a premium bond but bond Y is a discount bond.
(e) Bonds X and Y are par bonds.
Question 25 bond pricing, zero coupon bond, term structure of interest rates, forward interest rate
A European company just issued two bonds, a
2 year zero coupon bond at a yield of 8% pa, and a
3 year zero coupon bond at a yield of 10% pa.
What is the company's forward rate over the third year (from t=2 to t=3)? Give your answer as an effective annual rate, which is how the above bond yields are quoted.
(a) 0.0374
(b) 0.0604
(c) 0.1204
(d) 0.1250
(e) 0.1411
Bonds A and B are issued by the same company. They have the same face value, maturity, seniority and coupon payment frequency. The only difference is that bond A has a 5% coupon rate, while bond B has a 10% coupon rate. The yield curve is flat, which means that yields are expected to stay the same.
Which bond would have the higher current price?
(a) Bond A will have a higher price.
(b) Bond B will have a higher price.
(c) Bonds A and B will have the same price.
(d) The higher priced bond can't be determined without knowing their yields.
(e) The higher priced bond can't be determined without knowing the inflation rate.
What is the company's forward rate over the second year (from t=1 to t=2)? Give your answer as an effective annual rate, which is how the above bond yields are quoted.
A two year Government bond has a face value of $100, a yield of 0.5% and a fixed coupon rate of 0.5%, paid semi-annually. What is its price?
(a) $100.0000
(b) $98.0346
(c) $99.0062
(d) $99.0087
(e) $99.0124
Question 48 IRR, NPV, bond pricing, premium par and discount bonds, market efficiency
The theory of fixed interest bond pricing is an application of the theory of Net Present Value (NPV). Also, a 'fairly priced' asset is not over- or under-priced. Buying or selling a fairly priced asset has an NPV of zero.
Considering this, which of the following statements is NOT correct?
(a) The internal rate of return (IRR) of buying a fairly priced bond is equal to the bond's yield.
(b) The Present Value of a fairly priced bond's coupons and face value is equal to its price.
(c) If a fairly priced bond's required return rises, its price will fall.
(d) Fairly priced premium bonds' yields are less than their coupon rates, prices are more than their face values, and the NPV of buying them is therefore positive.
(e) The NPV of buying a fairly priced bond is zero.
A two year Government bond has a face value of $100, a yield of 2.5% pa and a fixed coupon rate of 0.5% pa, paid semi-annually. What is its price?
(a) 90.6421
(b) 95.1524
(c) 95.2055
(d) 96.1219
(e) 103.9751
Question 56 income and capital returns, bond pricing, premium par and discount bonds
Which of the following statements about risk free government bonds is NOT correct?
(a) Premium bonds have a positive expected capital return.
(b) Discount bonds have a positive expected capital return.
(c) Par bonds have a zero expected capital return.
(d) Par bonds have a total expected yield equal to their coupon yield.
(e) Zero coupon bonds selling at par would have zero expected total, income and capital yields.
Hint: Total return can be broken into income and capital returns as follows:
###\begin{aligned} r_\text{total} &= \frac{c_1}{p_0} + \frac{p_1-p_0}{p_0} \\ &= r_\text{income} + r_\text{capital} \end{aligned} ###
The capital return is the growth rate of the price.
The income return is the periodic cash flow. For a bond this is the coupon payment.
Question 63 bond pricing, NPV, market efficiency
(a) The internal rate of return (IRR) of buying a bond is equal to the bond's yield.
(c) If the required return of a bond falls, its price will fall.
(d) Fairly priced discount bonds' yield is more than the coupon rate, price is less than face value, and the NPV of buying them is zero.
An Australian company just issued two bonds:
A 1 year zero coupon bond at a yield of 8% pa, and
A 2 year zero coupon bond at a yield of 10% pa.
What is the forward rate on the company's debt from years 1 to 2? Give your answer as an APR compounding every 6 months, which is how the above bond yields are quoted.
(a) 6.01%
(b) 6.02%
(c) 9.20%
(d) 12.02%
(e) 18.40%
Question 108 bond pricing, zero coupon bond, term structure of interest rates, forward interest rate
A 1 year zero coupon bond at a yield of 10% pa, and
A 2 year zero coupon bond at a yield of 8% pa.
Question 133 bond pricing
A bond maturing in 10 years has a coupon rate of 4% pa, paid semi-annually. The bond's yield is currently 6% pa. The face value of the bond is $100. What is its price?
(a) $33.93
(b) $55.37
(c) $57.61
(d) $68.28
(e) $85.12
Question 138 bond pricing, premium par and discount bonds
Bonds A and B are issued by the same Australian company. Both bonds yield 7% pa, and they have the same face value ($100), maturity, seniority, and payment frequency.
The only difference is that bond A pays coupons of 10% pa and bond B pays coupons of 5% pa. Which of the following statements is true about the bonds' prices?
(a) The prices of bonds A and B will be more than $100.
(b) The prices of bonds A and B will be less than $100.
(c) Bond A will have a price more than $100, and bond B will have a price less than $100.
(d) Bond A will have a price less than $100, and bond B will have a price more than $100.
(e) Bonds A and B will both have a price of $100.
A 6-month zero coupon bond at a yield of 6% pa, and
A 12 month zero coupon bond at a yield of 7% pa.
What is the company's forward rate from 6 to 12 months? Give your answer as an APR compounding every 6 months, which is how the above bond yields are quoted.
Bonds X and Y are issued by different companies, but they both pay a semi-annual coupon of 10% pa and they have the same face value ($100) and maturity (3 years).
The only difference is that bond X and Y's yields are 8 and 12% pa respectively. Which of the following statements is true?
(e) Bonds X and Y have the same price.
A three year bond has a fixed coupon rate of 12% pa, paid semi-annually. The bond's yield is currently 6% pa. The face value is $100. What is its price?
(a) $116.25
Bonds X and Y are issued by different companies, but they both pay a semi-annual coupon of 10% pa and they have the same face value ($100), maturity (3 years) and yield (10%) as each other.
A four year bond has a face value of $100, a yield of 6% and a fixed coupon rate of 12%, paid semi-annually. What is its price?
(d) 111.1513
Which one of the following bonds is trading at a discount?
(a) a ten-year bond with a $4000 face value whose yield to maturity is 6.0% and coupon rate is 6.5% paid semi-annually.
(b) a 6-year bond with a principal of $40,000 and a price of $45,000.
(c) a 15-year bond with a $10,000 face value whose yield to maturity is 8.0% and coupon rate is 10.0% paid semi-annually.
(d) a two-year bond with a $50,000 face value whose yield to maturity is 5.2% and coupon rate is 5.2% paid semi-annually.
(e) None of the above bonds are discount bonds.
Question 179 bond pricing, capital raising
A firm wishes to raise $20 million now. They will issue 8% pa semi-annual coupon bonds that will mature in 5 years and have a face value of $100 each. Bond yields are 6% pa, given as an APR compounding every 6 months, and the yield curve is flat.
How many bonds should the firm issue?
(a) 140,202
(b) 184,280
(c) 184,460
(d) 186,881
(e) 200,000
A five year bond has a face value of $100, a yield of 12% and a fixed coupon rate of 6%, paid semi-annually.
What is the bond's price?
(e) 87.3629
Which one of the following bonds is trading at par?
(d) a two-year bond with a $50,000 face value whose yield to maturity is 5.2% compounding semi-annually which has a price of $50,000.
(e) None of the above bonds are trading at par.
A firm wishes to raise $8 million now. They will issue 7% pa semi-annual coupon bonds that will mature in 10 years and have a face value of $100 each. Bond yields are 10% pa, given as an APR compounding every 6 months, and the yield curve is flat.
(b) 98,393
(c) 90,480
(d) 80,000
(e) 64,039
Question 207 income and capital returns, bond pricing, coupon rate, no explanation
For a bond that pays fixed semi-annual coupons, how is the annual coupon rate defined, and how is the bond's annual income yield from time 0 to 1 defined mathematically?
Let: ##P_0## be the bond price now,
##F_T## be the bond's face value,
##T## be the bond's maturity in years,
##r_\text{total}## be the bond's total yield,
##r_\text{income}## be the bond's income yield,
##r_\text{capital}## be the bond's capital yield, and
##C_t## be the bond's coupon at time t in years. So ##C_{0.5}## is the coupon in 6 months, ##C_1## is the coupon in 1 year, and so on.
(a) coupon rate = ##\dfrac{C_{0.5}+C_{1}}{F_T}##, ##r_\text{income, 0 to 1}=\dfrac{C_{0.5}(1+r_\text{total})^{0.5}+C_{1}}{P_0}##
(b) coupon rate = ##\dfrac{2 \times C_{0.5}}{F_T}##, ##r_\text{income, 0 to 1}=\dfrac{C_{0.5}(1+r_\text{capital})^{0.5}+C_{1}}{P_0}##
(c) coupon rate = ##\dfrac{2 \times C_{1}}{P_0}##, ##r_\text{income, 0 to 1}=\dfrac{C_{0.5}+C_{1}}{P_0}##
(d) coupon rate = ##\dfrac{2 \times C_{1}}{P_0}##, ##r_\text{income, 0 to 1}=\dfrac{2 \times C_{1}}{P_0}##
(e) coupon rate = ##\dfrac{2 \times C_{1}}{F_T}##, ##r_\text{income, 0 to 1}=\dfrac{C_{0.5}(1+r_\text{total})^{0.5}+C_{1}}{F_T}##
Question 213 income and capital returns, bond pricing, premium par and discount bonds
The coupon rate of a fixed annual-coupon bond is constant (always the same).
What can you say about the income return (##r_\text{income}##) of a fixed annual coupon bond? Remember that:
###r_\text{total} = r_\text{income} + r_\text{capital}###
###r_\text{total, 0 to 1} = \frac{c_1}{p_0} + \frac{p_1-p_0}{p_0}###
Assume that there is no change in the bond's total annual yield to maturity from when it is issued to when it matures.
Select the most correct statement.
From its date of issue until maturity, the income return of a fixed annual coupon:
(a) Premium bond will increase.
(b) Premium bond will decrease.
(c) Premium bond will remain constant.
(d) Par bond will increase.
(e) Par bond will decrease.
Which one of the following bonds is trading at a premium?
(a) a ten-year bond with a $4,000 face value whose yield to maturity is 6.0% and coupon rate is 5.9% paid semi-annually.
(b) a fifteen-year bond with a $10,000 face value whose yield to maturity is 8.0% and coupon rate is 7.8% paid semi-annually.
(c) a five-year bond with a $2,000 face value whose yield to maturity is 7.0% and coupon rate is 7.2% paid semi-annually.
(e) None of the above bonds are premium bonds.
An investor bought two fixed-coupon bonds issued by the same company, a zero-coupon bond and a 7% pa semi-annual coupon bond. Both bonds have a face value of $1,000, mature in 10 years, and had a yield at the time of purchase of 8% pa.
A few years later, yields fell to 6% pa. Which of the following statements is correct? Note that a capital gain is an increase in price.
(a) The zero-coupon bond and the 7% semi-annual coupon bond were both discount bonds but now they are both premium bonds.
(b) The zero-coupon bond and the 7% semi-annual coupon bond were both premium bonds but now they are both discount bonds.
(c) When yields fell, the investor made a capital loss on both bonds.
(d) When yields fell, the investor made a capital gain on both bonds.
(e) When yields fell, the investor made a capital gain on the zero coupon bond but a loss on the 7% semi-annual coupon bond.
A firm wishes to raise $10 million now. They will issue 6% pa semi-annual coupon bonds that will mature in 8 years and have a face value of $1,000 each. Bond yields are 10% pa, given as an APR compounding every 6 months, and the yield curve is flat.
(a) 9,022.2 bonds
(b) 10,000.0 bonds
(c) 11,484.5 bonds
(d) 12,712.9 bonds
(e) 12,767.4 bonds
A four year bond has a face value of $100, a yield of 9% and a fixed coupon rate of 6%, paid semi-annually. What is its price?
(a) $94.6187
(c) $72.592
In these tough economic times, central banks around the world have cut interest rates so low that they are practically zero. In some countries, government bond yields are also very close to zero.
A three year government bond with a face value of $100 and a coupon rate of 2% pa paid semi-annually was just issued at a yield of 0%. What is the price of the bond?
(a) 94.20452353
(b) 100
(c) 106
(d) 112
(e) The bond is priceless.
A 10 year bond has a face value of $100, a yield of 6% pa and a fixed coupon rate of 8% pa, paid semi-annually. What is its price?
(b) $114.8775
(c) $122.9398
(d) $126.628
(e) $174.3874
Bonds X and Y are issued by the same company. Both bonds yield 10% pa, and they have the same face value ($100), maturity, seniority, and payment frequency.
The only difference is that bond X pays coupons of 6% pa and bond Y pays coupons of 8% pa. Which of the following statements is true?
A 30 year Japanese government bond was just issued at par with a yield of 1.7% pa. The fixed coupon payments are semi-annual. The bond has a face value of $100.
Six months later, just after the first coupon is paid, the yield of the bond increases to 2% pa. What is the bond's new price?
Question 328 bond pricing, APR
A 10 year Australian government bond was just issued at par with a yield of 3.9% pa. The fixed coupon payments are semi-annual. The bond has a face value of $1,000.
Six months later, just after the first coupon is paid, the yield of the bond decreases to 3.65% pa. What is the bond's new price?
(a) $1,000
(b) $1,019.9181
(c) $1,033.8330
(d) $1,052.7005
(e) $1,060.5226
Bonds X and Y are issued by the same US company. Both bonds yield 6% pa, and they have the same face value ($100), maturity, seniority, and payment frequency.
The only difference is that bond X pays coupons of 8% pa and bond Y pays coupons of 12% pa. Which of the following statements is true?
Question 339 bond pricing, inflation, market efficiency, income and capital returns
Economic statistics released this morning were a surprise: they show a strong chance of consumer price inflation (CPI) reaching 5% pa over the next 2 years.
This is much higher than the previous forecast of 3% pa.
A vanilla fixed-coupon 2-year risk-free government bond was issued at par this morning, just before the economic news was released.
What is the expected change in bond price after the economic news this morning, and in the next 2 years? Assume that:
Inflation remains at 5% over the next 2 years.
Investors demand a constant real bond yield.
The bond price falls by the (after-tax) value of the coupon the night before the ex-coupon date, as in real life.
(a) Today the price would have increased significantly.
Over the next 2 years, the bond price is expected to increase, measured on each ex-coupon date.
(b) Today the price would have increased significantly.
Over the next 2 years, the bond price is expected to be unchanged, measured on each ex-coupon date.
(c) Today the price would have been unchanged.
(d) Today the price would have decreased significantly.
(e) Today the price would have decreased significantly.
Below are some statements about loans and bonds. The first descriptive sentence is correct. But one of the second sentences about the loans' or bonds' prices is not correct. Which statement is NOT correct? Assume that interest rates are positive.
Note that coupons or interest payments are the periodic payments made throughout a bond or loan's life. The face or par value of a bond or loan is the amount paid at the end when the debt matures.
(a) A bullet loan has no interest payments but it does have a face value. Therefore it's a discount loan.
(b) A fully amortising loan has interest payments but does not have a face value. Therefore it's a premium loan.
(c) An interest only loan has interest payments and its price and face value are equal. Therefore it's a par loan.
(d) A zero coupon bond has no coupon payments but it does have a face value. Therefore it's a premium bond.
(e) A balloon loan has interest payments and its face value is more than its price. Therefore it's a discount loan.
Calculate the price of a newly issued ten year bond with a face value of $100, a yield of 8% pa and a fixed coupon rate of 6% pa, paid annually. So there's only one coupon per year, paid in arrears every year.
Calculate the price of a newly issued ten year bond with a face value of $100, a yield of 8% pa and a fixed coupon rate of 6% pa, paid semi-annually. So there are two coupons per year, paid in arrears every six months.
Question 536 idiom, bond pricing, capital structure, leverage
The expression 'my word is my bond' is often used in everyday language to make a serious promise.
Why do you think this expression uses the metaphor of a bond rather than a share?
(a) Because bonds are higher risk investments than shares.
(b) Because issuers must pay bond holders or face bankruptcy, while payments on shares are discretionary.
(c) Because bonds are paid last in the event of bankruptcy, while shares are paid first.
(d) Because bonds always pay higher returns than shares.
(e) Because bonds are generally more liquid than shares.
Question 538 bond pricing, income and capital returns, no explanation
Risk-free government bonds that have coupon rates greater than their yields:
(a) Are discount bonds.
(b) Have positive expected capital returns.
(c) Have higher expected income returns than total returns.
(d) Have prices less than their face values.
(e) Have significant credit risk.
Question 539 debt terminology, fully amortising loan, bond pricing
A 'fully amortising' loan can also be called a:
(a) Discount loan
(b) Par loan
(c) Premium loan
(d) Deferred repayment loan
(e) Interest only loan
Question 544 bond pricing, capital raising, no explanation
Question 552 bond pricing, income and capital returns
An investor bought a 10 year 2.5% pa fixed coupon government bond priced at par. The face value is $100. Coupons are paid semi-annually and the next one is in 6 months.
Six months later, just after the coupon at that time was paid, yields suddenly and unexpectedly fell to 2% pa. Note that all yields above are given as APR's compounding semi-annually.
What was the bond investors' historical total return over that first 6 month period, given as an effective semi-annual rate?
(a) 0.067872
(b) 0.055565
(c) 0.043065
(d) 0.030565
An investor bought a 20 year 5% pa fixed coupon government bond priced at par. The face value is $100. Coupons are paid semi-annually and the next one is in 6 months.
Six months later, just after the coupon at that time was paid, yields suddenly and unexpectedly rose to 5.5% pa. Note that all yields above are given as APR's compounding semi-annually.
(a) -0.084351
(b) -0.059351
(c) -0.046851
(d) -0.034351
(e) -0.008907
Question 572 bond pricing, zero coupon bond, term structure of interest rates, expectations hypothesis, forward interest rate, yield curve
In the below term structure of interest rates equation, all rates are effective annual yields and the numbers in subscript represent the years that the yields are measured over:
###(1+r_{0-3})^3 = (1+r_{0-1})(1+r_{1-2})(1+r_{2-3}) ###
Which of the following statements is NOT correct?
(a) ##r_{0-3}## is the three year spot rate, given as an effective annual rate.
(b) ##r_{0-1}## is the one year forward rate, given as an effective annual rate.
(c) ##r_{1-2}## is the one year forward rate one year ahead, given as an effective annual rate.
(d) ##r_{2-3}## is the one year forward rate two years ahead, given as an effective annual rate.
(e) ##r_{1-3} = \left((1+r_{1-2})(1+r_{2-3})\right)^{1/2}-1## is the two year forward rate, one year ahead, given as an effective annual rate.
Question 573 bond pricing, zero coupon bond, term structure of interest rates, expectations hypothesis, liquidity premium theory, forward interest rate, yield curve
(a) If the expectations hypothesis is true, then the forward rates are the expected future spot rates.
(b) If the liquidity premium theory is true, then the forward rates are lower than the expected future spot rates due to the liquidity premium.
(c) The yield curve is normal when: ##r_{0-1} < r_{1-2} < r_{2-3}##.
(d) The yield curve is flat when: ##r_{0-1} = r_{1-2} = r_{2-3}##.
(e) The yield curve is inverse when: ##r_{0-1} > r_{1-2} > r_{2-3}##.
On 22-Mar-2013 the Australian Government issued series TB139 treasury bonds with a combined face value $23.4m, listed on the ASX with ticker code GSBG25.
The bonds mature on 21-Apr-2025, the fixed coupon rate is 3.25% pa and coupons are paid semi-annually on the 21st of April and October of each year. Each bond's face value is $1,000.
At market close on Friday 11-Sep-2015 the bonds' yield was 2.736% pa.
At market close on Monday 14-Sep-2015 the bonds' yield was 2.701% pa. Both yields are given as annualised percentage rates (APR's) compounding every 6 months. For convenience, assume 183 days in 6 months and 366 days in a year.
What was the historical total return over those 3 calendar days between Friday 11-Sep-2015 and Monday 14-Sep-2015?
There are 183 calendar days from market close on the last coupon 21-Apr-2015 to the market close of the next coupon date on 21-Oct-2015.
Between the market close times from 21-Apr-2015 to 11-Sep-2015 there are 143 calendar days. From 21-Apr-2015 to 14-Sep-2015 there are 146 calendar days.
From 14-Sep-2015 there were 20 coupons remaining to be paid including the next one on 21-Oct-2015.
All of the below answers are given as effective 3 day rates.
(a) -0.035%
(b) 0.0267%
(c) 0.035%
(d) 0.2667%
(e) 0.3078%
Question 616 idiom, debt terminology, bond pricing
"Buy low, sell high" is a phrase commonly heard in financial markets. It states that traders should try to buy assets at low prices and sell at high prices.
Traders in the fixed-coupon bond markets often quote promised bond yields rather than prices. Fixed-coupon bond traders should try to:
(a) Buy at low yields, sell at high yields.
(b) Buy at high yields, sell at low yields.
(c) Buy at high yields, sell at high yields.
(d) Buy at low yields, sell at low yields.
(e) There is no preferable yield to buy or sell fixed-coupon debt.
Let the 'income return' of a bond be the coupon at the end of the period divided by the market price now at the start of the period ##(C_1/P_0)##. The expected income return of a premium fixed coupon bond is:
(a) Less than its expected total return.
(b) Equal to its expected total return.
(c) More than its expected total return.
(d) More than its coupon rate.
(e) Equal to its coupon rate.
A firm wishes to raise $50 million now. They will issue 5% pa semi-annual coupon bonds that will mature in 10 years and have a face value of $100 each. Bond yields are 5% pa, given as an APR compounding every 6 months, and the yield curve is flat.
Question 764 bond pricing, no explanation
A 4.5% fixed coupon Australian Government bond was issued at par in mid-April 2009. Coupons are paid semi-annually in arrears in mid-April and mid-October each year. The face value is $1,000. The bond will mature in mid-April 2020, so the bond had an original tenor of 11 years.
Today is mid-September 2015 and similar bonds now yield 1.9% pa.
What is the bond's new price? Note: there are 10 semi-annual coupon payments remaining from now (mid-September 2015) until maturity (mid-April 2020); both yields are given as APR's compounding semi-annually; assume that the yield curve was flat before the change in yields, and remained flat afterwards as well.
(a) $1,108.390216
(b) $1,114.640575
(c) $1,123.457853
(d) $1,127.892613
(e) $1,132.344879
An investor bought a 5 year government bond with a 2% pa coupon rate at par. Coupons are paid semi-annually. The face value is $100.
Calculate the bond's new price 8 months later after yields have increased to 3% pa. Note that both yields are given as APR's compounding semi-annually. Assume that the yield curve was flat before the change in yields, and remained flat afterwards as well.
(a) $95.345378
(b) $95.819741
(c) $96.138082
(d) $96.296464
(e) $96.775559
Question 770 expected and historical returns, income and capital returns, coupon rate, bond pricing, no explanation
Which of the following statements is NOT correct? Assume that all things remain equal. So for example, don't assume that just because a company's dividends and profit rise that its required return will also rise, assume the required return stays the same.
(a) If a company's dividend (and profit and free cash flow to equity) rises, its share price will rise.
(b) If a fixed coupon bond's yield to maturity rises, its price will rise.
(c) If a residential property's rent revenue rises, its price will rise.
(d) If a patent's royalty revenue rises, its price will also rise.
(e) If a software asset's licensing revenue rises, its price will also rise.
Question 862 yield curve, bond pricing, bill pricing, monetary policy, no explanation
Refer to the below graph when answering the questions.
(a) The 3-month government bill yield is likely to be given as a simple interest rate.
(b) The 10-year government bond yield is likely to be given as an annualised percentage rate compounding every six months since Japanese government bonds pay semi-annual coupons.
(c) As 10-year government bond yields fell over the last few years, bond investors would have made capital gains assuming that the bonds are fixed-coupon.
(d) The Japanese yield curve is 'inverse' at the latest time in mid-2017.
(e) The Japanese central bank has been maintaining expansionary monetary policy over the last few years.
Copyright © 2014 Keith Woodward