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Bond Valuation Review Questions

This document contains 5 bond valuation review questions asked by Dr. Amna Noor. The questions calculate bond prices given coupon rates, yields, maturity values, and time periods using basic bond formulas. Question 5 asks how the effective annual rate of interest and annual percentage rate relate as the frequency of interest compounding increases within annual periods.

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41 views3 pages

Bond Valuation Review Questions

This document contains 5 bond valuation review questions asked by Dr. Amna Noor. The questions calculate bond prices given coupon rates, yields, maturity values, and time periods using basic bond formulas. Question 5 asks how the effective annual rate of interest and annual percentage rate relate as the frequency of interest compounding increases within annual periods.

Uploaded by

Haidar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd

Week-9 Review Questions

Course Instructor: Dr Amna Noor

Bond Valuation Review Questions


1. The $1,000 face value ABC bond has a coupon rate of 6%, with interest
paid semi-annually, and matures in 5 years. If the bond is priced to yield
8%, what is the bond's value today?
o FV = $1,000
o CF = $60/2 = $30
o N = 5 x 2 = 10
o i = 8%/2 = 4%
o PV = $918.89

2. The HIJ bond has a current price of $800, a maturity value of $1,000, and
matures in 5 years. If interest is paid semi-annually and the bond is priced
to yield 8%, what is the bond's annual coupon rate?
o PV = $800
o FV = $1,000
o N = 5 x 2 = 10
o i = 8% / 2 = 4%
o CF = $15.34
o Coupon = $30.68 per year or 3.068%

3. The KLM bond has a 8% coupon rate (with interest paid semi-annually),
a maturity value of $1,000, and matures in 5 years. If the bond is priced to
yield 6%, what is the bond's current price?
o CF = $40
o FV = $1,000
o N = 10
o i = 6%/2 = 3%
o PV = $1,085

4. The NOP bond has an 8% coupon rate (semi-annual interest), a maturity


value of $1,000, matures in 5 years, and a current price of $1,200. What
is the NOP's yield-to-maturity?
o CF = $40
o FV = $1,000
o N = 5 x 2 = 10
o PV = $1,200
o i = 1.797%
o yield-to-maturity = 1.797% x 2 = 3.594%
5. Discussion Question
As the frequency of interest compounding increases within the annual periods, what happens
to the relation between the effective annual rate of interest (EAR) and annual percentage rate
(APR)?

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