Exam 18: The Analysis and Valuation of Bonds

Suppose you have a 12%, 20 year bond traded at $850. If it is callable in 5 years at $1,100, what is the bond's yield to call? Interest is paid semiannually.

Suppose the current 6 year rate is 9% and the current 5 year rate is 7%. What is the one year forward rate for five years?

Exhibit 18.3 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) A $1000 par value bond with 4 years to maturity and a 5% coupon has a yield to maturity of 6%. Interest is paid annually. -Refer to Exhibit 18.3. Calculate the current price of the bond.

The expectations hypothesis is also known as both the institutional theory and the hedging pressure theory.

Convexity is a desirable feature of bonds because.

Assume that you purchase a 3-year $1,000 par value bond, with a 8% coupon, and a yield of 10%. After you purchase the bond, one-year interest rates are as follow, year 1 = 10%, year 2 = 8%, year 3 = 6% (these are the reinvestment rates). Calculate the realized horizon yield if you hold the bond to maturity. Interest is paid annually.

If the holding period is equal to the term to maturity for a corporate bond the rate of discount represents the

For a given change in yield bond price volatility is inversely related to coupon.

The convexity of a bond is affected as follows:

Consider a bond with a current yield of 8% and a price of $1,250. What is this bond's coupon?

All of the following are one of Malkiel's stated relationships between yield changes and bond prices except

There are four major factors accounting for the existence of yield differentials. Which of the following is not a factor?

Exhibit 18.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) A $1000 par value bond with 5 years to maturity and a 6% coupon has a yield to maturity of 8%. Interest is paid semiannually. -Refer to Exhibit 18.1. Calculate the Macaulay duration for the bond.

Exhibit 18.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) A $1000 par value bond with 5 years to maturity and a 6% coupon has a yield to maturity of 8%. Interest is paid semiannually. -Refer to Exhibit 18.1. Calculate the current price of the bond.

If you expected interest rates to fall, you would prefer to own bonds with

Exhibit 18.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) A $1000 par value bond with 5 years to maturity and a 6% coupon has a yield to maturity of 8%. Interest is paid semiannually. -Refer to Exhibit 18.1. Estimate the percentage price change for this 5-year $1,000 par value bond, with a 6% coupon, if the yield rises from 8% to 8.5%. Interest is paid semiannually.

Consider a bond with a price of $944.44 and a coupon of 8 1/2%. What is the current yield?

What is the current price of a zero coupon bond with a 7% yield to maturity that matures in 20 years?

The nominal yield of a bond is the

Estimating forward rates from the spot rate curve is based on the assumption that the ____ hypothesis accurately describes the shape of the yield curve.