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125.340 Investment risk

Week 12 Practice Questions

1.   A coupon bond that pays interest semi-annually has a par value of $1,000, matures in five years, and has a yield to maturity of 10%. The price of the bond today will be ________ if the coupon rate is 12%.

A. $922.77

B. $924.16

C. $1,075.80

D. $1,077.22

E. None of the options are correct.

2.   You purchased an annual interest coupon bond one year ago that now has six years

remaining until maturity. The coupon rate of interest was 10%, and par value was $1,000. At the time you purchased the bond, the yield to maturity was 8%. The amount you paid for this bond one year ago was___________.

A. $1,057.50.

B. $1,075.50.

C. $1,088.50.

D. $1.092.46.

E. $1,104.13.

3.   A coupon bond that pays interest of $100 annually has a par value of $1,000, matures in five years, and is selling today at a $72 discount from par value. The yield to maturity on this bond is__________.

A. 6.00%.

B. 8.33%.

C. 12.00%.

D. 60.00%.

E. None of the options are correct.

4.   A 10% coupon bond with annual payments and 10 years to maturity is callable in three

years at a call price of $1,100. If the bond is selling today for $975, and has a par value of $1,000, the yield to call is__________.

A. 10.26%.

B. 10.00%.

C. 9.25%.

D. 13.98%.

E. None of the options are correct.

5.   A 12% coupon bond with semi-annual payments is callable in five years. The call price is $1,120. If the bond is selling today for $1,110, and has a par value of $1,000, what is the yield to call?

A. 12.03%

B. 10.86%

C. 10.95%

D. 9.14%

E. None of the options are correct.

6.   A 6% coupon bond paying interest annually has a modified duration of 10 years, sells for $800, and is priced at a YTM of 8%. If the YTM increases to 9%, the predicted change in price, using the duration concept, decreases by__________.

A.  $76.56

B.  $76.92

C.  $77.67

D.  $80.00

7.   An 8%, 15-year bond has a bond yield of 10% and duration of 8.05 years. If the bond yield changes by 25 basis points (1 basis point=0.0001), how much change will there be in the bond's price?

A. 1.83%

B. 2.01%

C. 3.27%

D. 6.44%

8.   Which one of the following par-value 12% coupon bond experiences a price decrease of 2.3% when the bond yield changes by 50 basis points?

A. The bond with a duration of 6 years

B. The bond with a duration of 5 years

C. The bond with a duration of 2.7 years

D. The bond with a duration of 5.15 years