Bonds/Fixed Income

## Bonds/Fixed Income

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Frage 1 |

Calculate the price of a US Treasury strip with five years to maturity, a required yield of 5.40%, and par value of $100. Note that US Treasury bonds pay coupon semi-annually.

A | $ 75.88 |

B | $ 77.03 |

C | $ 77.15 |

D | $ 76.61 |

E | $ 76.97 |

Frage 2 |

Calculate the price of a French government zero-coupon bond with five years to maturity, a required yield of 5.40%, and par value of $100. Note, that French government bonds pay coupon annually.

A | € 77.23 |

B | € 77.87 |

C | € 77.56 |

D | € 77.01 |

E | € 76.88 |

Frage 3 |

How would an increase in interest rates affect bond prices? Assume all other influences remain constant.

A | Bond prices would not be affected. |

B | Bond prices would decrease. |

C | Bond prices would increase. |

Frage 4 |

What is the current market price of a 10-year zero-coupon bond with a face value of 100 EUR in case your discount rate is supposed to be 6 percent?

A | 106.00 EUR |

B | 59.19 EUR |

C | 55.84 EUR |

D | 104.56 EUR |

E | 94.34 EUR |

Frage 5 |

If the coupon rate is below the current market interest rate, then the bond’s current price is:

A | above par value. |

B | below par value. |

C | not determinable because prices and interest rates are unrelated. |

D | at par value. |

Frage 6 |

The coupon rate of a bond is…

A | … 5 % if the principal value of a bond is $ 100 and the coupon is $ 5. |

B | … calculated by dividing the annual interest payment of the bond by its principal value. |

C | … also called nominal rate. |

D | … calculated by multiplying the annual interest payment of the bond by its face value. |

E | … also called market interest rate. |

Frage 7 |

What are features of a convertible bond?

A | A convertible bond will be most profitable at times of declining share prices. |

B | A convertible bond can be exchanged for a specified number of shares of common stock of the issuer. |

C | The bondholder can decide whether and when to convert the bond into shares of common stock. |

D | The bondholder has to exchange the bond for a predetermined number of shares at maturity. |

E | A convertible bond can be exchanged for shares of common stock of a corporation different from the issuer of the bond. |

Frage 8 |

Which of the following statements can be associated with annuities?

A | An annuity is a sequence of cash flows of increasing amounts. |

B | The present value of an annuity can be calculated by using the described above formula. |

C | An annuity is a cash flow that occurs for a fixed period of time. |

D | The present value of an annuity can be calculated by discounting cash flow to the present and then summing them up. |

E | An annuity can only occur at the end of a period. |

Frage 9 |

Which of the following are common types of bonds?

A | Increasing-coupon bonds |

B | Zero-coupon bonds |

C | Plain vanilla bonds |

D | Deferred-coupon bonds |

E | Convertible bonds |

Frage 10 |

Suppose you acquire a two year zero-coupon bond with a face value of 1,000 USD. If the security’s current market price values 907.83 USD what interest rate would you earn in case you kept it until maturity?

A | 3.29 % p.a. |

B | 8.57 % p.a. |

C | 5.08 % p.a. |

D | 4.95 % p.a. |

E | 10.15 % p.a. |

Frage 11 |

What is the yield to maturity for a 10,000 USD zero-coupon bond maturing in 7 years that is currently selling for 7,128.00 USD?

A | 4.03 % p.a. |

B | 21.83 % p.a. |

C | 5.76 % p.a. |

D | 4.96 % p.a. |

E | 40.29 % p.a. |

Frage 12 |

Let us assume the following bond: - Coupon: 8%, paid annually - Yield: 7.634% - Maturity: 10 years from present - Price: $ 102.497 Please calculate the Modified Duration of the bond.

A | 7.13 years |

B | 6.77 years |

C | 7.66 years |

D | 6.45 years |

E | 6.92 years |

Frage 13 |

What would be the effect on the price difference between Treasury bonds and corporate bonds if companies’ business risks increase? Assume all other influences remain constant.

A | The price difference would not be affected. |

B | The price difference would decrease. |

C | The price difference would increase. |

Frage 14 |

What is the current value of an American two-year government bond that pays 6% coupons semi-annually? Suppose similar bonds are offered at that time with a yield of 7 percent but you expect interest rates to decrease by 0.5 percent right after one year.

A | 990.63 USD |

B | 992.44 USD |

C | 104.76 USD |

D | 991.54 USD |

E | 106.30 USD |

Frage 15 |

Which of the following statements concerning bond yield is correct?

A | The ‘yield to maturity’ takes the time value of money into account and considers the capital gain or loss in case the bond is held until maturity. |

B | The ‘current yield’ takes the time value of money into account and considers the capital gain or loss in case the bond is held until maturity. |

C | The yield to maturity is exactly the interest rate that makes the sum of all discounted cash flows equal to the bond’s market price. |

D | The ‘yield to call’ is calculated like the yield to maturity but it determines the interest rate at which the sum of all discounted cash flows equals the bond’s current price if the bond is held until the determined call date during maturity. |

E | The ‘current yield’ sets the annual coupon interest in relation to the current market price of a bond. |

Frage 16 |

As an American investor you bought a ten-year bond with 8 percent coupons paid semi-annually for the price of 889.11 USD. The yield to maturity is therefore 10 percent. Nevertheless you have only a 3 year investment horizon in which you can be sure to reinvest the coupon payments at an annual interest rate of 6 percent. You assume that after three years the 17-year bond can be sold offering a 7 percent yield to maturity. What is your holding period yield for these three years?

A | 18.23 % p.a. |

B | 16.72 % p.a. |

C | 7.00 % p.a. |

D | 8.24 % p.a. |

E | 10.00 % p.a. |

Frage 17 |

In February 2000 the Argentinean Republic issued a 20-year bond promising semi-annual coupons worth 12 percent, respectively 120 USD. You determine the chance that the bond will default completely to be 5 percent and number a 20 percent probability that it will recover only half. Your cost of capital equals 6 percent. What would you have paid for this bond in the year 2000 at the maximum?

A | 1688.20 USD |

B | 884.93 USD |

C | 1439.43 USD |

D | 1693.44 USD |

E | 1452.35 USD |

Frage 18 |

Which of the following arguments concerning Macaulay’s duration are correct?

A | The lower the coupon rate, the greater is Macaulay’s duration, all other influences being equal. |

B | The duration of a zero-coupon bond is exactly the bond’s maturity. |

C | For five-year bonds the duration is always less than three years. |

D | Duration can be calculated by dividing the bond price by the sum of the time weighted present values of all cash flows. |

E | Duration is a measure of bond price volatility. |

Frage 19 |

You are offered a 100 EUR five-year bond that pays 7 percent annual coupons and has a yield to maturity of exactly 7 percent. What is the Macaulay duration of this bond?

A | 4.89 years |

B | 4.39 years |

C | 3.89 years |

D | 5.21 years |

E | 5.00 years |

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