A portfolio manager is considering the purchase of a bond with a 5.5% coupon rate that
pays interest annually and matures in three years. If the required rate of return on the
bond is 5%, the price of the bond per 100 of par value is closest to:
98.65.
101.36.
106.43. B is correct. The bond pr...
a portfolio manager is considering the purchase of a bond with a 55 coupon rate that pays interest annually and matures in three years if the required
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CFA 53: Introduction to Fixed-Income Valuation
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CFA 53: Introduction to Fixed-Income
Valuation
A portfolio manager is considering the purchase of a bond with a 5.5% coupon rate that
pays interest annually and matures in three years. If the required rate of return on the
bond is 5%, the price of the bond per 100 of par value is closest to:
98.65.
101.36.
106.43. B is correct. The bond price is closest to 101.36. The price is determined in the
following manner:
PV=PMT(1+r)1+PMT(1+r)2+PMT+FV(1+r)3
where:
PV = present value, or the price of the bond
PMT = coupon payment per period
FV = future value paid at maturity, or the par value of the bond
r = market discount rate, or required rate of return per period
PV=5.5(1+0.05)1+5.5(1+0.05)2+5.5+100(1+0.05)3
PV = 5.24 + 4.99 + 91.13 = 101.36
A bond with two years remaining until maturity offers a 3% coupon rate with interest
paid annually. At a market discount rate of 4%, the price of this bond per 100 of par
value is closest to:
95.34.
98.00.
98.11. C is correct. The bond price is closest to 98.11. The formula for calculating the
price of this bond is:
PV=PMT(1+r)1+PMT+FV(1+r)2
,where:
PV = present value, or the price of the bond
PMT = coupon payment per period
FV = future value paid at maturity, or the par value of the bond
r = market discount rate, or required rate of return per period
PV=3(1+0.04)1+3+100(1+0.04)2=2.88+95.23=98.11
An investor who owns a bond with a 9% coupon rate that pays interest semiannually
and matures in three years is considering its sale. If the required rate of return on the
bond is 11%, the price of the bond per 100 of par value is closest to:
95.00.
95.11.
105.15. A is correct. The bond price is closest to 95.00. The bond has six semiannual
periods. Half of the annual coupon is paid in each period with the required rate of return
also being halved. The price is determined in the following manner:
A bond offers an annual coupon rate of 4%, with interest paid semiannually. The bond
matures in two years. At a market discount rate of 6%, the price of this bond per 100 of
par value is closest to:
, 93.07.
96.28.
96.33. B is correct. The bond price is closest to 96.28. The formula for calculating this
bond price is:
PV=PMT(1+r)1+PMT(1+r)2+PMT(1+r)3+PMT+FV(1+r)4
where:
PV = present value, or the price of the bond
PMT = coupon payment per period
FV = future value paid at maturity, or the par value of the bond
r = market discount rate, or required rate of return per period
A bond offers an annual coupon rate of 5%, with interest paid semiannually. The bond
matures in seven years. At a market discount rate of 3%, the price of this bond per 100
of par value is closest to:
106.60.
112.54.
143.90. B is correct. The bond price is closest to 112.54.The formula for calculating this
bond price is:
PV=PMT(1+r)1+PMT(1+r)2+PMT(1+r)3+⋯+PMT+FV(1+r)14
where:
PV = present value, or the price of the bond
PMT = coupon payment per period
FV = future value paid at maturity, or the par value of the bond
r = market discount rate, or required rate of return per period
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