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:...
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
A zero-coupon bond matures in 15 years. At a market discount rate of 4.5% per
year and assuming annual compounding, the price of the bond per 100 of par value
is closest to:
51.30.
51.67.
71.62. B is correct. The price of the zero-coupon bond is closest to 51.67. The
price is determined in the following manner:
PV=100(1+r)N
where:
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