YOU WERE LOOKING FOR: Bond Valuation Exam Questions And Answers
Similarly, we use a whole set of forward rates instead of one discount rate to discount bond cash flows when we want to use forward rates to value bonds. For comparison, in the case of the bond valuation method based on a market discount rate, we...
This is because in this method we can take into account the fact that the bond may be sold by the bondholder or bought back by the issuer before the maturity date. As we already know, exercising the call or put option changes the cash flows of the...
We will use matrix pricing either when the bond valued is illiquid or when we intend to value the bond that is to be issued in the near future.
Post Your Homework bond valuation exam questions and answers I am stuck on my homework and missing deadline. Please help me in solving this, I will pay! I needed honest and willing to meet my dead line. Instruction as following questions using grammatically correct language and appropriate APA citations. All questions need to be answer and with APA citations. All material MUST come from the book only. Chapter 7 Valuing Bonds, Pages this chapter covers bond features and types of bon, bond valuation, bond pricing and how interest rates affect bond prices and Chapter 8 Valuing stocks, page This chapter covers various components of stock returns and stock valuation..
Question 1: Proficient-level: "What does a call provision [call feature] allow [bond] issuers to do, and why would they do it? Distinguished-level: State what additional compensation is paid, in addition to the bond principal, when a bond is called. Question 2: Proficient-level: "Provide the definitions of a discount bond and premium bond. Distinguished-level: Explain why market interest changes are reflected in bond prices. Distinguished-level: Given a change in market interest rates, determine which of the two bonds would remain closer to its par value.
Proficient-level: "Calculate the price of a zero coupon bond that matures in 20 years if the market interest rate is 3. Assume semi-annual compounding. Distinguished-level: State why zero coupon bonds are sold at steep discounts. Proficient-level: "Compute the price of a 3. Assume interest payments are paid semi-annually, and solve using semi-annual compounding. Distinguished-level: Explain why the bond is either a discount bond or a premium bond. Homework solution attached Purchase this answer to view it This homework is solved by this writer. You can always ask and chat with this writer about your homework needs.
Question 4: Sinking Fund vs. Purchase Fund What is the essential difference between "sinking fund" debt and "purchase fund" debt? Solution Question 5: Protective Provisions Rank and explain your rankings for the following protective provisions in terms of how well they protect investors against additional borrowing diluting the collateral securing a bond: a closed-end mortgage, b open-end mortgage, and c after-acquired clause Rank the provision that provides the most protection first and the one that provides the least protection last. The "election" period for both these bonds is between April 1, and October 1, Assume that interest rates during the election period begin to increase whereby new 5-year GOC bonds are available with a coupon of 8.
Explain what you would do if you owned either of these bonds and why. Question 7: CSBs vs. Solution Question 8: Bond Price calculation Calculate the value of a year bond, with a 6. Solution Question 9: Bond Price calculation Calculate the value of an 8-year bond, with a 4. Solution Question Current Yield calculation A year bond with a 5. Calculate the "current yield" of this bond. Solution Question Yield to Maturity calculation A year bond with a 4. Calculate the yield to maturity for this bond. The price paid was and the trade date was Wednesday, September 22, Calculate the total amount the investor will have to pay for this purchase.
Chapter 4: The Valuation of Long-Term Securities Just click on the button next to each answer and you'll get immediate feedback. Note: Your browser must support JavaScript in order to use this quiz. More than its face value. Less than its face value. If the intrinsic value of a stock is greater than its market value, which of the following is a reasonable conclusion? The stock has a low level of risk. The stock offers a high dividend payout ratio. The market is undervaluing the stock. The market is overvaluing the stock. When the market's required rate of return for a particular bond is much less than its coupon rate, the bond is selling at: a premium.
If an investor may have to sell a bond prior to maturity and interest rates have risen since the bond was purchased, the investor is exposed to the coupon effect. If a bond sells at a high premium, then which of the following relationships hold true? P0 represents the price of a bond and YTM is the bond's yield to maturity. Interest rates and bond prices move in the same direction.
In the United States, most bonds pay interest a year, while many European bonds pay interest a year. The expected rate of return on a bond if bought at its current market price and held to maturity.
Chapter 4: The Valuation of Long-Term Securities Just click on the button next to each answer and you'll get immediate feedback. Note: Your browser must support JavaScript in order to use this quiz. More than its face value. Less than its face value. If the intrinsic value of a stock is greater than its market value, which of the following is a reasonable conclusion? The stock has a low level of risk. The stock offers a high dividend payout ratio. The market is undervaluing the stock. The market is overvaluing the stock.
When the market's required rate of return for a particular bond is much less than its coupon rate, the bond is selling at: a premium. If an investor may have to sell a bond prior to maturity and interest rates have risen since the bond was purchased, the investor is exposed to the coupon effect. If a bond sells at a high premium, then which of the following relationships hold true? P0 represents the price of a bond and YTM is the bond's yield to maturity. Interest rates and bond prices move in the same direction. In the United States, most bonds pay interest a year, while many European bonds pay interest a year. The expected rate of return on a bond if bought at its current market price and held to maturity.
The general approach to bond valuation is to utilize a series of spot rates to reflect the timing of future cash flows. Value, Price, and TVM Value can be described as the demand or the utility for money, whereas price is the amount of money to be paid. Therefore, time-value-of-money is a concept that relates to the worth of money to time. It is used by investors in the market to understand that the present value of money is worth more than the same amount in the future. In computations, what is calculated is the value. The price is not calculated but is determined by the demand and supply forces. Whereas price is the same for everyone, the value differs from person to person. Bond Pricing with a Market Discount Rate For option-free or fixed rate bonds, future cash flows are a series of coupon interest payments and a repayment of principal at maturity.
The price of the bond at issuance is the present value of future cash flows discounted at the market discount rate. The market discount rate, also called the required yield or required rate of return, is the rate of return required by investors based on the risk of the investment. This is not to be confused with the coupon payment. Then, the price of the bond would be , and the bond would be trading at a par. For semiannual payments, semiannual coupon payments are discounted by one half of the market discount rate Mdr. Yield-to-Maturity If the market price of a bond is known, the discounted cash flow equation can be used to calculate its yield-to-maturity or the internal rate of return of the cash flows.
The yield-to-maturity is also the implied market discount rate. Price versus Market Discount Rate Yield-to-maturity The price of a fixed-rate bond will fluctuate whenever the market discount rate changes. However, the percentage price change is greater in absolute value when the market discount rate goes down than when it is up due to the convexity effect. Sources of Returns and Types of Bonds The sources of returns in bond valuation are coupons, reinvestment, and capital gain. If one of these sources decreases, the other one has to compensate. Some examples of bonds are the plain vanilla bonds, zero-coupon bonds, and deferred coupon bonds, among others. The correct answer is A. When the coupon rate is greater than the yield, the bond is priced at a premium above par value.
Question What Is An Angel Bond? Answer : Angel bonds are investment-grade bonds that pay a lower interest rate because of the issuing company's high credit rating. Angel bonds are the opposite of fallen angels, which are bonds that have been given a "junk" rating and are therefore much more risky. If the company's ability to pay back the bond's principal is reduced, the bond rating may fall below investment-grade. Answer : The interest received on these bonds shall be treated as income from any other source and shall form part of the total income of the assessee in that financial year in which they are received. What Is A Bond? Answer : Bond is a debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. The Federal government, states, cities, corporations, and many other types of institutions sell bonds. Generally, a bond is a promise to repay the principal along with interest coupons on a specified date maturity. Some bonds do not pay interest, but all bonds require a repayment of principal.
Answer : Maximum benefit to an investor shall be Rs. What Is A Corporate Bond? Answer : A company can issue bonds just as it can issue stock. Large corporations have a lot of flexibility as to how much debt they can issue: the limit is whatever the market will bear. Generally, a short-term corporate bond has a maturity of less than five years, intermediate is five to 12 years and long term is more than 12 years. Corporate bonds are characterized by higher yields because there is a higher risk of a company defaulting than a government. Answer : NCDs vs.
Though usually the interest rates on NCDs and company FDs are more or less the same, what tilts the balance in favour of NCDs is the risk-return factor. Furthermore, there is also potential to earn capital appreciation from NCDs if there is a downward movement in the interest rates. NCDs vs.
True False True False Saint Louis B. Philadelphia C. In which city are coins made? You have decided to invest in Bond X, an. Bond valuation questions. Chapter 6: Valuing Bonds. If the YTM suddenly rises to 9 percent: No. Supplement to Text. Given 1 0. All else the same, the Treasury security will have lower coupons because of its lower default risk, so Fundamental question: How we determine the value of or return on a bond? We begin by showing how the techniques we developed in Chapters 5 and 6 can be applied to bond valuation. Question 1. Bond Valuation Practice Problems. A 5-year bond pays interest annually.
Both bonds sell at par, so the initial YTM on both bonds is the coupon rate, 7 percent. From there, we go on to discuss bond features and how bonds are bought and sold. This is because we calculate the clean price of the bond. Question 2. Answer Valuation is a process of appraisal or determination of the value of certain assets: tangible or intangible, securities, liabilities and a specific business as a going concern or any Long-term Treasury securities have substantial interest rate risk. Chapter 6: Valuing Bonds Any bond that sells at par has a YTM equal to the coupon rate. As interest rates fluctuate, the value of a Treasury security will fluctuate.
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