Australian Treasury and the Yield to Maturity of A Bond Questions Response

Australian Treasury and the Yield to Maturity of A Bond Questions Response

You will require access to excel to complete at least one question in this quiz. See, for example, the practice sets which require you use =rate(nper,pmt,pv,[fv],[type],[guess]) function in excel to calculate bond yield. In using this function, fv is the face value.

Remember yield to maturity is expressed as an annual rate. Coupon rate is also expressed as annual rate (i.e total annual coupons/par value)

As per lecture advice, assume par value is $1000 unless otherwise stated.

1

Question text

The Australian Treasury has issued 10-year zero coupon bonds with a face value of $1,000. Assume that coupon payments are normally semiannual. What will be the current market price of these bonds if the YTM for similar investments in the market is 6.25 percent? (Round to the nearest dollar.)

Select one:A. $684

B. $660

C. $540

D. $545

Suppose an investor earned a yield of 7.6 percent p.a on a bond paying coupons twice a year. What is the effective annual yield (EAY) on this investment? (answer as a percentage rounded to two decimal places without % sign. eg 2.889% would be written 2.89)

Answer:

What is the value (to the nearest cent) of a 4 year 8.6% coupon bond with a face value of $1,000. The yield-to-maturity on the bond is 5.3% and the bond makes semi-annual coupon payments.

Select one:

a. $1117.55

b. $1422.66

c. $1116.21

d. $813.37

Jill is interested in a 9-year bond which pays a coupon of 4.1 percent annually and trades at a yield of 14.7% per annum. The face value is $1,000. What is the current price of this bond? (to the nearest cent)

Select one:

a. $488.77

b. $480.08

c. $1784.57

d. $291.02

Jill wants to invest in a four-year bond that pays a coupon of 11 percent annually. The bonds are selling at $962.13 today and have a face value of $1,000. If she buys this bond and holds it to maturity, what would be the yield? (USE EXCEL or FINANCIAL CALCULATOR. Round to the closest answer.)

Select one:

A. 10.80%

B. 11.80%

C. 12.50%

D. 12.25%

Which one of the following statements about the approach to bond pricing is NOT true?

Select one:

A. To calculate a bond’s price, one needs to calculate the present value of the bond’s expected cash flows.

B. The value, or price, of any asset is the future value of its cash flows.

C. The required rate of return, or discount rate, for a bond is the market interest rate called the bond’s yield to maturity

D. In the price equation, include as the expected future cash flows the coupons that the bond will pay and the maturity value to be received.

Question text

Which one of the following statements is NOT true?

Select one:

A. Interest rate risk is the risk that bond prices will change as interest rates change.

B. Interest rate changes and bond prices are inversely related.

C. As interest rates increase, bond prices increase.

D. Long-term bonds are more price volatile than short-term bonds of similar risk.

Which ONE of the following statements is NOT true?

Select one:

A. Long-term bonds have lower price volatility than short-term bonds.

B. As interest rates decline, the prices of bonds increase; and as interest rates rise, the prices of bonds decline.

C. All other things being equal, short-term bonds are less risky than long-term bonds.

D. Interest rate risk increases as maturity increases.

Question text

Which one of the following statements is NOT true?

Select one:

A. The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond.

B. It is the yield that the investor earns if the bond is held to maturity, and all the coupon and principal payments are made as promised.

C. A bond’s yield to maturity will not change as interest rates increase or decrease.

D. If the bond is priced at par, its yield to maturity is the same as its coupon rate.