Question 1

What variables are taken into account by each of the following: coupon rate, current yield, and yield to maturity?

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Question 2

What is the reinvestment rate assumption in regard to the yield to maturity?

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Question 3

Explain the difference between Macaulay's duration and modified duration. Is the unit of measurement "years" for each?

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Question 4

How can a bond portfolio's duration be calculated?

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Question 5

Why is the yield to call a more appropriate measure to use for callable bonds with high coupons rather than the yield to maturity?

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Question 6

How does the value of a bond change as it nears its maturity?

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Question 7

Why do convertible bonds usually sell at a premium over comparable straight bonds?

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Question 8

How can duration and convexity assist the portfolio manager in assessing the interest-rate risk inherent in a bond portfolio?

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Question 9

What are three reasons that duration is important in bond analysis and management?

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Question 10

Why would you not expect a convertible bond with a high conversion premium to be converted any time soon?

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Question 11

T-bills
(a) A 182-day Treasury bill with a face value of $10,000 is selling for $9805. Calculate the discount yield.
(b) Calculate the bond equivalent basis for this Treasury bill.

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(a) A 182-day Treasury bill with a...

Question 12

A 10-year, $1000 corporate bond paying $100 in interest annually is currently selling for $950.
(a) Calculate its current yield.
(b) Calculate the coupon rate.
(c) Calculate the Total Return for this bond if it is sold one year later for $800.

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Question 13

Calculate the two components of Total Return for a 12 per cent coupon bond bought at $720 and sold one year later for $860.

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Question 14

If an investor buys a 10 per cent bond that has 20 years until maturity, at a quoted price of 90 and sells it a year later when it is quoted at 95, what is his total return?

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Question 15

Two 10 per cent coupon bonds are selling at par, Bond A has a 15-year maturity and Bond B has a 25- year maturity. If the appropriate required rate of return for these two bonds drops to 8 per cent, calculate the percentage change in the price of each bond.

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Question 16

Three years ago, Stryker Corp.'s 10 per cent coupon, 20-year bond (par value = $1000) was selling at par. The bond had an 8 per cent call premium and a deferred call period of 5 years.
(a) Currently, investors are demanding a return of 8 per cent on this bond. Calculate its current price using both annual and semi-annual compounding.
(b) What is the approximate yield to call that an investor would earn if the bond is called back at this time? (Use annual compounding only.)

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Question 17

XYZ Co.'s 12 per cent, 20-year callable bond is currently selling for $1050.
(a) Calculate its current yield.
(b) Calculate its yield to maturity (annualized) using semi-annual compounding.
(c) Calculate its yield to first call if it is callable 5 years from now at a call premium of 6 per cent.

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Question 18

Calculate the realized compound yield for an 8 per cent bond with 13 years remaining until maturity and an expected reinvestment rate of 6 per cent per year, that is currently selling for $920.

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Question 19

Tyler Toy convertible bonds have a conversion rate of 25 shares and are selling at $1,015. The current market quote of the stock is 37½. What is the conversion value and conversion premium on this bond?

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Question 20

A bond trader buys five, 6-month Canadian Treasury bills, each with a face value of $1,000,000 and 182 days to expiration at a yield of 4.45%. She sells them 20 days later at a yield of 4.65%. How much money has she made for her firm? What is the effective annual rate of return on her investment?

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Quiz 11: Bond Yields and Prices