Scribd
Upload
9 views

Tutorial 4 Questions

Uploaded by

vnhinguyen1812
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
9 views

Tutorial 4 Questions

Uploaded by

vnhinguyen1812
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

FINM 2412 Financial Management for Business

Tutorial 4 Questions

Question 1

A company issued $1 mil of 90 day BABs with a yield of 6.8% pa. How much money did they receive?

Question 2

Assume we have a five year bond that pays semi-annually with a coupon rate of 6% and a face value
of $1000. It has a yield to maturity of 5.5%.

What is the price of this bond?

Question 3

Consider a 10-year corporate bond with $500,000 face value and coupons of 8%. Given the credit
rating of this company, the appropriate yield is 7.5%.

a) Without doing any calculations, do you expect this bond to sell at a premium or a discount
to face value? Price the bond to confirm your suspicions.
b) If the yield for the bond were 8.5%, do you expect the bond to sell at a premium or a
discount? Calculate the bond price.

Question 4

‘Zero coupon bonds are also known as discount bonds.’ Do you agree with this statement? Why or
why not?

Question 5

You bought a 2-year maturity, zero-coupon bond 2 months ago when the bond’s market yield was
8% p.a. compounded semi-annually. Will you obtain a gain or a loss if you sell the bond today and
the current market yield of the bond increases to 9% p.a.?

a) Justify your answer without doing any calculations.


b) Now, calculate the gain/loss. Assume a face value of $100.

Question 6

Assume coupon is paid twice a year, interest rate is compounded semi-annually and the face value is
$100.

1
Bond A is a 5% coupon bond with a yield of 8% p.a. Bond B is a 7.5% coupon bond with a yield of 6%
p.a. The values of both bonds are likely to be … [Select the most likely solution, no calculation is
required to answer this question.]

a) $100 for A and $100 for B


b) $74 for A and $100 for B
c) $74 for A and $117 for B
d) $117 for A and $74 for B
e) $117 for A and $117 for B

You might also like