1. What is the value of a bond? The sum of the coupon payments of the bond. The
ID: 2808024 • Letter: 1
Question
1. What is the value of a bond?
The sum of the coupon payments of the bond.
The present value of its coupon payments plus face value.
The future value of its cash flows.
The face value of the bond plus coupon payments.
The face value of the bond.
None of the above
2. What is the highest grade of high yield bonds?
AAA
BBB
BB
C
CCC
None of the above
The sum of the coupon payments of the bond.
The present value of its coupon payments plus face value.
The future value of its cash flows.
The face value of the bond plus coupon payments.
The face value of the bond.
None of the above
Explanation / Answer
QUESTION-1
The Value of the Bond is the “The present value of its coupon payments plus face value”
It is the aggregate amount of the present value the bonds coupon payments and it’s face value
EXAMPLE
The following is a simple of the valuation of Bond for understanding the concept.
Face Value of the bond = $1,000
Coupon Amount = $33.75
Yield to Maturity = 3.60%
Maturity Period = 21 Years
Value of the Bond = Present Value of the Coupon Payments + Present Value of the face Value
= $33.75 [PVIFA 3.60%, 21 Years] + $1,000[PVIF 3.60%, 21 Years]
= [$33.75 x 14.560481] + [$1,000 x 0.475822]
= $491.42 + 475.82
= $967.24
QUESTION-2
The highest grade of high yield bonds is” AAA” Grade
- The rating of the bond determines the quality of the bond.
- The differed grades of bond ratings are AAA, BBB, BB, C, CCC, etc
- The highest rating grade od the Bond is AAA and the lowest grade is “C” which is also called as the JUNK
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