5) Consider a bond with a coupon rate of 7% and a face value of $1,000. Coupons
ID: 2813393 • Letter: 5
Question
5) Consider a bond with a coupon rate of 7% and a face value of $1,000. Coupons are paid semi-annually. Suppose there are 52 days to the next coupon payment date, beyond which there are 2 years left to maturity (so that there are in total 1+2*2 number of coupon payments left). The bond is currently trading at a YTM of 4%. Assuming a 30/360 day-count convention, what is the bond's full (dirty) price?
6) When buying a bond, an investor pays the clean (or the quoted) price.
a.True
b. False
7)Coupon-bearing Treasury securities pay coupons semi-annually.
a. True
b.False
8) Calculate the full (dirty) price of a bond, assuming the following. Transaction settlement date is July 11th, 2018. Bond maturity date is September 30th, 2020. Coupon rate is 5%, and coupons are paid semi-annually. The bond is trading at a YTM of 8%. The day-count convention is 30/360. Redemption value is 100. Round your answer to the nearest cent (2 decimal places).
9) Consider a corporate bond with a face value of $1,000, 2 years to maturity and a coupon rate of 6%. Coupons are paid semi-annually. The next coupon payment is to be made exactly 6 months from today. What is this bond's price assuming the following spot rate curve.
6-month spot rate: 3%.
12-month: 5%.
18-month: 5.5%.
24-month: 5.8%.
Round your answer to the nearest cent (2 decimal places).
10) Consider a corporate bond with a face value of $1,000, 2 years to maturity and a coupon rate of 5%. Coupons are paid semi-annually. The next coupon payment is to be made exactly 6 months from today. What is this bond's YTM assuming the following spot rate curve.
6-month spot rate: 4%.
12-month: 5%.
18-month: 5.5%.
24-month: 5.8%.
11) What is the current yield of a 6-year Treasury note with a coupon rate of 5%, a face value of $100, and is currently trading at 100:10?
Explanation / Answer
5) Consider a bond with a coupon rate of 7% and a face value of $1,000. Coupons are paid semi-annually. Suppose there are 52 days to the next coupon payment date, beyond which there are 2 years left to maturity (so that there are in total 1+2*2 number of coupon payments left). The bond is currently trading at a YTM of 4%. Assuming a 30/360 day-count convention, what is the bond's full (dirty) price? Face Value $1,000.00 Coupon Rate 3.50% Semiannual Coupon Payment $35.00 Period = (2 x 2) + 1 5 YTM = 4%/2 2.00% Current Price = BV = PV(2%,4,-35,-1000) $1,070.70 Dirty Price = BV x (1+ YTM/M)^(t/T) Where BVLC is the bond value at the last coupon date, YTM is the annual yield to maturity, t is the number of days since the last coupon date and T is the total number of days in the coupon period Dirty Price = 1070.70 x (1+ 4%/2)^(52/180) $1,076.84 6) When buying a bond, an investor pays the clean (or the quoted) price. a.True b. False Bonds are typically quoted in terms of the clean price, investors pay the dirty price unless the bond is purchased on the coupon payment date. 7)Coupon-bearing Treasury securities pay coupons semi-annually. a. True b.False
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