Fixed Income MCQ - Fixed Income Section 1

36 What is the role of investment banks in a best effort offering for a bond issue?

In best effort offering, the investment bank sells the bond on commission basis. Contrary to an underwritten offering, where the investment bank commits to selling 100% of the issue, in a best effort offering issue, it only sells as many securities as it can.

37 A bond with 5 years remaining to maturity offers a coupon rate of 9% with interest paid annually. At a market discount rate of 9%, the price of the bond per $100 of par is closest to:

Using a financial calculator, compute the present value as: N = 5, I/Y = 9%, PMT = $9, FV = $100, CPT PV = ($100). Since the coupon rate is equal to the market discount rate, the bond is priced at par.

38 An investor who owns a bond with a 10% coupon rate that pays interest semiannually and matures in four years is considering selling it. If the required rate of return on the bond is 12%, the price of the bond per $100 of par value is closest to:

Using a financial calculator, compute the present value as:
N = 4 * 2 = 8, I/Y = 12/2 = 6%, PMT = $10/2 = 5 and FV = $100, CPT PV = ($93.79).
Since the coupon rate is lower than the market rate, the bond is priced at discount

39 A four-year bond has a coupon rate of 6% paid annually. Given that the market discount rate is 4%, the price of the bond is most likely to be:

40 A bond offering an annual coupon rate of 6%, paying interest semiannually, matures in 6 years. Given that the market discount rate is 4%, which of the following is most likely to be the price of the bond?

PMT = 3, FV = 100, r = 2%, N = 12, CPT, PV = $110.5.