Fixed Income MCQ - Fixed Income Section 1

41 A bond offers an annual coupon rate of 6%, with interest paid quarterly. The bond matures in three years. At a market discount rate of 5%, the price of this bond per $100 of par value is closest to:

Using a financial calculator, compute the present value as:
N = 3 * 4 = 12, I/Y = 5/4 = 1.25%, PMT = 6/4 = 1.5, and FV =100, CPT PV = ($102.76).
Since the coupon rate is higher than the market rate, the bond is trading at a premium.

42 A zero coupon bond with a face value of $500 matures in 10 years. At a market discount rate of 5% and assuming annual compounding, the price of the bond is closest to:

Value of zero − coupon bond =Face value/(1 + coupon rate)N = 500/(1.05)10 = $306.96

43 The market value of a 20-year zero-coupon bond with a maturity value of $100 discounted at a 15% annual interest rate with semi- annual compounding is closest to:

FV = 100; PMT = 0; 1/Y = 15/2 = 7.5; N = 20 * 2 = 40; CPT PV = $5.54.

44 Analyst 1: A bond is priced at premium when the coupon rate is greater than the market discount rate. A bond is priced at discount when the coupon rate is less than the market discount rate.
Analyst 2: A bond is priced at premium when the coupon rate is less than the market discount rate. A bond is priced at discount when the coupon rate is more than the market discount rate.
Which analyst’s statement is most likely correct?

A bond is priced at premium when the coupon rate is greater than the market discount rate. A bond is priced at discount when the coupon rate is less than the market discount rate.

45 A 1-year, semiannual-pay bond has a $1,000 face value and a 10% coupon. Which of the following statements is most accurate?

If coupon rate is equal to market discount rate, the bond is priced at par. If coupon rate is more than the market discount rate, the bond is priced at a premium. If coupon rate is less than the market discount rate, the bond is priced at discount.