Exam 3: Valuing Bonds

A government bond issued in France has a coupon rate of 5 percent, a face value of 100.00 euros, and matures in five years. The bond pays annual interest payments. Calculate the yield to maturity of the bond (in euros)if the price of the bond is 106.00 euros.

A bond with duration of 10 years has a yield to maturity of 10 percent. This bond's volatility (modified duration)is

Discuss the concept of duration.

Two bonds have the same maturity, risk rating, and face value, but have different coupon rates. The bond with a lower coupon rate will have a longer duration.

A five-year treasury bond with a coupon rate of 8 percent has a face value of $1,000. What is the semiannual interest payment?

Consider a bond with a face value of $1,000, an annual coupon rate of 6 percent, a yield to maturity of 8 percent, and 10 years to maturity. This bond's duration is

The following entities issue bonds to engage in long-term borrowing EXCEPT:

You buy a 12-year 10 percent annual coupon bond at par value, $1,000. You sell the bond three years later for $1,100. What is your rate of return over this three-year period?

The U.S. Treasury issues inflation-indexed bonds known as TIPS.

Briefly explain the expectations theory.

A government bond issued in France has a coupon rate of 5 percent, a face value of 100 euros, and matures in five years. The bond pays annual interest payments. Calculate the price of the bond (in euros)if the yield to maturity is 3.5 percent.

The expectations theory implies that the only reason for a declining term structure is that investors expect spot interest rates to fall.

If a bond's volatility is 10.00 percent and the interest rate goes down by 0.75 percent (points), then the price of the bond

If the term structure of interest rates is flat, then the 9-year spot interest rate equals the 10-year spot interest rate.

Briefly discuss the concept of volatility.

Discuss why a dollar tomorrow cannot be worth less than a dollar the day after tomorrow.

Generally, a bond can be valued as a package of

If a bond pays interest semiannually, then it pays interest

The volatility of a bond is given by

What is the relationship between interest rates and bond prices?