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CAIIB - ABM- CASE STUDIES / NUMERICAL QUESTIONS

A bond has been issued with a face value of Rs. 1000 at 10% Coupon for 3 years. The required rate of return is 8%. What is the value of the bond if the Coupon amount is payable on half-yearly basis?

a. 1520
b. 1052
c. 1205
d. 1025

Ans - b

Explanation :

Here,

FV = 1000
CR = 10% half-yearly = 5% p.a.
Coupon = FV × CR = 50
R = 8% yearly = 4% p.a.
t = 3 years

Bond Price = (1/(1+R)^t)((coupon*((1+R)^t-1)/R)+Face Value)

= 1052

(Since Coupon rate > YTM, so FV < Bond’s Value)
.............................................

A console bond of Rs. 10000 is issued at 6%. Coupon current interst rates and 9%. Find out the current value of the console bond.

a. Rs.7660
b. Rs.6760
c. Rs.6667
d. Rs.6676

And - c

Solution :
= 10000*0.06/0.09
= 6000/0.09
= 6670
.............................................

A 15 year, 8 % Rs 1000 face value bond is currently trading at Rs 958. The YTM of this bond must be......

a. less than 8%
b. equal to 8%
c. greater than 8%
d. unknown

Ans - c
........................................................

Of the following bonds, which one has the highest degree of interest rate risk?

a. 20 years 8% bond
b. 5 years 8% bond
c. 10 years 8% bond
d. not enough information

Ans - a
........................................................

XYZ Ltd has just issued a 10 year 7 % coupon bond. The face value of the bond is Rs 1000 and the bond makes annual coupon payments. If the required return on the bond is 10%, what is the bond's price?

a. Rs 815.66
b. Rs 923.67
c. Rs 1000.00
d. Rs 1256.35

Ans - a
........................................................

ABC Ltd just issued a 10 year 7% coupon bond. The face value of the bond is Rs 1000 and the bond makes semiannual coupon payments. If the required return on the bond is 10% , what is the price of bond?

a. Rs 815.66
b. Rs 1000.00
c. Rs 813.07
d. Rs 1035.27

Ans - c
........................................................

Suppose you purchased a bond Rs.1000 for Rs.920. The interest is 10 percent, and it will mature in 10 years. Calculate Yield to maturity

a. 10.75 %
b. 11.00 %
c. 11.25 %
d. 11.50 %

Ans – c

Solution :
C=Coupon payment
F=Face value
P=Price
n=Years to maturity
Yield To Maturity=C+(F-P/n)/(F+P/2)
=100+(1000-920/10)/(1000+920/2)
=100+(80/10)/(1920/2)
=100+8/960
=108/960
=0.1125
=11.25%
.............................................

A bond has been issued with a face value of Rs. 20000 at 12% Coupon for 3 years. The required rate of return is 10%. What is the value of the bond?

a. 20595
b. 29095
c. 25095
d. 20995

Ans - d

Explanation :

Here,

FV = 20000
Coupon Rate (CR) = 0.12
t = 3 yr
R (YTM) = 0.10
Coupon = FV × CR = 2400

Bond Price = (1/(1+R)^t)((coupon*((1+R)^t-1)/R)+Face Value)

So, Value of bond = 20995

(Since Coupon rate > YTM, so FV < Bond’s Value)

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