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CAIIB - ABM- CASE STUDIES / NUMERICAL QUESTIONS

A 3 year bond with par value Rs. 1000 has Coupon rate 12%. If the required rate of return is 10% and interest is payable semi - annually, find the value of the bond.

a. 1020
b. 1030
c. 1040
d. 1050

Ans - d

Explanation :

Here, interest is calculated semi-annually,
so Coupon = 1000 × 12% ÷ 2 = 60,
YTM = 10%/2 = 0.05,
T = 3 × 2 = 6 years
So, price = 1050
.............................................

Assume that you have a 6% Coupon console bond. The original face value is Rs. 1000 and the interest rate is 9%. Find the current value of this bond.

a. 567
b. 576
c. 667
d. 676

Ans - c

Explanation :

Current value of console bond
= Coupon ÷ interest rate
= 60 ÷ 0.09
= Rs. 667
.............................................

Current yield on an 8% Rs. 100 bond is 7.5%. The price of the bond is ......

a. 104.67
b. 105.67
c. 106.67
d. 107.67

Ans - c

Explanation :

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

(Here, t = 1

So, price

= (Coupon + Face Value) ÷ (1 + R)
= (8 + 100) ÷ 1.075 = 100.465)

But, since Coupon Interest = Current Yield × Current Market Price
So, Price = 8 ÷ 7.5% = 8000 ÷ 75 = 106.67
.....................................

Calculate the present value of 6 year bond with 9 per cent coupon rate with FV Rs. 1000/-. Current interest rate is 12 per cent.

a. Rs.843.83
b. Rs.1025.57
c. Rs.876.66
d. Rs.768.68

Ans - c

Solution

FV = 1000
Coupon Rate (CR) = 0.9%
t = 6 year
R (YTM) = 0.12
Annual interest rate payable=1000*9%=90
Principal repayment at the end of 6 year = Rs. 1000
=90 (PVIFA, 12%,6 years)+1000(PVIF,12%, 6 Years)
PVIFA= ((1+r)^t -1)/ r+ PVIF=1/(1+R)^t
=90(1.12^6-1/0.12*(1.12)^6+1000(1/1.12^6)
=90*1.97382-1/0.12*1.1.97382+1000(1/1.97382)
=90*0.97382/0.12*1.97382+1000*0.0.50663
=90*0.97382/0.23685+506.63
=90*4.11154+506.63
=370.03+506.63
=876.66
.............................................

A bond has been issued for a 10 year 12% coupon bond. The face value of the bond is Rs 1000.00 and the bond makes annual coupon payments. If the bond is trading at Rs 967.25 , what is the bond's yield to maturity?

a. 12.00%
b. 12.59%
c. 11.26%
d. 13.27%

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

ABC Corporation has just issued a 10 year 12% bond. The face value of the bond is Rs 1000.00 and the bond makes semiannual coupon payments. If the bond is trading at Rs 867.25, what is the bond's YTM?

a. 12.00%
b. 12.37 %
c. 14.56%
d. 10.86%

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

The real return is 10% and the expected rate of return is 4.5% . What is the nominal rate of return?

a. 4.50%
b. 14.95%
c. 10.00%
d. 8.69%

Ans – b

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