Part B: Short Answer Questions (30 Marks)

Question 1 (6 marks)
Use the following information for questions 1-6:
Sam bought a bond on 1 January 2010 with a face value of $10,000 on 1 January 2020. The
coupon rate is 5% per annum and yield to maturity is 4% per annum.
1. Calculate the annual coupon payment.
=
= 5% 10,000
= $500

2. Calculate the bond price on 1 January 2010.

= (1 (1 + ) ) + (1 + )

500
= (1 (1 + 4%)10 ) + 10,000(1 + 4%)10
4%
= $10,811.09

3. This bond is trading at premium, par or discount.

> $10,811.09 > $10,000
> 5% > 4%

4. Based on the previous question, what happens to the bond price over time until it
reaches maturity?
,
,

5. Calculate the current yield

() =

500
=
10,811.09
= 4.62%

6. Calculate capital gains yield

() =
= 4% 4.62%
= 0.62%

4
Part B: Short Answer Questions (30 Marks)
Question 1 (6 marks)
Use the following information for questions 1-6:
Sam bought a bond on 1 January 2010 with a face value of $10,000 on 1 January 2020. The
coupon rate is 5% per annum and yield to maturity is 5% per annum.
1. Calculate the annual coupon payment.
=
= 5% 10,000
= $500

2. Calculate the bond price on 1 January 2010.

, = 5% = 5%
, = $10,000 = $10,000

= (1 (1 + ) ) + (1 + )

500
= (1 (1 + 5%)10 ) + 10,000(1 + 5%)10
5%
= $10,000

3. This bond is trading at premium, par or discount.

= $10,000 = $10,000
= 5% = 5%

4. Based on the previous question, what happens to the bond price over time until it
reaches maturity?
,

5. Calculate the current yield

() =

500
=
10,000
= 5%

6. Calculate capital gains yield

() =
= 5% 5%
= 0%

4
Part B: Short Answer Questions (30 Marks)
Question 1 (6 marks)
Use the following information for questions 1-6:
Sam bought a bond on 1 January 2010 with a face value of $10,000 on 1 January 2020. The
coupon rate is 5% per annum and yield to maturity is 6% per annum.
1. Calculate the annual coupon payment.
=
= 5% 10,000
= $500

2. Calculate the bond price on 1 January 2010.

= (1 (1 + ) ) + (1 + )

500
= (1 (1 + 6%)10 ) + 10,000(1 + 6%)10
6%
= $9,263.99

3. This bond is trading at premium, par or discount.

< $9,263.99 < $10,000
< 5% < 6%

4. Based on the previous question, what happens to the bond price over time until it
reaches maturity?
,
,

5. Calculate the current yield

() =

500
=
9,263.99
= 5.40%

6. Calculate capital gains yield

() =
= 6% 5.40%
= 0.60%

4
Part B: Short Answer Questions (30 Marks)
Question 1 (6 marks)
Use the following information for questions 1-6:
Andrew bought a bond on 1 July 2015 for $ 5,100 with a face value of $5,000 on 1 July 2020.
The coupon rate is 10% per annum.
1. Calculate the annual coupon payment.
=
= 10% 5,000
= $500

2. Estimate the yield to maturity.

+
=
+
2
5,000 5,100
500 +
= 5
5,000 + 5,100
2
= 9.5%

3. This bond is trading at premium, par or discount.

> $5,100 > $5,000
> 10% > 9.5%

4. Based on the previous question, what happens to the bond price over time until it
reaches maturity?
,
,

5. Calculate the current yield

() =

500
=
5,100
= 9.80%

6. Calculate capital gains yield

() =
= 9.50% 9.80%
= 0.32%

4
Part B: Short Answer Questions (30 Marks)
Question 1 (6 marks)
Use the following information for questions 1-6:
Andrew bought a bond on 1 July 2015 for $ 5,000 with a face value of $5,000 on 1 July 2020.
The coupon rate is 10% per annum.

1. Calculate the annual coupon payment.

=
= 10% 5,000
= $500

2. Estimate the yield to maturity.

, = $5,000 = $5,000
, = 10% = 10%

+
=
+
2
5,000 5,000
500 +
= 5
5,000 + 5,000
2
= 10%

3. This bond is trading at premium, par or discount.

= $5,000 = $5,000
= 10% = 10%

4. Based on the previous question, what happens to the bond price over time until it
reaches maturity?
,

5. Calculate the current yield

() =

500
=
5,000
= 10%

6. Calculate capital gains yield

() =
= 10% 10%
= 0%

4
Part B: Short Answer Questions (30 Marks)
Question 1 (6 marks)
Use the following information for questions 1-6:
Andrew bought a bond on 1 July 2015 for $ 4,850 with a face value of $5,000 on 1 July 2020.
The coupon rate is 10% per annum.

1. Calculate the annual coupon payment.

=
= 10% 5,000
= $500

2. Estimate the yield to maturity.

+
=
+
2
5,000 4,850
500 +
= 5
5,000 + 4,850
2
= 10.76%

3. This bond is trading at premium, par or discount.

< $4,850 < $5,000
< 10% < 10.76%

4. Based on the previous question, what happens to the bond price over time until it
reaches maturity?
,
,

5. Calculate the current yield

() =

500
=
4,850
= 10.31%

6. Calculate capital gains yield

() =
= 10.76% 10.31%
= 0.45%