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    Class Discussion 2 - Interest Rate Bond

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    MUHAMMAD NOOR FIRDAUS / UPM
    This document discusses interest rates and bond pricing. It provides examples of calculating bond prices given information like maturity date, coupon rate, yield to maturity, and par value. It also discusses the concept of bonds trading at a premium, discount, or par value. Several examples are worked through to calculate bond prices and yields to maturity. The document also discusses the pure expectations theory of the term structure of interest rates and how it can be used to forecast future interest rates.

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    Class Discussion 2 - Interest Rate Bond

    Uploaded by

    MUHAMMAD NOOR FIRDAUS / UPM
    13 views2 pages
    This document discusses interest rates and bond pricing. It provides examples of calculating bond prices given information like maturity date, coupon rate, yield to maturity, and par value. It also discusses the concept of bonds trading at a premium, discount, or par value. Several examples are worked through to calculate bond prices and yields to maturity. The document also discusses the pure expectations theory of the term structure of interest rates and how it can be used to forecast future interest rates.

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    Class Discussion 2_Interest Rate Bond

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    This document discusses interest rates and bond pricing. It provides examples of calculating bond prices given information like maturity date, coupon rate, yield to maturity, and par value. It also discusses the concept of bonds trading at a premium, discount, or par value. Several examples are worked through to calculate bond prices and yields to maturity. The document also discusses the pure expectations theory of the term structure of interest rates and how it can be used to forecast future interest rates.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    13 views2 pages

    Class Discussion 2 - Interest Rate Bond

    Uploaded by

    MUHAMMAD NOOR FIRDAUS / UPM
    This document discusses interest rates and bond pricing. It provides examples of calculating bond prices given information like maturity date, coupon rate, yield to maturity, and par value. It also discusses the concept of bonds trading at a premium, discount, or par value. Several examples are worked through to calculate bond prices and yields to maturity. The document also discusses the pure expectations theory of the term structure of interest rates and how it can be used to forecast future interest rates.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Class Discussion – Interest Rate & Bond

    1. A bond has 7 years remaining to maturity. Interest is paid annually; they have a $1000 par
    value; the coupon interest rate is 6.5%; and the yield to maturity is 7.5%. What is bond’s
    current market price?

    2. Company A’s outstanding bonds have a $1,000 par value, an 7.0% semiannual coupon, 8
    years to maturity, and an 6.2% yield to maturity. What is the bond’s price?

    3. Consider the two bonds described below:

    Bond I Bond II
    Maturity 9 years 14 years
    Coupon Rate (Paid semiannually) 6.2% 8.0%
    Par Value $1,000 $1,000

    If both bonds had a required return of 7.2%, what would the bonds’ prices be? Then,
    describe what it means if a bond sells at a discount, a premium, and at its face amount (par
    value). Are these two bonds selling at a discount, premium, or par?

    4. Consider three bonds, all with a par value of $1,000:

    Bond Coupon Rate Market Price


    I 8% $1,050
    II 9% $ 950
    III 7% $1,000

    What is the yield to maturity of bond III? Is the yield to maturity of bond I greater than or
    less than 8%? Is the yield to maturity of bond II greater than or less than 10%?

    5. A bond currently trades at RM 970 on the secondary market. The bond has 9 years until
    maturity and pays an annual coupon at 7% of face value. The face value of the bond is
    RM1,000. What is the yield to maturity for this bond?

    6. A 6-year, $1,000 par bond has an 8.25% annual coupon and is currently yielding 7.25%. The
    bond can be called in 2 years at a call price of $1,010. What is the bond’s yield to call,
    assuming it will be called?

    7. What is the price of a $1,000 par value bond with a 6% coupon rate paid semiannually, if the
    bond is priced to yield 7% and it has 10 years to maturity? What would be the price of the
    bond if the yield increases to 8%?

    What is the current yield on the bond if the YTM is 8%?

    8. If the market believes that 4-year securities will be yielding 6% five years from now, what
    should be the current Interest rates on 9-year Treasury securities using the pure expectation
    theory? The 5-year Treasury securities currently yield 5.1%.

    9. Interest rates on 4-year Treasury securities are currently 6.4%. 7-year Treasury securities
    yield 6.8 %. If the pure expectation is correct, what does the market believe that 3-year
    securities will be yielding 4 years from now?
    10. Assuming that the pure expectations theory is the correct theory of the term structure,
    forecast the
    (i) annual interest rate after two years; and
    (ii) the 2-year interest rate after one year
    (iii) the 3-year interest rate after two years

    using the information of the yield curve as shown below:


    Maturity 1-year 2-year 3-year 4-year 5-year
    Yield 6.10% 6.25% 6.75% 6.75% 6.85%

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