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zero coupon bonds , Dirty and Clean price

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Next few questions are based on given information:

Given four set of bonds, durations and maturities
BOND 1: Fixed rate Treasure Bond
BOND 2: Zero-Coupon Corporate bonds mature at 5 yrs and 7 yrs
BOND 3: Fixed rate Mortgage Passthrough
BOND 4: Fixed rate Corporate bonds mature at 7 yrs

A Liability with duration 5.8 mature at 5 yrs and 7 yrs, there are no internl cash flows.

Q1. Which bond has contingent risk

A. 2 , 3 and 4. as all there bond can default. B only 3 C 3 and 4

Q2. . Which of bond will be best to fund the liability?

A. 1 B 2 C 3 D 4

Q3.  Which of risk will Mortgage Passthrough have when interest rate decline?

A. negative convexity B. credit risk C market Risk D. Extension Risk.

Q4. Suppose a bond’s quoted price is 105 7/32 and the accrued interest is $23.54. If the bond has a par value of $1,000, what is the bond’s flat price?

A) $1,000.00.  B) $1,023.54.   C) $1,075.73.  D) $1,052.19.

Q5. The dirty, or full, price of a bond:

A) applies if an issuer has defaulted.  
 
B) is paid when a security trades ex-coupon.  
 
C) equals the present value of all cash flows, plus accrued interest.  
 
D) is usually less than the clean price.

Q6.  An investor has a 1-year, 10% semiannual coupon bond with a price of $975. if the 6-month Treasury bill(T-bill) has a holding period yield of 6%, what is the 1-year theoretical spot rate on a bond equivalent basis?

A.. 6.4% B. 8.7% C. 9,9% D. 12.8%

NB: the nominal rate attached with compounding Annually is called EAR and nominal rate with Compounding Semi annually is called BEY.


 

asked Oct 27, 2017 by Concepts n Clarity (370 points)
edited Oct 27, 2017 by Concepts n Clarity

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