Question 32 of 71 Given the following bond, calculate your dirty purchase price.
ID: 2618890 • Letter: Q
Question
Question 32 of 71
Given the following bond, calculate your dirty purchase price.
Holding period yield (HPY)
Last coupon date pre-purchase
7/15/2016
First coupon date post-purchase
1/15/2017
Purchase price (clean)
90.000
Purchase (settlement) date
10/1/2016
Sale price (clean)
92.000
Sale date
2/10/2022
Coupon rate
5.00%
Coupon
Semi-annual
Convention
30/360
· 88.940
· 88.944
· 90.560
· 91.056
· 91.060
Question 33 of 71
You sold the bond below on 2/10/22 at 92.000. Calculate your dirty sale price.
Holding period yield (HPY)
Last coupon date pre-purchase
7/15/2016
First coupon date post-purchase
1/15/2017
Purchase price (clean)
90.000
Purchase (settlement) date
10/1/2016
Sale price (clean)
92.000
Sale date
2/10/2022
Coupon rate
5.00%
Coupon
Semi-annual
Convention
30/360
· 91.653
· 92.347
· 92.359
· 93.041
· 94.015
Question 34 of 71
For the bond below, during your holding period, you achieved a reinvestment rate of 8% on a bond equivalent yield basis. Calculate the value — at the sale date — of all reinvested coupons.
Holding period yield (HPY)
Last coupon date pre-purchase
7/15/2016
First coupon date post-purchase
1/15/2017
Purchase price (clean)
90.000
Purchase (settlement) date
10/1/2016
Sale price (clean)
92.000
Sale date
2/10/2022
Coupon rate
5.00%
Coupon
Semi-annual
Convention
30/360
· 27.500
· 29.700
· 35.065
· 33.900
· 33.716
Question 35 of 71
Using the bond below, calculate your annual holding period yield (on a bond equivalent basis).
Holding period yield (HPY)
Last coupon date pre-purchase
7/15/2016
First coupon date post-purchase
1/15/2017
Purchase price (clean)
90.000
Purchase (settlement) date
10/1/2016
Sale price (clean)
92.000
Sale date
2/10/2022
Coupon rate
5.00%
Coupon
Semi-annual
Convention
30/360
· 3.096%
· 5.888%
· 6.192%
· 6.246%
· 6.288%
Question 36 of 71
Interest rate risk …
· represents risk that a bond’s interest rate will change due to change in the issuer’s credit profile.
· is greater for bonds with shorter maturities, all else equal.
· is greater for bonds with lower coupon rates, all else equal.
· represents risk that a bond’s interest rate will change due to changes in a bond’s coupon payment terms.
· is immaterial for treasury securities.
Question 37 of 71
Modified duration …
· represents the % impact — expressed as a number, not as a decimal — on price given a 1% change in yield.
· represents the weighted average term to maturity — expressed in years — of a bond’s cash flows.
· represents the $ impact on a bond’s price of a 100-basis point change in interest rates.
· is useful for quantifying a bond’s credit risk.
Question 38 of 71
Calculate the DV01 of a 10-year 7% semi-annual coupon bond priced at 97.50.
· 0.138
· 0.136
· 0.069
· 0.068
· 0.034
Question 39 of 71
Estimate the price impact of a 50-basis point interest rate change using a linear approximation of a 10-year 7% semi-annual coupon bond priced at 97.50.
· 1.72
· 3.40
· 3.44
· 6.80
· 6.88
Question 40 of 71
Calculate the modified duration of a 10-year 7% semi-annual coupon bond priced at 97.50.
· 7.316
· 7.06
· 6.88
· 3.53
· 3.67
Question 41 of 71
You own a $1m par value 10-year, 7% semi-annual coupon corporate bond priced at 105. You would like to hedge against interest rate risk and find a 10-year, 5% semi-annual coupon T-bond priced at 110. How much of the T-bond par value would you need to short to provide the most effective interest risk hedge strategy?
· Short $1,000,000 par value worth of the T-bond.
· Short $1,109,910 par value worth of the T-bond.
· Short $900,974 par value worth of the T-bond.
· Short $864,594 par value worth of the T-bond.
· Short $1,156,612 par value worth of the T-bond.
Question 42 of 71
A bond has a modified duration of 8 and convexity of 20. Calculate the % price ? from a 5% decline in yield?
· 60.00%
· 42.50%
· 42.00%
· 40.00%
· 4.00%
Holding period yield (HPY)
Last coupon date pre-purchase
7/15/2016
First coupon date post-purchase
1/15/2017
Purchase price (clean)
90.000
Purchase (settlement) date
10/1/2016
Sale price (clean)
92.000
Sale date
2/10/2022
Coupon rate
5.00%
Coupon
Semi-annual
Convention
30/360
Explanation / Answer
Question 36 of 71
Interest rate risk …
· is greater for bonds with lower coupon rates, all else equal.
Question 37 of 71
Modified duration …
· represents the % impact — expressed as a number, not as a decimal — on price given a 1% change in yield.
Question 42 of 71
A bond has a modified duration of 8 and convexity of 20. Calculate the % price ? from a 5% decline in yield?
=5%*8+0.5*20*5%*5%=42.5%
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