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FINS2624-Portfolio Mgmt - T2 2025
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Consider an annual coupon bond with a face value of $100, an annual coupon rate of 20%, time maturity of 2 years and a price of $130. What is its yield Hint: you do not need any calculations to answer this question).
The market price of a coupon paying bond with $1,000 face value, 2 years to maturity, and 5% annual coupon, is $970. The price of a 1-year zero-coupon bond is $947.77 and that of a 2 year zero-coupon bond is $883.44. Assuming that the zero-coupon bonds are correctly priced which of the following statements are true:
I. There is an arbitrage opportunity available
II. The coupon bond is mispriced
III. The no-arbitrage price of the coupon bond is $955
IV. The no-arbitrage price of the coupon bond is $975
V. The coupon bond is fairly priced
Consider a 4-year annual coupon bond A with a face value of $100, an annual coupon rate of 10%, and a Macaulay duration of 3.53 years. The term structure of interest rates is flat at 5%, i.e., 𝑦 =5% for all t. At the same time, there is a Bond B that is similar to Bond A in all respects except that Bond B has a face value of $1,000 instead of $100. What is the Macaulay duration of Bond B?
Consider an investor with a 7-year investment horizon, holding a 10-year 3% coupon bond. What kind of risk is this investor exposed to?
Consider a zero‐coupon bond with a face value of $110, time‐to‐maturity of 3 years and a price of $106. What is its yield‐to‐maturity?
According to the expectations hypothesis, an upward sloping yield curve implies that:
Assume the term structure of interest rates is flat at 5%. The following bonds and liabilities are given:
- Bond A: A zero-coupon bond with a face value of $100 and a time to maturity of 3 years.
- Bond B: A zero-coupon bond with a face value of $100 and a time to maturity of 6 years.
- Bond C: A zero-coupon bond with a face value of $100 and a time to maturity of 10 years.
- Liability X: A one-time liability of $100 maturing in 4 years.
- Liability Y: A one-time liability of $100 maturing in 8 years.
Suppose you have liability X and want to immunize it using bonds B and C. How would you combine the two bonds to cover the liability?
All else being equal, which of the following bonds has the shortest duration?
The curvature of the price-yield curve for a given bond is referred to as the bond's:
Duration measures: