problem 1: How would you evaluate the present value of the bond? Describe the different bond value theorems with illustrations.
problem 2: Describe the term structure of the interest rate? How do theories describe the term structure of interest rate?
problem 3: What do you mean by the term duration? Describe the relationship between duration and price change.
problem 4: How would you immunize the bond portfolio by using the immunization method?
problem 5: Determine the yield to maturity on a 8 percent 5 year bond selling at Rs. 105?
a) Find out the present value of the bond with a face value of Rs. 1000, coupon rate of Rs. 90, a maturity period of 10 years for the expected yield to maturity of 8 %.
b) If N is equivalent to 7 years in the above illustration, find out the present value of the bond. Describe the effect of the maturity period on the value of bond.
problem 7: Bond A and B have alike characters except the maturity period. Both the bonds carry 9 % coupon rate with the face value of Rs. 10,000. The yield to maturity is 9 percent. If the yield to maturity is to go up to 11% then determine the respective percentage price change in bond A with 7 years to maturity and B with 10 years to maturity?
problem 8: A bond with the face value of Rs. 1000 pays a coupon rate of 9%. The maturity period is 9 years.
a) Determine the approximate yield to maturity.
b) Current yield and the nominal interest rate.
problem 9: Find out the yield to maturity if a zero coupon bond with a face value of Rs. 1000 is sold at Rs. 300. The maturity period is 10 years.
problem 10: Determine the value of a Rs. 1,000 bond that paying 5 % annual coupon rate in semiannual payments over 5 years until it matures if its yield to maturity is 7 %?
problem 11: Find out Macaulay’s duration of a bond which has a face value of Rs. 1,000 with 10 % annual coupon rate and 3 years term to maturity. The bond’s yield to maturity is 12 %.