Part A - Questions
1. What is the cash flow of a 4-year bond that pays coupon interest semiannually, has a coupon rate of 5.84%, and a par value of $100,000?
2. An investor is uncertain concerning what aspect associated with the determination of the floating rate on a bond?
3. Suppose that the coupon reset formula for a floating rate bond is 1-month LIBOR + 220 basis points, define what is a basis point?
4. Suppose that the coupon reset formula for a floating rate bond is 1-month LIBOR + 160 basis points, how often usually is the rate reset?
5. Suppose that the coupon reset formula for a floating rate bond is 1-month LIBOR - 160 basis points, what is the coupon rate for the period if the 1-month LIBOR is 2.6% reference rate?
6. Why is the conversion provision for a bond considered to be a sweetener to the price the issuer receives?
7. What is the disadvantage of a call provision for the bondholder?
8. What is the advantage of a call provision for an issuer?
9. When would the put provision for a bond be used by the bondholder?
10. What is a convertible bond?
11. Provide the insight into what is quality or investment grade versus what is below quality or below investment grade of a bond using ratings
12. A pension fund manager invests $10 million in a debt obligation that promises to pay 6.5% per year for five years. What is the future value of the $10 million?
13. If a life insurance company receives a premium of $15.5 million from the pension fund and can invest the entire premium for 4.5 years at an annual interest rate of 7.25%, will it have enough funds from this investment to meet a $20 million obligation?
14. Suppose that a portfolio manager purchases $14 million at par value of an 8-year bond that has a coupon rate of 7% and pays interest once per year. The first annual coupon payment will be made one year from now. How much will the portfolio manager have if she holds the bond until maturity eight years from now, with no reinvestment of received funds?
15. If the discount rate that is used to calculate the present value of a debt obligation's cash flow is decreased, what happens to the price of that debt obligation?
16. You are considering two cash flows; cash flow A is a cash flow of $200,000 received four years from now and cash flow B is a cash flow of $200,000 five years from now. If the appropriate discount rate is the same for both, then which cash flow has a higher present value?
17. Without calculating a price of the bond, explain why this bond seems to be reported incorrectly: IBM 9s with RRR = 8% & quoted price 96.
18. What is the cash inflow anticipated by the investor from the following bond: IBM 9s 21 with a price of $967.70.
19. How much should a pension fund Manager invest now that would earn 9.6% annually if he needs to receive cash flows in the future to cover these following liabilities?
|
Years from now
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Liability in millions
|
|
1
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$2.0
|
|
2
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$3.0
|
|
3
|
$5.5
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|
4
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$5.8
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20. True or False: The price of a floater will decrease when the reference rate increases.
21. You are considering two bonds that both sell at par: bond A matures in three years with a CR of 10% with semiannual payments and bond 8 has the same credit quality, a CR of 9% and semiannual payments. If you intend to invest for six years, which bond would be best in which to invest to minimize reinvestment risk?
22. Consider the following bond: coupon rate = 11%, maturity = 18 Years, first par call in 13 years, only put date in five years at par value, and the market price is $1,169. Calculate the YTM.
23. Consider the following bond: coupon rate = 11%, maturity = 18 Years, first par call in 13 Years, only Put date in five years at par value, and the market price is $1,169. Calculate the Yield to first par call.
24. Consider the following bond: coupon rate = 11%, maturity = 18 years, first par call in 13 years, only put date in five years at par value, and the market price is $1,169. Calculate the Yield to Put.
Assume the following data: week 1: 3.84%, week 2: 3.51%, week 3: 3.95%:
25. What is the relative yield change from week 1 to week 2?
26. What is the absolute yield change from week 2 to week 3?
Consider a semiannual coupon bond with a 9% coupon, 8% YTM, and 5 years to maturity:
27. Calculate the price value of a basis point:
28. Calculate the Macaulay duration measure:
29. Calculate the Modified duration measure:
30. Calculate the convexity measure:
31. The yield spread between two corporate issues should reflect at least one other consideration than the credit risk, such as:
32. What is meant by a triple-tax free security?
33. What is meant by a high grade issue?
34. Explain an downward sloping yield curve:
35. What is the price for a treasury quoted at: 103.28.
36. Define Liquidation:
37. Define reorganization:
38. What is meant by seniority of bonds before equity.
39. Explain a sinking fund.
40. Explain the difference between directly placed and dealer placed paper.
Part B - Problem
Article - An Unusual Pattern Is Taking Hold in the Junk Bond Market by Ben Eisen
After reading the article, go on line to find evidence of the following:
1. Write a brief summary of why this is an unusual situation.
2. Provide a "picture" (graphic) of the situation.
3. Provide an explanation as to why this market is so "rich" [many buyers (investors)].
4. This article addresses BB only; demonstrate to see if the same is true for BBB, B, CCC, CC, C.
Attachment:- Article.rar