
Bond Pricing Quiz
Quiz
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Other
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Professional Development
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Practice Problem
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Hard
ANKIT WALIA
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15 questions
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1.
MULTIPLE CHOICE QUESTION
5 mins • 1 pt
What is the formula to calculate yield to maturity?
Net Present Value (NPV) formula
Payback Period formula
Discounted Cash Flow (DCF) formula
Internal Rate of Return (IRR) formula
Answer explanation
The formula to calculate yield to maturity is the Discounted Cash Flow (DCF) formula. It is used to determine the rate of return on a bond or other fixed-income investment. This formula takes into account the present value of future cash flows and the current market price of the investment.
2.
MULTIPLE CHOICE QUESTION
5 mins • 1 pt
A bond with a coupon rate of 5% and a face value of $1,000 is currently trading at $950. What is the yield to maturity?
5.53%
6.25%
3.85%
4.75%
Answer explanation
The yield to maturity is the rate of return anticipated on a bond if it is held until it matures. In this case, the bond is trading at a discount, which means the yield to maturity will be higher than the coupon rate. The correct choice is 5.53%.
3.
MULTIPLE CHOICE QUESTION
5 mins • 1 pt
What is the coupon rate of a bond that pays an annual coupon of $80 and has a face value of $1,000?
8%
10%
15%
5%
Answer explanation
The coupon rate of the bond is 8%. It is calculated by dividing the annual coupon payment of $80 by the face value of $1,000 and multiplying by 100.
4.
MULTIPLE CHOICE QUESTION
5 mins • 1 pt
A bond has a duration of 5 years. If interest rates increase by 1%, what is the approximate percentage change in the bond's price?
-5%
10%
-1%
0%
Answer explanation
When interest rates increase, bond prices decrease. The approximate percentage change in the bond's price can be calculated using the duration. As the duration is 5 years, the bond's price will decrease by approximately 5%.
5.
MULTIPLE CHOICE QUESTION
5 mins • 1 pt
What is the duration of a zero-coupon bond with a maturity of 10 years?
20 years
5 years
10 years
1 year
Answer explanation
The duration of a zero-coupon bond with a maturity of 10 years is 10 years. This is because the duration of a zero-coupon bond is equal to its maturity. Therefore, the correct choice is 10 years.
6.
MULTIPLE CHOICE QUESTION
5 mins • 1 pt
A zero-coupon bond with a face value of $1,000 is currently trading at $800. What is the yield to maturity?
0.2
0.1
0.3
0.5
Answer explanation
The yield to maturity is the rate of return an investor would earn if they held the bond until maturity. In this case, the bond is trading at a discount, so the yield to maturity is higher than the coupon rate. The correct answer is 0.2, which is the highest yield among the answer choices.
7.
MULTIPLE CHOICE QUESTION
5 mins • 1 pt
What is the formula to calculate the price of a bond?
Face value of the bond
Future value of the bond
Coupon rate multiplied by the face value
Present value of future cash flows
Answer explanation
The price of a bond is calculated using the present value of future cash flows.
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