Bond Yield Duration Quiz

Calculate the current yield of a bond with a face value of $1000, an annual coupon payment of $60, and a market price of $950.

• 5.25%

• 7.50%

• 4.75%

• 6.32%

Answer explanation

The current yield of the bond is calculated by dividing the annual coupon payment by the market price and multiplying by 100. In this case, it is (60/950) * 100 = 6.32%. Therefore, the correct answer is 6.32%.

A bond has a face value of $1000, an annual coupon payment of $80, and is currently priced at $950. Calculate the current yield.

• 10.75%

• 7.91%

• 5.25%

• 8.42%

Answer explanation

The current yield is calculated by dividing the annual coupon payment by the bond's current price and multiplying by 100. In this case, the current yield is 8.42%.

Find the current yield of a bond with a face value of $1000, an annual coupon payment of $50, and a market price of $1050.

• 6.80%

• 3.20%

• 4.76%

• 2.50%

Answer explanation

The current yield of a bond is calculated by dividing the annual coupon payment by the market price and multiplying by 100. In this case, the current yield is (50/1050) * 100 = 4.76%. Therefore, the correct answer is 4.76%.

Calculate the yield to maturity of a bond with a face value of $1000, an annual coupon payment of $60, and a market price of $950, assuming the bond has 5 years left to maturity.

• 10.50%

• 3.25%

• 5.75%

• 6.74%

Answer explanation

The yield to maturity of the bond is the interest rate that equates the present value of the bond's future cash flows to its market price. In this case, the correct choice of 6.74% is the yield to maturity that makes the present value of the bond's cash flows equal to $950. This is calculated using financial formulas and methods.

A bond has a face value of $1000, an annual coupon payment of $80, and is currently priced at $950. Calculate the yield to maturity assuming the bond has 10 years left to maturity.

• 5.25%

• 8.42%

• 10.75%

• 3.60%

Answer explanation

The yield to maturity is the rate of return an investor can expect to earn if the bond is held until maturity. To calculate it, we use the formula: Yield to Maturity = (Annual Coupon Payment + (Face Value - Current Price) / Years to Maturity) / ((Face Value + Current Price) / 2). Plugging in the values, we get a yield to maturity of 8.42%. Therefore, the correct answer is 8.42%.

Find the yield to maturity of a bond with a face value of $1000, an annual coupon payment of $50, and a market price of $1050, assuming the bond has 8 years left to maturity.

• 6.38%

• 2.75%

• 5.24%

• 4.92%

Answer explanation

The yield to maturity of the bond is 5.24%. This is calculated by finding the discount rate that equates the present value of the bond's cash flows to its market price. Among the answer choices, 5.24% is the correct yield to maturity.

Explain what bond duration represents and how it is calculated.

• Bond duration represents the total time until a bond matures. It is calculated by adding the time until each cash flow is received and dividing by the number of cash flows.

• Bond duration represents the interest rate risk of a bond. It is calculated by taking the difference between the bond's yield to maturity and the current market interest rate.

• Bond duration represents the annual interest payment of a bond. It is calculated by multiplying the bond's coupon rate by the face value of the bond.

• Bond duration represents the weighted average time until a bond's cash flows are received. It is calculated by taking the present value of each cash flow and multiplying it by the time until it is received, then dividing by the bond's current price.

Answer explanation

Bond duration represents the weighted average time until a bond's cash flows are received. It is calculated by taking the present value of each cash flow and multiplying it by the time until it is received, then dividing by the bond's current price.

Describe the concept of bond duration and its significance in the context of interest rate risk.

• Bond duration has no impact on the bond's price

• Bond duration is the measure of a bond's credit rating

• Bond duration is the measure of a bond's price sensitivity to interest rate changes.

• Bond duration measures the bond's maturity date

Answer explanation

Bond duration is the measure of a bond's price sensitivity to interest rate changes.

What is the relationship between bond duration and interest rate risk? Provide an example to illustrate your answer.

• Direct relationship

• No relationship

• Positive relationship

• Inverse relationship

Answer explanation

Bond duration and interest rate risk have an inverse relationship. When interest rates rise, bond prices fall, and vice versa. For example, if a bond has a duration of 5 years and interest rates increase by 1%, the bond's price will decrease by approximately 5%.

How does bond duration help in understanding the sensitivity of a bond's price to changes in interest rates? Explain with an example.

• By measuring the bond's duration, investors can understand how much the bond's price will change for a given change in interest rates.

• By measuring the bond's coupon rate, investors can understand how much the bond's price will change for a given change in interest rates.

• By measuring the bond's maturity date, investors can understand how much the bond's price will change for a given change in interest rates.

• By measuring the bond's credit rating, investors can understand how much the bond's price will change for a given change in interest rates.

Answer explanation

Bond duration measures the sensitivity of a bond's price to interest rate changes. It helps investors understand how much the price will change for a given interest rate change. For example, by measuring the bond's duration, investors can predict the price change accurately.