QUIZ: Introduction to Fixed-Income Valuation

Bond Prices and Time Value of Money

A 7-year, $1000 par, semi-annual pay 8% fixed coupon bond has a market discount rate of 6% with 2 years to maturity. What is the market price of the bond closest to?

Bond Prices and Time Value of Money

Kennedy is choosing between bonds A and B. Both bonds have the same time to maturity and are trading at the same yield. Bond A has a lower coupon rate while Bond B has a higher coupon rate. Which of the 2 bonds should Kennedy choose, given that he has a preference for a bond with lower price volatility as he intends to sell the bond in the short term.

A 7% annual fixed coupon bond has 3 years to maturity.

Given the following spot rates, calculate the price (per 100 par) that the bond should be trading at.

Spot Rates
1 yr: 6.6%
2 yr: 7.1%
3 yr: 7.3%

Bond Prices: Quotes and Calculations

A $1000 par 10% semi-annual fixed coupon bond with has exactly 2 years to maturity and the coupon has just been paid. The market discount rate of the bond is 8%. Calculate the price of the bond.

Bond Prices: Quotes and Calculations

~ continued from previous question
$1000 par 10% semi-annual fixed coupon bond

The price of the bond was $1036.30 at the last coupon payment date and that 43 days have passed since the coupon payment, calculate the full price of the bond given the the market discount rate remains at 8%.
(Assume 183 days per half year)

Bond Prices: Quotes and Calculations

~ continued from previous question
$1000 par 10% semi-annual fixed coupon bond

The full price of the bond is $1045.89, 43 days after the last coupon payment. Calculate the flat price of the bond.
(Assume 183 days per half year)

Bond Prices: Quotes and Calculations

An analyst wishes to determine the fair value of a BB-rated bond that is not publicly traded. The $1000 par bond has 3 years to maturity, and annual coupon of 7%.

The analyst has found 2 comparable BB-rated bonds to perform a matrix pricing to determine the bond’s value.
Comparable Bond A (5 years to maturity, YIELD-TO-MATURITY 8.7%)
Comparable Bond B (2 years to maturity, YIELD-TO-MATURITY 7.4%)

Use the interpolation method to determine a fair value for the bond.

Bond Yield Measures

A fixed 6% quarterly-pay coupon bond with 5.5 years to maturity is trading at 98.6 per 100 par.

What is the effective yield of the bond?

A 10-year, 8% semi-annual fixed coupon callable bond can be called after 5 years from issuance at a call price of 101.

2 years after its issuance, the price of the bond has dropped to 97 per 100 par. Calculate the yield-to-call at this point.

Bond Yield Measures

A $1000 par floating rate note pays a coupon rate of 180-day LIBOR plus a quoted margin of 1.5% semi-annually. Given that there is exactly 2 years to maturity, and the latest 180day LIBOR is 2.8%, and the discount margin is 1.0%, what is the value of the FRN at this point?

Maturity Structure of Interest Rates

Given the following spot curve, calculate the 2y1y forward rate.

1-yr spot rate (S1): 3.6%
2-yr spot rate (S2): 3.9%
3-yr spot rate (S3): 4.2%
4-yr spot rate (S4): 4.3%

Yield Spreads

Match the following benchmarks to the spread (drag and drop).

Yield Spreads

A callable bond has a Z-spread of 280 bp and the value of the call option is 80 bp. What is the Option-Adjusted Spread of the bond?