Bond yield

1. An investor purchases a bond at a market price of Rs. 920 per bond, these provide for a
coupon rate of 9 per cent and face value of these bonds is Rs. 1,000 per bond. It is expected
that after one year these will have a market price of Rs. 940 per bond. What is the holding
period yield?
(Ans: 11.96%)

2. An investor purchased a bond at a price of Rs. 900 with Rs. 100 as coupon payment and sold
it at Rs. 1,000, what is his holding period return? If the bond is sold for Rs. 750 after receiving
Rs. 100 as coupon payment, then what is the holding period return?
(Ans: 22.22% and (-)5.55%)

3. The price of a bond just before a year of maturity is $5000. Its redemption value is $5250 at
the end of the said period. Interest is $350 p.a. The dollar appreciates by 2% during the said
period. Calculate the rate of return.
[Ans: 12% (in $) and 14.24% (in Rs.)]
4. What is the current yield of a 10 year, 12 per cent coupon bond with a par value of Rs. 1,000
and selling for Rs. 950?
(Ans: 12.63%)

5. 364 days’ treasury bills are currently available in the market at Rs. 95 per bill. These have a
face value of Rs. 100 per bill and maturity is 364 days. What will be the yield?
(Ans: 5.26%)

6. 364 days’ Treasury bill was issued 182 days ago at a price of Rs. 93.20 per bill. At present
these have a market price of Rs. 94.75 per bill. Calculate yield (a) at the time of issue
assuming one year holding period, and (b) yield at present. What will be the effective yield if
transaction cost is 30 paisa per bill at the time of purchase from market and there was no transaction cost
at the time of initial issue and investment by investor?
(Ans: (a) 7.3%, (b) 3.34%, (c) 10.44%)

7. An investor purchases for Rs. 5555 a zero-coupon bond whose face value is Rs. 7000 and
maturity period is three years. Calculate the spot interest rate of the bond.
(Ans: 8%)
8. Consider a zero-coupon bond whose face value is Rs. 1000 and maturity period is five years.
If the issue price of the bond is Rs. 519.37, what is the spot interest rate?
(Ans: 14%)
9. Consider a Rs. 1,000 par value bond, carrying a coupon rate of 9 per cent, maturing after
eight years. The bond is currently selling for Rs. 800. What is the YTM?
(Ans: 13.20%)

10. A company issues debentures of face value of Rs. 100 each at a premium of 3 per cent.
These provide 9 per cent interest per annum and have a provision for redemption at a
premium of 10 per cent after 7 years. What will the YTM be?
(Ans: 9.45%)

11. Five years ago, Government of India issued bonds of face value of Rs. 1,000 at par. These
have a coupon rate of 9 per cent per annum and a maturity period of 15 years. At present
these are available in the market at Rs. 970 per bond. Calculate the YTM (a) at the time of
issue, of the bonds assume holding till maturity, (b) real yield when the original investor sells
at the present market price, and (c) for the investor who buys these at present with the aim to
hold till maturity.
(Ans: (a) 9% (b) 8.5% (c) 9.47%)
12. An investor purchases 10 per cent bonds of face value of Rs. 1000 each at a price
of Rs. 935 per bond from market, the remaining maturity period is 6 years and the
normal tax rate and capital gain tax rate applicable for this investor is 30 per cent
and 10 per cent respectively. What will be the after tax YTM?
(Ans: 8.32%)