1. Fast Growing Ltd. has outstanding a Rs.

1000 face value bond with a 12% coupon rate and

3 years remaining until final maturity. Interest payments are made semi-annually. You are
required to answer the following questions with appropriate supporting computations:

i) What value should you place on this bond if your nominal annual required rate of return is
10 per cent; and
ii) Assuming a bond similar to the one described above except that is a zero-coupon, pure
discount bond, what value should you place on this bond if your nominal annual required
rate of return is 16 per cent. (Assume a semiannual compounding.)

2. Based on the credit rating of the bonds, an investor has decided to apply the following
discount rate for valuing the bonds. 

Discount rate 
Credit rating
364-day Treasury-bill rate + 3% spread 
AAA
AAA + 2% spread 
AA
AAA + 3% spread 
A

The investor is considering investing in an AA rated, Rs. 1,000 face value bond currently selling at
Rs. 1,010. The bond has five years to maturity and the coupon rate on the bond is 15% per annum
payable annually. The next interest payment is due one year from today and the bond is
redeemable at par. (Assume 364-day Treasury bill rate to be 9%) 
You are required to calculate:
i) Intrinsic value of the bond for the investor. Should the investor invest in the bond? 
ii) Current yield (CY) and the yield to maturity (YTM) of the
bond. 

3. A 10-year, 12% semi-annual coupon bond, with a par value of Rs. 1,000 may be called in 4
years at a call price of Rs. 1,060. The bond sells for Rs. 1,100. Assume that the bond has
just been issued. 
Required:
i) What is the bond‘s effective annual yield to maturity?
ii) What is the bond‘s annual current yield?
iii) What is the bond‘s capital gain or loss?
iv) What is the bond‘s effective annual yield to call?

4. The XYZ limited is contemplating a debenture issue on the following terms:

 Face value = Rs. 100 per debenture

Term of maturity= 7 years

Coupon rate of Interest:

Years 1-2=8% p.a. 

3-4=12% p.a.
5-7=15% p.a. 
The Current market rate of interest on similar debenture is 15%p.a.The company proposes
to price the issue so as to yield a (compounded) return of 16% p.a. to the investor.
Determine the issue price.
Assume the redemption on debenture at a premium of 5% (Note: The present value interest
factors at 16% p.a. for years 1 to 7 are .862, .743, .641, .552, .476, .410, and .354
respectively).

5. Consider two bonds with Rs. 1,000 face value that carry coupon rate of 8%, make annual
coupon payment and exhibit similar risk characteristics. The first bond has 5 years to
maturity whereas the second has 10 years to maturity. The appropriate discount rate for the
investment of similar risk securities is 8%.

Required:
i) Calculate current market price of both the bonds.
ii) If this discount rate rises by 2 %, what will be the respective percentage
price changes of the two bonds, and why? 

6. Mathura Corporation has two different bonds currently outstanding. Bond M has a face
value of Rs. 20,000 and matures in 20 years. The bond makes no payments for the first six
years, then pays Rs. 1,200 every six months over the subsequent eight years, and finally
pays Rs. 1,500 every six months over the last six years. Bond N also has a face value of
Rs. 20,000 and a maturity of 20 years; it makes no coupon payments over the life of the
bond. The required return on both of these bonds is 10 percent compounded semiannually.
Required: What is the current price of Bond M and Bond N?

7. Suman inherited the following securities on his father‘s death: 

Types of security No s Annual Coupon Maturity Yield

 % Year %

Bond A (Par value Rs. 1,000) 20 8 4 10

 Bond B (Par value Rs. 1,000) 25 10 5 10
Preference Shares C (Par value Rs. 100)  150 11 - 12
Preferences Shares D (Par value Rs. 100) 200 12 - 15

Required:
Compute the current value of Suman‘s Investment. 

8. Given the following information, compute the YTM of the bond and state whether an
investor will invest in this bond if his required rate of return is 21%.
Issue price of the bond NRs. 1,000
Market price of the bond NRs. 870
Coupon rate 10%
Term to maturity 4 years
Payment of interest Semi-annually
9. Estimate the market value of a convertible bond with a coupon of 8% and interest
payable annually. These bonds are convertible after three years into equity shares at the
rate of 20 shares for every NRs. 1,000 nominal value bonds. The expected share price
in five years’ time is NRs. 125. Assume that bond investors require a return of 9% per
year on their investment.
10. The following data are available for a bond
Face Value NRs. 1,000
Redemption value NRs. 1,000
Coupon Rate 16%
Yield to maturity 17%
Years to Maturity 6
What is the current market price, duration and volatility of this bond? Calculate the expected
market price, if increase in required yield is by 75 basis points.

11. Suppose Ford Motor Company sold an issue of bonds with a 10-year maturity, a
Rs.1,000 par value, a 10 percent coupon rate, and semiannual interest payments.
a) Two years after the bonds were issued, the going rate of interest on bonds such as these fell
to 6
percent. At what price would the bonds sell?
b) Suppose that, 2 years after the initial offering, the going interest rate had risen to 12 percent.
At what
price would the bonds sell?
c) Suppose that the conditions in part a existed – that is, interest rate fell to 6 percent 2 years
after the
issue date. Suppose further that the interest rate remained at 6 percent for the next 8 years.
What
would happen to the price of the Ford Motor Company bonds over time?

12. 11% Shangrila Bond is a callable bond with a face value of Rs. 1,000. It has a remaining
maturity of 5 years and the coupon is payable semi-annually. The bond can be called by
 issuer after three years from now at a call price of Rs. 1100. The bond is currently
trading at a price of Rs. 985. You are required to calculate the Duration of call of 11%
Shangrila Bond.

13. A Commercial Bank is preparing to sell a 8 year bond of Rs. 1,000 at 10% coupon rate
p.a. The bond amount will be amortized equally over its life. If an investor has a
minimum required rate of 8%, what isthe present value of the bond?

14. A Rs. 1,000-face-value bond has a current market price of Rs. 935, an 8 percent coupon
rate, and 10 years remaining until maturity. Interest payments are made semiannually.

a. State whether the yield to maturity is above or below the coupon rate. Why?
b. What is the implied market-determined semiannual discount rate on this bond?
c. Using your answer to Part (b), what is the bond’s (i) (nominal annual) yield to maturity? (ii)
(effective- annual) yield to maturity?

15. i) A company has a Rs 100 irredeemable preference share on which it pays a dividend
of Rs 9. Assume that this type of a preference share is currently yielding a dividend of 11
percent. What is the value of preference share?
ii) The face value of the preference share is NRs 500 and the stated dividend rate
is12%. The shares are redeemable after 5 years period. Calculate the value of
preference sharesif the required rate of return is 13%.