Problem Set

FIN8720

1. Find out the yield to maturity on a 8 per cent 5 year bond selling at Rs 105?
2. (a) Determine the present value of the bond with a face value of Rs 1,000, coupon
rate of Rs 90, a maturity period of 10 years for the expected yield to maturity
of 10 per cent.

(b)In N is equal to 7 years in the above example, determine the present value of the
bond. Discuss the effect of the maturity period on the value of the bond.

3. Your portfolio manager advises you to buy 7 years, Rs 5,000 face value
bond that gives 8 per cent annual coupon payments. The appropriate discount rate is
9 per cent. The bond is currently selling at Rs 4,700. Should you adhere to the manager’s
advice?

4. Bonds A and B have similar characters except the maturity period. Both the bonds
carry 9 per cent coupon rate with the face value of Rs 10,000. The yield to maturity
is 9 per cent. If the yield to maturity is to rise to 11 per cent what will be the
respective price change in bond A with 7 years to maturity and B with 10 years to
maturity?

5. A bond with the face value of Rs 1,000 pays a coupon rate of 9 per cent.
The maturity period is 9 years Find out the
(a) approximate yield to maturity if the require rate of return is 10%
(b) current yield

6. Determine the price of Rs 1,000 zero coupon bond with a YTM of 15 per
cent and 10 years to maturity.

7. Determine the yield to maturity if a zero coupon bond with a face value of
Rs 1,000 is sold at Rs 300. The maturity period is 10 years.

8. What is the value of Rs 1,000 bond that paying 5 per cent annual coupon
rate in semi-annual payments over 5 years until it matures if its yield to maturity is 7 per
cent?

9. You are given the following yield curve

Year Spot
Rate
1 5%
2 4.5%
3 4.0%
4 4.0%
5 4.0%

A bond with the face value of Rs 1,000 pays a coupon rate of 4 per cent.
The maturity period is 3 years

(a) What is the price of the bond?

 (b) What is the YTM of the bond?

10. A 3-Month Treasury Bill with the face value of Rs 1,000 is trading at 6.5% annual yield.
What should be the price of the T-Bill
11. If a Corporate is planning to issue 3-Month Commercial Papers of Face Value Rs 1000 at
a mark-up of 100 bps over the above-mentioned T-Bill, what should be the price of each
CP?
12. A Commercial Deposit of Face Value Rs 1000 and remaining maturity of 2 months is
trading at Rs 990. What is the annualised yield on the CD?