(1) A 45 -day Treasury bill is quoted as having a price of $969.

What is its bond equivalent

yield?

1) 16.00%

2) 25.95%

3) 8.19%

4) 25.00%

5) 28.80%
(2) 25.95%

BEY = [(Pf - P0)/P0[]* (365/h) = [(1000 - 969)/969] * (365/45) = 0.2595

(3) A bond's Macauley duration is 7.25 years. Current market rates are 7%. If interest rates
increase to 7.5%, what is the approximate change in the price of the bond?

1) 0.70%

2) -33.88%

3) -0.03%

4) 7.00%

5) -3.39%
(4) -3.39%

ΔP/P = -[Duration/(1+i)]*Δi =- [7.25/(1+0.07)]*(0.075 - 0.07) = -3.39%

(5) The greater the compounding frequency, the higher the future value, everything else the
same.

1) True

2) False
(6) true
(7) The Macaulay's duration of a 10-year, 10% bond with a face value of $1,000 and a
market rate of 8%, compounded annually is:

1) 10 years
 2) 11 years

3) 12 years

4) 13 years

5) None of the above

(8) none of the above
(9) The greater the compounding frequency, the higher the present value, everything else the
same.

1) True

2) False
(10) false
(11) If a bond is selling at par value, then:

1) the yield to maturity is less than the coupon rate.

2) the yield to maturity is greater than the coupon rate.

3) its duration must be greater than its maturity.

4) the yield to maturity is equal to the coupon rate.

5) its duration must be equal to its maturity.

(12) the yield to maturity is equal to the coupon rate
(13) You purchase a 8 - year bond for $1,015. It pays a semi-annual coupon payment
of $40. You expect to sell the bond in 2 years. You estimate that similar bonds will be
priced to yield 7% at the time of the sale. If you can reinvest the coupon payments at 6%
annually, what is your expected total return for the 2 - year holding period?

1) 8.71%

2) 5.73%

3) 7.58%

4) 6.59%

5) 9.58%
(14) 9.58%

Step 1: Sale price in 2 years:

P/Y = 2
PMT =40
N =6 * 2 =12
I =7
FV = 1000
PV = ? =1,054.11
Step 2 - Future Value of reinvested coupons:
P/Y = 2
PMT = 50
N =2 * 2 =4
I=6
FV =? = 169.86
Step 3 - Total Return:
FV = 1,054.11 + 169.86 =1,223.97
PV = -1,015.00 Purchase Price
N=4
I = ? = 9.58%
(15)