# Finance and Bond Essay example

Submitted By jgolden2710
Words: 1566
Pages: 7

1. Assume that the one-period spot interest rate is 3% and the two-period spot interest rate is 7%. What is the present value of \$100 received one year from now?

A. \$87.34 B. \$93.46 C. \$96.12 D. \$97.08 E. None of the above.\$97.08

2. The present value of \$100 received one year from now is \$91.27 and the present value of \$100 received two years from now is \$88.76. What is the two-year spot interest-rate?

A. 6.14% B. 6.18% C. 6.23% D. 6.31% E. None of the above.\$84.17

3. Assume that the one-period spot interest rate is 3% and the two-period spot interest rate is 7%. You invest \$100 one-year from today. What is the time 2 value?

A. \$110.87 B. \$111.16 C. \$118.81 D. \$119.28 E. None of the above.

4. Assume that the three-year spot interest rate is 3% and the four-year spot interest rate is 9%. You are going to receive \$120 four years from now. What is the time 3 value?

A. \$104.03 B. \$104.97 C. \$105.19 D. \$105.44 E. None of the above.\$104.03
\$118.81
5. Assume that the one-period spot interest rate is 3% and the two-period spot interest rate is 9%. You purchase a two-year bond with annual coupons of \$4 and par value of \$100? What is the price of this bond?

A. \$89.58 B. \$91.42 C. \$92.11 D. \$92.96 E. None of the above.\$91.42

6. Assume that the one-year spot interest rate is 3% and the forward interest-rate for the second year is 5.0505 percent. What is the coupon on a two-year par bond in a perfect market?

A. 3.75% B. 3.875% C. 4.00% D. 4.125% E. None of the above.8.73%
7. Assume that the one-period spot interest rate is 3% and the two-period spot interest rate is 9%. You make a forward purchase for delivery in one year of a two-year bond with annual coupons of \$7 and par value of \$100? What is the price of this bond?

A. \$92.76 B. \$92.89 C. \$93.05 D. \$93.17 E. None of the above.\$98.17

8. Suppose that the one-year spot interest rate is 2% and two-year spot interest-rate is 4%. A bond has a par value of \$100, annual coupon of four dollars, and maturity of two years. Determine the yield to maturity on this bond.

A. 3.89% B. 3.92% C. 3.96% D. 4.00% E. None of the above.8%

9. Suppose there is a forward market for Treasury strips. A buyer in the forward market will pay \$59.63 two years from now and receive a strip maturing 8 years from now with par value of \$100. The spot price of this strip is \$50.1894. What is the two-period spot interest rate?

A. 3% B. 5% C. 7% D. 9% E. None of the above.

None of the above.
10. A one-period par bond has a price of \$100, par value of \$100, and coupon of \$5. A two-period par bond has a price of \$100, par value of \$100, and coupon of \$9. What is the two-period spot interest rate?

A. 8.03% B. 9.19% C. 9.82% D. 10.13% E. None of the above.9.19%

11. Suppose that a one-period Treasury strip with \$100 par value has a price of \$93 and a two-period strip has a price of \$86.50. A two-period coupon bearing bond has an annual coupon of \$7.50 and par value of \$100. Determine the yield to maturity on this coupon-bearing bond.

A. 6.56% B. 7.52% C. 8.00% D. 8.08% E. None of the above.7.52%

12. A one-period strip has a price of \$87.50 and par value of \$100. A two-period strip has a price of \$88.25 and par value of \$100. Which of the following statements is correct?

A. These prices are consistent with equilibrium. B. There is an arbitrage opportunity from shorting the one-period strip and shorting the two-period strip. C. There is an arbitrage opportunity from shorting the two-period strip and buying the one-period strip. D. There is an arbitrage opportunity from…