FINM 2412 Financial Management for Business
Tutorial 4 Questions
Question 1
A company issued $1 mil of 90 day BABs with a yield of 6.8% pa. How much money did they receive?
Price = 1 000 000 / ( 1+ 90/365 * 0.068)
Price = 983,509.38 (= proceeing)
The company received $983.5mil in proceeds.
Question 2
Assume we have a five year bond that pays semi-annually with a coupon rate of 6% and a face value
of $1000. It has a yield to maturity of 5.5%.
What is the price of this bond?
Nếu k ghi p.a tự hiểu là p.a (per year)
Things we can discern from this:
1. 10 semiannual periods
2. Coupon rate is 3% (6%/2 - coupon payment is expressed as an APR)
3. Since the face value is $1000, the semiannual coupons are $30.
4. The semiannual `discount rate' is 2.75% (once again the yield is expressed as an APR)
Price = 30 * (1 – 1.0275^-10) / 0.0275 + 1000 * 1.0275^-10 Price = 1021.6
Question 3
Consider a 10-year corporate bond with $500,000 face value and coupons of 8%. Given the credit
rating of this company, the appropriate yield is 7.5%.
a) Without doing any calculations, do you expect this bond to sell at a premium or a discount
to face value? Price the bond to confirm your suspicions.
Coupon rate > yield, thus the bond will sell at a premium to face value. Assuming semi-
annual coupon payments:
Coupon = 500,000 * 8% / 2 = 20,000
Price = 20,000 * (1 – 1.0375^-20) / 0.0375 + 500,000 * 1.0375^-20 Price = 517,370.3 >
500.000 => premium
b) If the yield for the bond were 8.5%, do you expect the bond to sell at a premium or a
discount? Calculate the bond price.
1
Since yield > coupon, we expect bond to sell at a discount.
Price = 20,000 * (1 – 1.0425^-20) / 0.0425 + 500,000 * 1.0425^-20 Price = 483, 382 < 500.00
=> đúng là discount
Question 4
‘Zero coupon bonds are also known as discount bonds.’ Do you agree with this statement? Why or
why not?
Question 5
You bought a 2-year maturity, zero-coupon bond 2 months ago when the bond’s market yield was
8% p.a. compounded semi-annually. Will you obtain a gain or a loss if you sell the bond today and
the current market yield of the bond increases to 9% p.a.?
a) Justify your answer without doing any calculations.
b) Now, calculate the gain/loss. Assume a face value of $100.
Question 6
Assume coupon is paid twice a year, interest rate is compounded semi-annually and the face value is
$100.
Bond A is a 5% coupon bond with a yield of 8% p.a. Bond B is a 7.5% coupon bond with a yield of 6%
p.a. The values of both bonds are likely to be … [Select the most likely solution, no calculation is
required to answer this question.]
a) $100 for A and $100 for B
b) $74 for A and $100 for B
c) $74 for A and $117 for B (A: discount rate, B: premium)
d) $117 for A and $74 for B
e) $117 for A and $117 for B