Homework 3: Practice Problems for Final Exams Part 3
Question 1
0.5 / 0.5 pts
A Walmart bond paying 5% coupon annually due in 4 years is selling at 91% of par value. The table below summarizes the spot rates.
t spot rate
1 3.20%
2 4.00%
3 4.90%
4 5.60%
What should be the price of a bond from Walmart that offers 3% coupon and is due in 3 years (assume par=100).
91%
89.35%
102.55%
None of these
Question 2
0.5 / 0.5 pts
The par yields are 4.5% for the one-year bond, 5.00% for the two-year bond, and 5.8% for the three-year benchmark bond.
What is the forward rate (f3) for discounting CFs from year 3 to year 2?
7.57%
5.86%
5.01%
None of this
Question 3
0.5 / 0.5 pts
A bond with par value of 100 paying 5% annual coupon is due after 3 years.
Assume the following Forward rates for the four paths.
t LL LH HL HH
1 2% 2% 2% 2%
2 4.50% 4.50% 6% 6%
3 5% 7% 7% 9%
Value the bond (at time 0) by using path-wise valuation.
93.82
92.06
100.99
None of these.
Question 4
0.5 / 0.5 pts
The one-year forward rates are as follows(1) currently, F0,1 is 5%; (2) one years from now, F1,1 is 6.5%; (3) 2 years from now, F2,1 is 4%.
A three-year 6% annual coupon bond is callable at par after 1 and 2 years from now. What is the value of the callable bond (as a percentage of par).
100.51
100
101.92
None of these
Question 5
0.5 / 0.5 pts
A bond with par value of 100 pays annual coupon of 5%; it is maturing in two years. The bond is callable at par at the end of year 1.
The 1-year short rate is currently 2%. After one year (T=1), Forward Rate can be 8% or 4%; both scenarios are equally likely.
What is the bond price at time 0?
97.22
102.55
100.84
None of these
Question 6
0.5 / 0.5 pts
The expected annual growth rate for a firm is 5% , the volatility is 25%. It's Debt-to-asset ratio is 50%.
What is the probability of default (assuming debt is due in five years)?
8.99%
7.56%
23.11%
None of these