© CFA Institute. For candidate use only. Not for distribution.

Practice Problems 155

PRACTICE PROBLEMS
1 A portfolio manager is considering the purchase of a bond with a 5.5% coupon
rate that pays interest annually and matures in three years. If the required rate
of return on the bond is 5%, the price of the bond per 100 of par value is closest
to:
A 98.65.
B 101.36.
C 106.43.
2 A bond with two years remaining until maturity offers a 3% coupon rate with
interest paid annually. At a market discount rate of 4%, the price of this bond
per 100 of par value is closest to:
A 95.34.
B 98.00.
C 98.11.
3 An investor who owns a bond with a 9% coupon rate that pays interest semian-
nually and matures in three years is considering its sale. If the required rate of
return on the bond is 11%, the price of the bond per 100 of par value is closest
to:
A 95.00.
B 95.11.
C 105.15.
4 A bond offers an annual coupon rate of 4%, with interest paid semiannually. The
bond matures in two years. At a market discount rate of 6%, the price of this
bond per 100 of par value is closest to:
A 93.07.
B 96.28.
C 96.33.
5 A bond offers an annual coupon rate of 5%, with interest paid semiannually. The
bond matures in seven years. At a market discount rate of 3%, the price of this
bond per 100 of par value is closest to:
A 106.60.
B 112.54.
C 143.90.
6 A zero-coupon bond matures in 15 years. At a market discount rate of 4.5% per
year and assuming annual compounding, the price of the bond per 100 of par
value is closest to:
A 51.30.
B 51.67.
C 71.62.
7 Consider the following two bonds that pay interest annually:

© 2019 CFA Institute. All rights reserved.

 © CFA Institute. For candidate use only. Not for distribution.
156 Reading 44 ■ Introduction to Fixed-Income Valuation

Bond Coupon Rate Time-to-Maturity

A 5% 2 years
B 3% 2 years

At a market discount rate of 4%, the price difference between Bond A and Bond
B per 100 of par value is closest to:
A 3.70.
B 3.77.
C 4.00.

The following information relates to Questions 8

and 9
Bond Price Coupon Rate Time-to-Maturity

A 101.886 5% 2 years
B 100.000 6% 2 years
C 97.327 5% 3 years

8 Which bond offers the lowest yield-to-maturity?

A Bond A
B Bond B
C Bond C
9 Which bond will most likely experience the smallest percent change in price if
the market discount rates for all three bonds increase by 100 basis points?
A Bond A
B Bond B
C Bond C

10 Suppose a bond’s price is expected to increase by 5% if its market discount rate

decreases by 100 basis points. If the bond’s market discount rate increases by
100 basis points, the bond price is most likely to change by:
A 5%.
B less than 5%.
C more than 5%.
 © CFA Institute. For candidate use only. Not for distribution.
Practice Problems 157

The following information relates to Questions 11

and 12
Bond Coupon Rate Maturity (years)

A 6% 10
B 6% 5
C 8% 5

All three bonds are currently trading at par value.

11 Relative to Bond C, for a 200 basis point decrease in the required rate of return,
Bond B will most likely exhibit a(n):
A equal percentage price change.
B greater percentage price change.
C smaller percentage price change.
12 Which bond will most likely experience the greatest percentage change in price
if the market discount rates for all three bonds increase by 100 basis points?
A Bond A
B Bond B
C Bond C

13 An investor considers the purchase of a 2-year bond with a 5% coupon rate,

with interest paid annually. Assuming the sequence of spot rates shown below,
the price of the bond is closest to:
Time-to-Maturity Spot Rates

1 year 3%
2 years 4%

A 101.93.
B 102.85.
C 105.81.
14 A 3-year bond offers a 10% coupon rate with interest paid annually. Assuming
the following sequence of spot rates, the price of the bond is closest to:
Time-to-Maturity Spot Rates

1 year 8.0%
2 years 9.0%
3 years 9.5%

A 96.98.
B 101.46.
C 102.95.
 © CFA Institute. For candidate use only. Not for distribution.
158 Reading 44 ■ Introduction to Fixed-Income Valuation

The following information relates to Questions

15–17
Bond Coupon Rate Time-to-Maturity Time-to-Maturity Spot Rates

X 8% 3 years 1 year 8%
Y 7% 3 years 2 years 9%
Z 6% 3 years 3 years 10%

All three bonds pay interest annually.

15 Based upon the given sequence of spot rates, the price of Bond X is closest to:
A 95.02.
B 95.28.
C 97.63.
16 Based upon the given sequence of spot rates, the price of Bond Y is closest to:
A 87.50.
B 92.54.
C 92.76.
17 Based upon the given sequence of spot rates, the yield-to-maturity of Bond Z is
closest to:
A 9.00%.
B 9.92%.
C 11.93%

18 Bond dealers most often quote the:

A flat price.
B full price.
C full price plus accrued interest.

The following information relates to Questions

19–21
Bond G, described in the exhibit below, is sold for settlement on 16 June 2020.
Annual Coupon 5%
Coupon Payment Frequency Semiannual
Interest Payment Dates 10 April and 10 October
Maturity Date 10 October 2022
Day Count Convention 30/360
Annual Yield-to-Maturity 4%

19 The full price that Bond G settles at on 16 June 2020 is closest to:

A 102.36.
B 103.10.
 © CFA Institute. For candidate use only. Not for distribution.
Practice Problems 159

C 103.65.
20 The accrued interest per 100 of par value for Bond G on the settlement date of
16 June 2020 is closest to:
A 0.46.
B 0.73.
C 0.92.
21 The flat price for Bond G on the settlement date of 16 June 2020 is closest to:
A 102.18.
B 103.10.
C 104.02.

22 Matrix pricing allows investors to estimate market discount rates and prices for
bonds:
A with different coupon rates.
B that are not actively traded.
C with different credit quality.
23 When underwriting new corporate bonds, matrix pricing is used to get an esti-
mate of the:
A required yield spread over the benchmark rate.
B market discount rate of other comparable corporate bonds.
C yield-to-maturity on a government bond having a similar time-to-maturity.
24 A bond with 20 years remaining until maturity is currently trading for 111 per
100 of par value. The bond offers a 5% coupon rate with interest paid semiannu-
ally. The bond’s annual yield-to-maturity is closest to:
A 2.09%.
B 4.18%.
C 4.50%.
25 The annual yield-to-maturity, stated for with a periodicity of 12, for a 4-year,
zero-coupon bond priced at 75 per 100 of par value is closest to:
A 6.25%.
B 7.21%.
C 7.46%.
26 A 5-year, 5% semiannual coupon payment corporate bond is priced at 104.967
per 100 of par value. The bond’s yield-to-maturity, quoted on a semiannual
bond basis, is 3.897%. An analyst has been asked to convert to a monthly peri-
odicity. Under this conversion, the yield-to-maturity is closest to:
A 3.87%.
B 4.95%.
C 7.67%.