Question No.1

10% of 5000 face value bond trading in the market having 5 years life and rate of return 12 % (yield rate OR discount rate OR interest rate)

Find the fair price/value of bond and duration

Also, find duration and convexity if interest rate increases by 3% and decrease by 2%

Question No. 2

A Saudi company lists a bond as 9s35 which has 10% required rate of return. Would you buy these bonds in 2022? The price of the bond is 88.875. This means it is selling for 88.875% of its face value. For a $1000 bond, it is $888.75. The term 9s35, pronounced as nines of thirty-five means that the coupon rate of the bond is 9% and that it will mature in 2035. The bond matures after 13 years and makes 26 semiannual interest payments. The annual interest paid is $90. Each semiannual interest payment is $45. The semiannual required rate of return is 5%. [Hint: Use bond pricing formula]

Question No. 3

In 2001, a newspaper listed a bond as XYZ Corp 6s13 and showed its price as a two-digit number with a fraction. The bondholders had a required rate of return of 12% for these bonds. Find the (approximate) price of the bond as shown in the newspaper. The numbers 6s33 mean that the bond pays interest at the rate of 6% per year, and it will mature in the year 2033. In 2021, the bond still has 12 years before it matures. There are 24 semiannual periods, and the semiannual interest is $30. [Hint: Use bond pricing formula]