1. Suppose for Zhongda Co. bond, the annual coupon payments are $80, and the yield to maturity currently is 7%. The years to maturity of the bond is 9 Par value is $1,000. What is the market price today? The next coupon payment is year later.

Group of answer choices

1,088.49

1059.42

1,065.15

1,145.15

1072.41

2. Which of the following is true?

Group of answer choices

You are considering investing in a 20-year zero-coupon security versus investing in a 2-year Treasury. The volatility of returns of a 20-year zero-coupon security is higher than that of the volatility of returns of a 2-year Treasury security for the same percentage change in yield to maturity.

You buy a 20-year zero-coupon security today. If you do not sell a zero-coupon security between today and the maturity date of the zero- coupon security, i.e., you will hold it till it matures, you have not locked in your return.

When pricing a bond in todays markets, you may assume that the credit risk of debt securities issued by the Sri Lankan government is the same as the credit risk of US Treasuries issued by the US Government. All the worlds government debt securities are of the same creditworthiness, and they are all default free.

If the Federal Reserve wants to lower the target federal funds rate, the Federal Reserve should sell Treasury securities.

3. Which of the following statements is (are) CORRECT?

1. A callable bond should be sold at a price less than an option-free bond of the same company, same coupon, same default risk and the same number of years to maturity. The price difference is very noticeable when the yield to maturity of option-free bonds is very low as the callable bonds will likely get called when interest rates are very low.
2. The buyer of a putable bond should exercise the right to sell the bond back at say par value, to the issuer of the bonds when market interest rates are very high. For example, coupon-rate of option- free bond is 3%, and its yield to maturity is 15%.
3. The buyer of a callable bond should exercise the right to sell the bond back to the issuer when interest rates are very low.

Group of answer choices

I and II only

I only

I and III only

II, III only

I, II and III