The supervisor of the Treasury Department of Nitram Computers Ltd has welcomed your analysis of Bonds A to D, and has given you another fixed-income security portfolio to analyse. The following information relates to these securities.

YEAR SPORT RATE

1 2.9%

2 3.1%

3 3.7%

• Bond E - These bonds pay annual coupons at a fixed coupon rate of 4.2% p.a., and have 2 years to maturity.
• Bond F - These bonds pay annual coupons at a fixed coupon rate of 7.3% p.a., and have 3 years to maturity.
• Bond G - These bonds pay semi-annual coupons, on the 15th day of March and September each year, at a fixed coupon rate of 5.7% p.a., and have 3 years to maturity.
• Bond H - These bonds pay quarterly coupons at a fixed coupon rate of 8.1% p.a., and have 6 years to maturity.
• Promissory Note J - These notes were issued 117 days ago. When they were first issued they were issued as 180-day notes.

All of these securities have a face value of $1000.

Shown below are the current spot rates for 1, 2 and 3-year zero-coupon bonds with the same risk as bonds issues by Nitram.

question 1/

What is the Yield to Maturity of Bond E if it is currently trading at a price of $1026.87?

(Hint: This cannot be solved with a normal calculator. It can be solved with a financial calculator or a spreadsheet. If you don't have either you can use trial and error - test each of the following four answers until you find the correct one.)

a.

3.0%

b.

3.1%

c.

2.8%

d.

2.9%

question 2/

What is the price of Bond F, based on the spot rates given in the above table?

a.

$1176.46

b.

$205.08

c.

$1036.35

d.

$1101.81

question 3/

Using an actual/actual day count fraction, what will be the amount of accrued interest if Bond G is sold on 28 May 2022?

a.

$11.31

b.

$11.77

c.

$11.46

d.

$11.62

question 4/

What is the price of Bond G if it is trading at yield of 7.2% p.a.?

a.

$960.17

b.

$960.78

c.

$961.61

d.

$959.23

question 5/

What is the price of Bond H if it is trading at yield of 7.2% p.a.?

a.

$1042.64

b.

$1042.91

c.

$1042.60

d.

$1043.54

question 6/

At what price will the promissory notes be trading if they are quoted on an add-on basis at a yield of 5.8%

a.

$990.09

b.

$998.59

c.

$989.99

d.

$991.29

Clear my choice

question 7/

At what price will the promissory notes be trading if they are quoted on a discount basis at a yield of 7.4%

a.

$989.26

b.

$987.39

c.

$988.89

d.

$987.23