Finance 15 Problems Assignment

Question 1
Question text
A bond with face value of $500 is
redeemable at par in 8 years. The coupon (interest) rate is 9.8% p.a. payable
half-yearly. What price should be paid for the bond by an investor (who pays
tax at 30.0% on interest) to produce a net yield to maturity of 6.6% p.a.
convertible half-yearly?

Question 2
A debenture with face value of $100
pays interest at j4 = 14% and will mature 7 years from today at par. What net
yield to maturity, j4 (as a %, 2 decimal places), would an investor taxed at
30% on interest obtain if the debenture was purchased for $84.60? Use the
APPROXIMATE yield formula.

Question 3
A debenture with face value of $100
pays interest at j4 = 14% and will mature 7 years from today at par. What net
yield to maturity, j4 (as a %, 2 decimal places) would an investor taxed at 30%
on interest obtain if the debenture was purchased for $860? Use LINEAR
INTERPOLATION between 3% and 3.5% for the quarterly yield.

Question 4
A bond with face value of $100 pays
interest at j2 = 7.1% and is redeemable at par on 1 June 2019. What price
should be paid for the bond on 29 August 2012 by an investor liable to tax on
interest at 25% who wants to earn a net yield of 5.1% p.a. effective? Use
compound interest for the fractional interest period.
(As the interest payments are
half-yearly, the yield will need to be converted to a half-yearly rate to match
the frequency of the payments. Use the unrounded yield (store it in the memory
of your calculator) or your answer will probably be marked as incorrect.)

Question 5
A bond with face value of $100 pays
interest at j2 = 7.4% and is redeemable at par in 5.5 years’ time. Calculate
the price which should be paid for the bond if a net yield to maturity of 6.5%
p.a. convertible half-yearly is required and tax on both interest and capital
gains is at the rate of 25%.

Question 6
A bond with face value of $100 pays
interest at j2 = 7% and is redeemable at par in 10 years’ time. The bond is
purchased for $93.8. Calculate the net redemption payment allowing for capital
gains tax at the rate of 25% if the bond is held to maturity.

Question 7
A bond was bought for $81 and sold
for $97.2. The capital gains tax which will be payable is $3.7. Calculate the
rate of capital gains tax (as a %, 2 decimal places).

Question 8
A bond with face value of $100 pays
interest at j2 = 7.0% and is redeemable at par 7.5 years from now.

Three years ago, Joanna purchased the
bond for $94.2. Joanna pays tax on interest at the rate of 30% and tax on
capital gains at the rate of 20%.

Question 9
Continuation of previous question.

If Joanna sells the bond today for
$91.6, use the APPROXIMATE formula (suitably adjusted to take account of
taxation) to calculate the net yield, j2, earned by Joanna over the 3 years of
her investment (as a %, 2 decimal places). Ignore taxation on the capital loss.

Question 10
A bond with face value of $100 has
interest payments of $3.5 on 1 December 2012 and $4 each half-year thereafter.
The bond matures at par on 1 December 2018. The bond is bought on 2 October
2012 at a price to give a gross yield to maturity of j2 = 6.1%.
Calculate the price paid. Use the
Reserve Bank method.

Question 11
In a government bond tender the
coupon rate was j2 = 6.5% and the weighted average yield was j2 = 6%. At this
yield the bonds were issuedSelect one:
a. at a premium to the face value.
b. at a discount to the face value.
Incorrect

Question 12
A Treasury Bond is

Select one:
a. Short-term equity
b. Short-term debt Incorrect
c. Long-term equity
d. Long-term debt

Question 13
Look up the financial pages of a
newspaper.

Select one:
a. The yield on Australian government
Treasury Bonds is less than the yield on NSW Treasury Bonds.
b. The yield on Australian government
Treasury Bonds is greater than the yield on NSW Treasury Bonds. Incorrect

Question 14
A capital indexed bond with face
value of $1,000 pays interest each quarter at 1% of the indexed capital value.
The index increases by 0.45% compound at the end of each of the first 7
quarters and by 0.74% compound at the end of each of the next 3 quarters.
Calculate the interest payment at the end of the 10th quarter.

Question 15
The successful bidders for Treasury bonds
were:
Bidder A for $140 million face value
at a yield of 6.61% p.a.
Bidder B for $50 million face value
at a yield of 6.68% p.a.
Bidder C for $210 million face value
at a yield of 6.76% p.a.

Calculate the weighted average yield
(as a %, 2 decimal places) at which the Reserve Bank would be allocated bonds.