Problem No 1
The face value of a Bond is Rs. 1,000 with 8% coupon and a current yield of 9%
a) What is the price of the bond?
i) If it is a perpetual bond ii) It has 5 years to maturity
b) What changes would you make in (a) above if the current yield changes to 11% instead of 9%?
Problem No 2
Rs. 1000 per value bond bearing a coupon rate of 11% will mature after 5 years. What is the price of the bond if the yield is 15%?
Problem No 3
A Rs. 1000 per value bond, bears a coupon rate of 12% will mature after 6 years. Coupon interest payable semi annually. Compute the value of the bond if required rate of return 16% p.a.
Problem No 4
What is the value of 5 year 5.8% coupon bond if the appropriate discount rate for discounting each cash flow is as follows?
Year 1 2 3 4 5
Discount Rate in% 5.9 6.4 6.6 6.9 7.3 Problem No 5
M/s. Agfa industries are planning to issue a debenture series on the following terms.
Face value Rs.100 Term of maturity 10 Years
______________________________
Yearly coupon rate
______________________________
Years
1.4 9%
5.8 10%
_______________________________
9.10 14%
The currently market rate on similar debentures is 15% per annum. The company proposes to price the issue in such a manner that it can yield 16% compounded rate of return to the investors.
The company also proposes to redeem the debentures at 5% premium on maturity. Determine the issue price of the debentures.
Problem No 6
A company had a bond at Yo having a face value of Rs 1000. Coupon rate is 14% Redemption value Rs.1200 at any time of maturity during 5 years. If the investor desired to get 17% return what is the issue price during each of the beginning of 5 years?
Problem No 7
Face value of bond is Rs 1000 Coupon rate is 10% p.a. payable annually as the outstanding bond amount. Redemption shall be carried out @ Rs.500 each at the end of Y4 and Y5. Find out the price of the bond if the investor expects 12%p.a. return
Problem No 8
Suppose 10%, 15 year bond has the call structure
• Not Callable for the next 5 years
• First callable in 5 years at Rs.105
• First par callable date is in 10 years.
• The price of the bond is Rs.127.59
(a) Is the yield to maturity 7%, 7.4%, or 7.8%
(b) Is the yield to first call 4.55%, 4.65% or 4.85%
(c) Is the yield to par call 6.25% 6.55% or 6.7 Note: Semi annual payment of coupon envisaged.
Problem No 9
Suppose a year 9% coupon bond is selling for Rs.112 with an par value of Rs.100. what is the current yield of the bond?
Problem No 10
The market value of Rs.1,000 par value bond carrying coupon rate of 12% and maturing after 7 years is RS.750 What is YTM?
Problem No 11
Mr. A paid Rs. 1036 for a bond having a maturity period of 3 years. Coupon is paid @ 9% as the face value of Rs.1000.
(a) What is the YTM if redemption value is Rs.1,100
(b) If bond were callable at the 2nd year @ Rs.1,150 what is yield Coupon? (YTC)
Problem No 12
There is a 9% year bond issue in the market. The issue price is Rs.90 and the redemption price is Rs.105. For an investor with marginal income tax rate of 30% and capital gains tax rate of 10%
what is the post tax yield maturity? No indexation permitted.
Problem No 13
A Company had issued a bond at Yo having a face value of Rs.1,000. coupon rate is 14% and redemption @20% premium.
Find out the issue and YTM when the investor expects 17% p.a. return if the bond period were to be
(a) One year to maturity (b) Two years to maturity (c) 3 years to maturity (d) 4 years to maturity (e) 5 years to maturity Problem No 14
You are considering investing in one of the
Bond Coupon rate Maturity Price (FV Rs.1,000) A 12 % 10 years 700
B 10% 6 years 600
Tax rate is 30% and capital gain tax is 10%, what is post tax yield to maturity?
Problem No 15
Mr. X purchased bond at Rs.950 for a 15% coupon interest (face value Rs.1000). the time of maturity is one year.( in case of maturity period <2 this formula to be used for YTM)
What is the yield to maturity for the investor?
Problem No 16
An Rs.1000 par value bond carries a coupon rate of 10% payable annually and has a remaining maturity of 4 years. The bond is presently selling for Rs.1020. the reinvestment rate applicable for the future cash flow of the bond is 9% per annum. What will the realized to maturity?
Problem No 17 Consider a Bond P
Bond P Face value Rs.100
Coupon (interest rate) 8% pa payable semi-annually Years to maturity 4
Redemption Value Rs.1000 Current market price Rs.935.36
What are the yields to maturity durations, and volatilities of these bonds?
Problem No 18
Consider two bonds P and Q
Bond P Bond Q Face value 1,000 1,000
Coupon (interest rate) 16 per cent payable annually 12 percent payable annually Years to maturity 8 5
Redemption value 1,000 1,000 Current market price Rs.918.5 Rs.761 What are the yields to maturity, durations, and volatilities of these bonds?
Problem No 19
A 12% coupon bond has a maturity of 5 years. It pays interest semi-annually. Its yield to maturity is 5% per half-year period. What is its duration?
Problem No 20
A zero Coupon bond of Rs.10000 has a term to maturity of 8 years. Market yield at the time of issue is 10%.
a. What is the issue price of the bond?
b. What is the duration of the bond?
c. What is the modified duration of the bond?
d. If 100% basic points were changed in the yield, find its impact in the price of the bond. Prove.
Problem No 21
What is the price of zero coupon bonds, having a face value of Rs.1000, redeemable after 3 years with 14% yield p.a. compounded semi annually? In case the yield is 14% compounded annually.
What is the price?
Problem No 22
You receive a cash inflow of Rs.15 Lacs The funds deployed and duration details are provides as follows:
Bond %of founds Duration (years) A 10 10.35
B 22 4.25 C 19 7.50 D 7 9.50 E 17 12.67 F 6 5.82 G 11 8.50 H 8 6.71
All the bonds have a face value of Rs 1000 and YTM of 9% What is the duration of the portfolio?
Problem No 23
Find the current market price of a bond having a face value of Rs.12 redeemable after 6 years with YTM @16% payable annually and duration of 4.3202 years.
Problem No 24
A company had issued 11.5% convertible bond maturity in 10 years time. 3 years after the issue bond holder can convert 1 bond for shares of Rs.10 each. Price of similar bond without conversion is trade at Rs.870.
The price of the convertible bond is Rs.970 and each share is traded at Rs. 18.50 To latest dividend is declared @21.2% you are required to find out on the 1st day of conversion.
(a) Premium over conversion (b) Premium over investment
(c) Equilibrium price of equity share (d) Option period of conversion Problem No 25
A company has 500 bonds waiting for conversion It is 13% convertible bond traded at Rs.1,060 1 bond is eligible for 10 equity shares. The present PE ratio of 20 is likely to move up upon
conversion to 25 times. Number of Equity Shares before conversion was 10,000. operating profit before tax was 2,10,000. the company pays 33.33% tax. Should conversion be declared?
Problem No 26
Smith Corporation has a Rs40 million 14% bond issue outstanding with 15 years remaining. The call premium is 8% of face value. the new 15-year bond issue for Rs.40 million can be issued at a 10% interest rate. Floatation costs applicable to the new issue are Rs. 350,000. Should Smith Corporation call the original bond issue?