1. A loan has the following features:
• Amount borrowed - USD 100 million
• Interest rate - 3% per annum
• Arrangement fee (to be paid upfront) – 2% of the loan value
• Repayment terms – full amount to be repaid at the end of the loan period
Calculate the total cost of a five-year loan with these features:
a) 3.2%
b) 3.0%
c) 2.9%
d) 3.4%
2. Calculate the accrued coupon for a bond traded on 31st March with the following features: Nominal value – USD 1’000; Coupon rate – 5%; Coupon payment – once a year, on 31st December
a) USD 50.00
b) USD 12.33
c) USD 12.50
d) USD 15.00
e) None of the above
3. Suppose a seven-year USD 1’000 bond with an 8% annual coupon rate and semi-annual coupon payments is trading with a yield to maturity (YTM) of 6.75%. Is this bond currently trading at a discount, at par, or at a premium to face value?
a) The bond is trading at a premium to par value
b) The bond is trading at par
c) The bond is trading at a discount to par value
d) More information is needed to answer
4. Suppose a 10-year USD 1’000 bond with a coupon rate of 5% (annual coupon payments) is currently trading at a price of USD 1’100 (clean price). What is the bond’s yield to maturity?
a) 5.00%
b) 4.37%
c) 3.38%
d) 3.78%
5. Suppose a seven-year USD 1’000 bond with an 8% annual coupon rate and semi-annual coupon payments is trading with a yield to maturity (YTM) of 6.75%. Calculate the estimated bond value. Note: as the bond pays semi-annual coupons, it is important to compute cash flows over 6-months periods, not annual ones. Semi-annual coupons are half of yearly coupons.
a) $1,075
b) $1,076
c) $1,098
d) $1,099
e) More information is needed to answer