1. Calculate the price of a bond issued on 2/14/2017, with maturity on 2/14/2027, with a coupon rate of 4.8% paid semiannually, 5% yield. Use the Excel Price function with basis=0. Assume face value of $1000. Hint: Remember that price is calculated assuming per $100 face value. Be careful with how to set the settlement (better read again Excel help).
A. $984.41
B. $984.34
C. $98.44
D. $98.43
2. Calculate the duration of the bond of Problem 1. Approximate to the closest number. Use the Excel Duration function with basis=0.
A. 5.04
B. 6.04
C. 7.04
D. 8.04
3. Suppose you know that tomorrow the interest rate will rise but the market still is not aware of that. What will be your best decision?
A. Will the same to hold cash or bonds.
B. It is not possible to determine.
C. Sell your bonds.
D. Buy bonds.
4. Suppose you have the option of two bonds, both with the same price. Duration of bond A is much longer than duration of Bond B. Suppose that you know that tomorrow the interest rate will fall but the market still is not aware of that. What will be your best decision?
A. It is not possible to determine.
B. Sell all your bonds.
C. Invest in Bond A.
D. Invest in Bond B