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CA Final Bond Valuation — practice questions

Explore 65 free Bond Valuation questions in CA Final Strategicfinancialmanagement. Open each question or exercise to read its content, reference answers and available explanation.

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Bond Valuation questions and exercises with answers

Showing questions 1–30 of 65.

In the present-value approach, a bond's fair value equals what?Read the answer and worked solution →A 3-year bond of face Rs 1,000 pays a 10% annual coupon. At a 12% market discount rate, its value is closest to?Read the answer and worked solution →A bond whose market price is below its par value is said to trade at what?Read the answer and worked solution →Which price of a bond excludes interest accrued since the last coupon date?Read the answer and worked solution →A zero-coupon bond of face Rs 1,000 matures in 5 years. At 10% yield, its price is closest to?Read the answer and worked solution →Which of these is another name for the dirty price of a bond?Read the answer and worked solution →A perpetual 9% preference share of Rs 100 face value is valued at a 12% required return. Its value is?Read the answer and worked solution →The yield to maturity of a bond is the rate that does what?Read the answer and worked solution →To actually earn the quoted YTM, what must the investor do with each coupon received?Read the answer and worked solution →Which term is sometimes used for a bond's coupon rate?Read the answer and worked solution →A share pays a constant Rs 2 dividend forever with no growth. At a 10% required return, its value is?Read the answer and worked solution →The current yield of a bond is calculated as which ratio?Read the answer and worked solution →As a bond's price falls below par, what happens to its yield to maturity?Read the answer and worked solution →A share costs Rs 60, next dividend is Rs 3 and required return is 10%. Implied growth is?Read the answer and worked solution →Which measure is the first-order gauge of a bond's price sensitivity to yield?Read the answer and worked solution →A bond has clean price Rs 101.50 and accrued interest Rs 2.25. The dirty price is?Read the answer and worked solution →Duration and convexity are which derivatives of price?Read the answer and worked solution →8% annual coupon, par Rs 100, paid half-yearly. Accrued interest after 45 days (30/360)?Read the answer and worked solution →Which method amortizes a bond discount or premium?Read the answer and worked solution →A bond pays annual coupon of Rs 9 and its clean price is Rs 90. Its current yield is?Read the answer and worked solution →In relative pricing, how is a bond's required yield built?Read the answer and worked solution →A bond has modified duration 7. If yields rise by 1 percentage point, its price changes by about?Read the answer and worked solution →In arbitrage-free pricing, each bond cash flow is discounted at what?Read the answer and worked solution →If a bond trades off its arbitrage-free value, traders can do what?Read the answer and worked solution →Last dividend Rs 2 grows 10% for 2 years, then 5% forever. At 15% required return, the value is closest to?Read the answer and worked solution →How is the price of a bond with embedded options found?Read the answer and worked solution →A 2-year bond, face Rs 100, pays 8% coupon half-yearly. The yield is 5% per half-year. The value is closest to?Read the answer and worked solution →Why is one fixed discount rate not enough for a bond option?Read the answer and worked solution →Why are clean prices quoted in many bond markets?Read the answer and worked solution →A perpetual preference share pays Rs 12 a year and investors require 10%. Its value is?Read the answer and worked solution →

Worked practice questions

In the present-value approach, a bond's fair value equals what?

  1. The discounted sum of its expected cash flows
  2. Its face value minus the accrued interest
  3. Its coupon divided by the current yield
  4. Its par value plus one year of coupon
Show answer and solution

Correct answer: A. The discounted sum of its expected cash flows

A bond is worth the present value of the coupons and redemption money it is expected to pay, discounted at suitable rates.

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A 3-year bond of face Rs 1,000 pays a 10% annual coupon. At a 12% market discount rate, its value is closest to?

  1. Rs 1,048
  2. Rs 952
  3. Rs 1,000
  4. Rs 905
Show answer and solution

Correct answer: B. Rs 952

Coupons of Rs 100 discounted at 12% for 3 years give about Rs 240.18 and the Rs 1,000 redemption gives about Rs 711.78, so the value is about Rs 952.

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A bond whose market price is below its par value is said to trade at what?

  1. A premium
  2. A clean price
  3. A discount
  4. A full price
Show answer and solution

Correct answer: C. A discount

Trading under par is called trading at a discount, while trading over par is called a premium.

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