If three bonds are otherwise identical, the one exhibiting the highest level of positive

ly to have the greatest reinvestment risk？

A. Bond A

B. Bond B

C. Bond C

e. The duration of her portfolio is closest to:

A. 9.24

B. 9.60

C. 28.81

Bonds are commonly used in the Middle East area, so ______.

A．the Middle East banks often issue bonds

B．the Middle East exporters often demand bonds

C．the Middle East insurance companies often issue bonds

D．none of the above three is correct

Bond Features, Inc.(“BFI”) has bonds outstanding with a $900,00 par value.The BFI bonds pay a 4.5% coupon, mature in three years, and have net book value of $785,000.The bonds are convertible into 20,000 shares of common stock, with a $1 par value.The current market value of the common shares is $62.50.Under U.S.GAAP, the amount that will be recorded as additional paid-in capital if the bonds are immediately converted is closest to:

A.$115,000.

B.$765,000.

C.$1,250,000.

ond A allows the issuer to call the bond before stated maturity, Bond B allows the investor to put the bond back to the issuer before stated maturity, and Bond C contains no embedded options. The bonds are otherwise identical. The manager tells his assistant, “Bond A and Bond B should have larger nominal yield spreads to a U.S. Treasury than Bond C to compensate for their embedded options.” Is the manager most likely correct？

A. Yes.

B. No, Bond A’s nominal yield spread should be less than Bond C’s.

C. No, Bond B’s nominal yield spread should be less than Bond C’s.

A.Bond A carries an S&P rating of BB and a Moody’s rating of Baa.

B.Bond B carries an S&P rating of BBB and a Moody’s rating of Ba.

C.Bond C carries an S&P rating of BBB and a Moody’s rating of Baa.

D.None of the above.

Section B – TWO questions ONLY to be attempted

GNT Co is considering an investment in one of two corporate bonds. Both bonds have a par value of $1,000 and pay coupon interest on an annual basis. The market price of the first bond is $1,079？68. Its coupon rate is 6% and it is due to be redeemed at par in five years. The second bond is about to be issued with a coupon rate of 4% and will also be redeemable at par in five years. Both bonds are expected to have the same gross redemption yields (yields to maturity).

GNT Co considers duration of the bond to be a key factor when making decisions on which bond to invest.

Required:

(a) Estimate the Macaulay duration of the two bonds GNT Co is considering for investment. (9 marks)

(b) Discuss how useful duration is as a measure of the sensitivity of a bond price to changes in interest rates. (8 marks)

A.am studying

B.tudied

C.study

D.have studied

(A) My watch keeps good time

(B) My watch is five minutes fast

(C) My watch says three o’clock

(D) I say three o’clock