Bond Pricing: Level 1 Challenges


Find the single percentage discount which is equivalent to a discount of 20% followed by a 30% discount.

If your answer is 10%, enter 10.

Approximately how much do you have to place in a bank which pays 1% interest per annum (compounded annually), so that you will have $100 in it in 10 years?

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You own a bond that will pay 10% per year for the next 10 years, on a principal of $1000. The prevailing discount rate is 10% throughout.

What is the bond worth now?

The discount rate is the interest rate that is used in discounted cash flow analysis.

A 5 year, 5% coupon $1000 corporate bond yielding 5% is currently trading for $995. What trade would you want to execute?

Note: Ignore transaction costs and interest rates.

You want to value stock dividends that are projected to grow forever at a constant rate gg, using a discount rate of r r . If the dividend in the first period is DD, what is the value of this cash flow?

Assume that r>g r > g .

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