FME04 – Security Analysis Quiz 1

Prof. Camille A. Bagadiong, MBA

1. If the stated annual interest rate is 9% and the frequency of compounding is daily, the
effective annual rate (EAR) is :

2. The dollar discount on a US Treasury bill with 91 days until maturity is $2,100. The face
value of the bill is $100,000. The bank discount yield of the bill is: (Use 360 Days)

3. A company’s dividend in 1995 was $0.88. Over the next eight years, the dividends were
0.91, 0.99, 1.12, 1.09, 1.25, 1.42, and 1.26. Calculate the annually compounded growth
rate of the dividend over the whole period.

4. The Park Plans to take three cruises, one each year. They will take their first cruise 9
years from today, the second cruise one year after that, and the third cruise 11 years
from today. The type of cruise they will take currently costs $5,000, but they expect
inflation will increase this cost by 3.5% per year on average. They will contribute to an
account to save for these cruises that they will earn 8% per year. What equal
contributions must they make today and every year until their first cruise (ten
contributions) in order to have saved enough at the time for all three cruises? They pay
for cruises when taken.

5. A bond with two years remaining until maturity offers a 3% coupon rate with interest
paid annually. At a market discount rate of 4%, the price of this bond per 100 of par
value is:

6. The following information below relates to Fixed-Income Valuation:

Bond Coupon Rate Time-to-Maturity Time-to-Maturity Rates

X 8% 3 Years 1 year 8%
Y 7% 3 Years 2 years 9%
Z 6% 3 Years 3 Years 10%

a. Based upon the given sequence of spot rates, the price of Bond X is:

b. Based upon the given sequence of spot rates, the price of Bond Y is:

c. Based upon the given sequence of spot rates, the yield-to-maturity of Bond Z is:

7. A two-year floating-rate note pays 6-month Libor plus 80 basis points. The floater is
priced at 97 per 100 of par value. Current 6-month Libor is 1.00%. Assume a 30/360 day-
count convention and evenly spaced periods. The discount margin for the floater in
basis points (bps) is:
FME04 – Security Analysis Quiz 1
Prof. Camille A. Bagadiong, MBA

8. Bond G, described in the exhibit below, is sold for settlement on 16 June 2014.

Annual Coupon: 5%
Coupon Payment Frequency: Semiannual
Interest Payment Dates: 10 April and 10 October
Maturity Date: 10 October 2016
Day Count Convention 30/360
Annual Yield-to-Maturity 4%

a. What is the full price of Bond G that will settle at on 16 June 2014?

b. What is the accrued interest per 100 of par value for Bond G on the
settlement date of 16 June 2014?

c. What is the flat price for Bond G on the settlement date of 16 June 2014?