ADM 2350A

October 1, 2014

Quiz #3 Examination
Version #1 Solutions

Name: __________________________
Student ID #: _____________________

StatementofAcademicIntegrity
TheTelferSchoolofManagementdoesnotcondoneacademicfraud,anactbyastudentthatmayresultina
false academic evaluation of that student or of another student. Without limiting the generality of this
definition, academic fraud occurs when a student commits any of the following offences: plagiarism or
cheatingofanykind,useofbooks,notes,mathematicaltables,dictionariesorotherstudyaidunlessanexplicit
writtennotetothecontraryappearsontheexam,tohaveinhis/herpossessioncameras,radios(radioswith
head sets), tape recorders, pagers, cell phones, or any other communication device which has not been
previouslyauthorizedinwriting.
Statementtobesignedbythestudent:
IhavereadthetextonacademicintegrityandIpledgenottohavecommittedorattemptedtocommitacademic
fraudinthisexamination.
Signed:______________________________________
Note:anexaminationcopyorbookletwithoutthatsignedstatementwillnotbegradedandwillreceiveaquiz
examgradeofzero.

Formulas:
The following relationship gives the price of a semiannual pay bond:
INT
PVIFArd /2,2 N M PVIFrd /2,2 N
2

Vb

where
1
PVIFArd /2,2 N

1 rd / 2

2N

rd / 2

and PVIFrd /2,2 N

1 rd / 2

2N

The following relationships hold for a zero coupon bond when compounding semiannually:
Vb M PVIFrd /2,2 N

1 rd / 2

2N

M
rd 2
Vb

2N

1 100%

The following relationship gives the price of a perpetuity:

Vb

INT
rd

The following relationship shows the factors affecting the quoted market interest rate:

Quoted market rate rd r * IP DRP LP MRP

Please turn over the page for the problems on this quiz.

ADM 2350A
October 1, 2014

Quiz #3 Examination
Version #1 Solutions

Name: __________________________
Student ID #: _____________________

There are 2 problems on this quiz. Problem 1 counts 4 marks & Problem 2 counts 2 marks.
1. (4 marks) Please complete the following table for the missing 4 prices of a semiannual pay
bond with a 6% nominal annual coupon rate and a $1,000 maturity value:
Maturity
1 Year
20 Years

YTM = 4%
$1,019.42
$1,273.55

YTM = 6%
$1,000.00
$1,000.00

YTM = 8%
$981.14
$802.07

INT
PVIFArd /2,2 N M PVIFrd /2,2 N
2

Vb

Case1:2N=2x1=2,rd/2=0.02or2%,INT/2=$60/2=$30,&M=$1,000Vb=$1,019.42
Case2:2N=2x20=40,rd/2=0.02or2%,INT/2=$60/2=$30,&M=$1,000Vb=$1,273.55
Case3:2N=2x1=2,rd/2=0.04or4%,INT/2=$60/2=$30,&M=$1,000Vb=$981.14
Case4:2N=2x20=40,rd/2=0.04or4%,INT/2=$60/2=$30,&M=$1,000Vb=$802.07
IfusingafinancialcalculatorwithP/Y=C/Y=1,youmayusethevaluesabovefor2N,rd/2,INT/2,and
M,respectively,fortheTVMvaluesforN,I/Y,PMT,andFV.
IfyousetP/Y=C/Y=2,thenyouwoulduserdinsteadofrd/2intheI/Yregister.
markforEACHcaseforcorrectformulaorcalculatordataentryvalues
markforEACHcaseforcorrectanswer
2. (2 marks) A zero coupon bond that matures in 20 years with a maturity value of $1,000 is
currently selling for $142.05. Based on semiannual compounding, what is the nominal
annual yield to maturity to the nearest 1/100th of a percent?
$1, 000
rd 2

$142.05

1 100% 9.9998% 10.00%

Scientific Calculator:
mark for correct formula
mark total for correctly substituting for both M and V b in the correct formula
mark for correct value of 2N in the correct formula
mark for correct value for rd
1

40

Financial Calculator:
mark for setting P/Y = C/Y = 2 or multiplying resulting I/Y by 2 if P/Y = C/Y = 1
mark total for setting both FV = M and PV = - Vb (negative sign needed on either PV or FV)
mark for setting N = 2 x 20 = 40
mark for correct I/Y value

ADM 2350A
October 1, 2014

Quiz #3 Examination
Version #1 Solutions

Name: __________________________
Student ID #: _____________________