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Corporate Finance · Bonds: yield, duration & risk

BSMS2205 · 5 questions · 20 marks · 1 paper

Answer key

Indian Institute of Technology Madras

BS Degree Programme · Examination & Study Paper

BSMS2205 · Corporate Finance

Bonds: yield, duration & risk

Official Paper

Examination Instructions & Guidelines

Solve on notebook/paper first before checking solutions.
MCQ: Exactly 1 option is correct. Negative marking applies.
Scientific calculator allowed for all calculations.
Official answer key is sealed at the end of this sheet.

Q1MCQ4 Marks·Choose one option
Key ↓
A zero-coupon bond with face value of Rs 5,000 matures in one year. Its price is Rs 4,500. What is the yield of the bond?
1. A8.42%
2. B10.00%
3. C11.11%
4. D9.00%
Q2MCQ4 Marks·Choose one option
Key ↓
A bond pays 200 units in 1 year and 200 units in 5 years. What is the (simple) duration of the bond?
1. A5 years
2. B3 years
3. C2.5 years
4. D1 year
Q3MCQ4 Marks·Choose one option
Key ↓
1. A0.008
2. B0.128
3. C0.200
4. D0.512
Q4MCQ4 Marks·Choose one option
Key ↓
Consider a 20-year zero-coupon bond that promises to pay 1000 units after 20 years. The annualized interest rate is 2.5%. Suppose due to geopolitical tensions, the prevailing interest rate increases by 10 basis points to 2.6%. What would be the change in the value of the bond?
1. Aincreases by 1.93%
2. Bdecreases by 1.93%
3. Cincreases by 1.20%
4. Ddecreases by 1.20%
Q5MCQ4 Marks·Choose one option
Key ↓
Which of the following is not a characteristic of a bond?
1. APromised fixed payments at specific time
2. BStream of payments is inversely proportional to interest rates
3. CThere may exist a risk of default from issuer
4. DOwnership claims on the profits

Official Key

Master Answer Key & Explanations

Official answer keys from IIT Madras BS past papers. Click any question to review.

Reveal Key

Q1C

Q2B

Q3C

Q4B

Q5D

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