Question

Bond A and bond B both pay annual coupons, mature in 9 years, have a face value of $1000, pay their next coupon in 12 months, and have the same yield-to-maturity. Bond A has a coupon rate of 6.5 percent and is priced at $1,055.13. Bond B has a coupon rate of 7.4 percent. What is the price of bond B?

	a.	$1,117.15 (plus or minus $4)
	b.	$995.40 (plus or minus $4)
	c.	$1,055.13 (plus or minus $4)
	d.	$1,000.00 (plus or minus $4)
	e.	None of the above is within $4 of the correct answe

If 1) the expected return for XYZ stock is 9.5 percent; 2) the dividend is expected to be $4.38 in one year, $6.33 in two years, $0 in three years, and $2.54 in four years; and 3) after the dividend is paid in four years, the dividend is expected to begin growing by 4.5 percent a year forever, then what is the current price of one share of the stock?

	a.	An amount less than $45.20
	b.	An amount between $45.20 and just less than $46.20
	c.	An amount between $46.20 and just less than $47.20
	d.	An amount between $47.20 and just less than $48.20
	e.	An amount equal to or greater than $48.20

Bonds issued by XYZ have a par value of $1000, were priced at $1,220.00 six months ago, and are priced at $1,140.00 today. The bonds pay semi-annual coupons and just made a coupon payment. If the bonds had a percentage return over the past 6 months (from 6 months ago to today) of -2.10%, then what is the current yield of the bonds today?

	a.	9.54% (plus or minus 0.05 percentage points)
	b.	8.91% (plus or minus 0.05 percentage points)
	c.	6.26% (plus or minus 0.05 percentage points)
	d.	5.73% (plus or minus 0.05 percentage points)
	e.	None of the above is within 0.05 percentage points of the correct answer

XYZ is deciding among 3 loans that would each involve her receiving $8,000 today and then paying back the original principal and all accrued interest in 1 year from today. Loan A has an APR of 14.40%, compounded annually. Loan B has an APR of 13.60%, compounded quarterly. Loan C has an APR of 13.60%, compounded continuously. Which of the following assertions is true if XYZ prefers loans with lower costs more than she prefers loans with higher costs?

	a.	XYZ would prefer loan A to loan B and XYZ would prefer loan A to loan C
	b.	XYZ would prefer loan A to loan B and XYZ would prefer loan C to loan A
	c.	XYZ would prefer loan B to loan A and XYZ would prefer loan A to loan C
	d.	XYZ would prefer loan B to loan A and XYZ would prefer loan C to loan A

The next three annual dividends paid by XYZ stock are expected to be $7.43 in one year, $2.79 in two years, and $3.05 in three years. The price of the stock is expected to be $54.78 in two years. The expected annual return for the stock is 15.20 percent. What is the current price of one share of XYZ stock?

	a.	$49.83 (plus or minus $0.05)
	b.	$51.82 (plus or minus $0.05)
	c.	$46.38 (plus or minus $0.05)
	d.	$49.30 (plus or minus $0.05)
	e.	None of the above is within $0.05 of the correct answer

XYZ wants to establish a charitable foundation that will make annual scholarship payments of $23,000 per year forever. XYZ wants the foundation to make the first annual $23,000 scholarship payment in 7 years from today and she wants scholarship payments of $23,000 per year to continue every year after that first payment. To fund the foundation, XYZ plans to make equal annual donations to the foundation for 6 years. How much does XYZ need to donate to the foundation each year for 6 years to have exactly enough in the foundation to make the planned annual scholarship payments if she makes her first annual donation to the foundation today, all annual donations to the foundation are equal, and funds held by the foundation are expected to earn 7.4 percent per year?

	a.	An amount equal to or greater than $30,000 but less than $42,000
	b.	An amount equal to or greater than $42,000 but less than $54,000
	c.	An amount equal to or greater than $54,000 but less than $62,000
	d.	An amount equal to or greater than $62,000 but less than $70,000
	e.	An amount less than $30,000 or an amount equal to or greater than $70,000

Answer 1

1)