Question

1.

Assume a bond has a face value of $1,000, coupon rate of 7%, maturity of 9 years, and can currently be purchased in the market at a price of $1,099. The bond can be called after 5 years, and in that case the call premium paid would be $50.

Which is bigger, YTM or YTC? Use two decimals in your calculations for your comparison.

a.YTM

b.YTC

c.They are both the same.

d.There is not enough information to calculate YTM.

e.There is not enough information to calculate YTC.

2. Which of the following is NOT an adjustment you need to make for semiannual coupons?

a.Multiply annual payments by 2.

b.Divide YTM by 2.

c.Divide the dollar coupon by 2.

d.Multiply the face value by 2.

e.All of these are necessary to adjust for semiannual coupons.

3. Assume you have just obtained the semiannual YTM for a bond that pays semiannual coupons. How do you state this YTM on an annual basis?

a. Multiply the semiannual YTM by 2.

b.Divide the semiannual YTM by 2.

c.Take the square root of the semiannual YTM.

d.Square the semiannual YTM.

e.Calculate the logarithm of the semiannual YTM.

Answer 1

1.(c.)They are both the same.

Both are 5.57%

2.(d.)Multiply the face value by 2.

The face value of the coupon remains the same in all cases.

3.(a.) Multiply the semiannual YTM by 2.

The semiannual YTM is multiplied by 2 to get the annual YTM.