Question

1. A Treasury bond has a 10% annual coupon and a 10.5%
yield to maturity. Which of the following statements is CORRECT?
*

a. The bond sells at a price below par.

b. The bond has a current yield less than 10%.

c. The bond sells at a discount.

d. a & c.

e. None of the above

2. J&J Company's bonds mature in 10 years, have a par value of
$1,000, and make an annual coupon interest payment of $75. The
market requires an interest rate of 8% on these bonds. What is the
bond's price? *

a. $966.45

b. $925.62

c. $948.76

d. $972.48

e. None of the above

3. Film Co. non-callable bonds currently sell for $1,150. They have
a 10-year maturity, an annual coupon of $100, and a par value of
$1,000. What is their yield to maturity? *

a. 5.84%

b. 6.15%

c. 7.91%

d. 6.81%

e. None of the above

4. Tosh. Inc.'s bonds currently sell for $980 and have a par value
of $1,000. They pay a $95 annual coupon and have a 12-year
maturity, but they can be called in 3 years at $1,150. What is
their yield to call (YTC)? *

a. 7.73%

b. 7.50%

c. 7.91%

d. 8.12%

e. None of the above

5. An investor has a bond with face value of $1000 and coupon rate
of 10% and maturity of 5 years, is selling at par. What would be
the yield to maturity for this bond? *

a. 5%

b. 10%

c. 6%

d. 8%

e. None of the above

6. OSM Co. bonds have a 15-year maturity, an 8.4% semiannual
coupon, and a par value of $1,000. The going interest rate (rd) is
6.40%, based on semiannual compounding. What is the bond’s price?
*

a. $1,047.19

b. $1,074.05

c. $1,191.03

d. $1,129.12

e. None of the above

7. Jack has now $1,000. How much would he have after 6 years if he
leaves it invested at 5.5% with annual compounding? *

a. $1,378.84

b. $1,622.20

c. $1,654.95

d. $1,678.84

e. None of the above

8. Suppose a State of New Jersey bond will pay $1,000 eight years
from now. If the going interest rate on these 8-year bonds is 6%,
how much is the bond worth today? *

a. $627.41

b. $634.70

c. $645.44

d. $677.71

e. None of the above

9. You plan to invest in bonds that pay 4.0%, compounded annually.
If you invest $20,000 today, how many years will it take for your
investment to grow to $30,000? *

a. 10.34

b. 7.74

c. 8.27

d. 9.97

e. None of the above

10. You just inherited some money, and a broker offers to sell you
an annuity that pays $10,000 at the end of each year for 30 years.
You could earn 5% on your money in other investments with equal
risk. What is the most you should pay for the annuity? *

a. $150,753.0

b. $153,724.5

c. $156,236.2

d. $159,195.5

e. None of the above

11. Your father is about to retire, and he wants to buy an annuity
that will provide him with $85,000 of income a year for 25 years,
with the first payment coming immediately. The going rate on such
annuities is 5.15%. How much would it cost him to buy the annuity
today? *

a. $1,063,968

b. $1,119,966

c. $1,178,912

d. $1,240,960

e. None of the above

12. Your grandmother just died and left you $100,000 in a trust
fund that pays 6.5% interest. You must spend the money on your
college education, and you must withdraw the money in 4 equal
installments, beginning immediately. How much could you withdraw
today and at the beginning of each of the next 3 years and end up
with zero in the account? *

a. $24,736

b. $26,038

c. $27,409

d. $28,779

e. None of the above

13. You inherited an oil well that will pay you $25,000 per year
for 25 years, with the first payment being made today. If you think
a fair return on the well is 7.5%, how much should you ask for it
if you decide to sell it? *

a. $284,595

b. $299,574

c. $314,553

d. $330,281

e. None of the above

14. Candia Corporation's 5-year bonds yield 7.00%, and 5-year
T-bonds yield 5.15%. The real risk-free rate is r* = 3.0%, the
inflation premium for 5-year bonds is IP = 1.75%, the liquidity
premium for Candia's bonds is LP = 0.75% versus zero for T-bonds,
and the maturity risk premium for all bonds is found with the
formula MRP = (t – 1) *0.1%, where t = number of years to maturity.
What is the default risk premium (DRP) on Candia's bonds? *

a. 1.50%

b. 1.56%

c. 1.10$

d. 2.09%

e. None of the above

15. A 5-year Treasury bonds yield 5.5%. The inflation premium (IP)
is 1.9%, and the maturity risk premium (MRP) on 5-year bonds is
0.4%. What is the real risk-free rate, r*? *

a. 2.59%

b. 2.88%

c. 3.55%

d. 3.20%

e. None of the above

16. Suppose your credit card issuer states that it charges a 15.00%
nominal annual rate, but you must make monthly payments, which
amounts to monthly compounding. What is the effective annual rate?
*

a. 15.27%

b. 16.08%

c. 16.88%

d. 17.72%

e. None of the above

17. Your colleague has just invested in a discount bond that offers
an annual coupon rate of 10%, with interest paid annually. The face
value of the bond is $1,000 and the difference between the bond’s
yield to maturity and coupon rate is 2%. The bond matures in 5
years. What is the bond’s price? *

a. $808.05

b. $990.50

c. $928

d. $298

e. None of the above

18. AKEA Company has a bond issued outstanding with a 10%
semi-annual coupon and 5 years remaining until maturity. The par
value of the bond is $1,000 and the yield to maturity is 11%. What
would be the price of the bond? *

a. $1000

b. $962

c. $1100

d. $850

e. None of the above

19. A bond has a par value of $1,000, a time to maturity of 10
years, and a coupon rate of 8% with interest paid annually. If the
current market price is $750, what is the capital gain yield of
this bond over the next year? *

a. 1.85%

b. 8%

c. 10%

d. 3.5%

e. None of the above

20. What is the approximate yield to maturity of a 14 percent
coupon rate, $1,000 par value bond priced at $1,160 if it has 16
years to maturity? *

a. 10%

b. 11.8%

c. 14%%

d. 20%

e. None of the above

Answer #1

1. When the coupon rate of a bond are selling at a lower value than the yield to maturity, it will mean that a bond is selling at a discount and selling at a discount will mean that the bond is selling below its par value. It will always be assumed that when the bonds coupon rate are lower than the yield to maturity of the bond, it will be selling at a discount to it's face value.

Other statements are not appropriate because they are not starting the correct facts.

Correct answer is option ( d) a & c.

1.A 12-year bond has a 9 percent annual coupon, a yield to
maturity of
11.4 percent, and a face value of $1,000. What is the price of the
bond?
2.You just purchased a $1,000 par value, 9-year, 7 percent
annual coupon bond that pays interest on a semiannual basis. The
bond sells for $920. What is the bond’s nominal yield to
maturity?
a. 7.28%
b. 8.28%
c. 9.60%
d. 8.67%
e. 4.13%
f. None of
the above
3.A bond with...

5. Suppose 10-year T-bonds have a yield of 5.30% and 10-year
corporate bonds yield 6.75%. Also, corporate bonds have a 0.25%
liquidity premium versus a zero liquidity premium for T-bonds, and
the maturity risk premium on both Treasury and corporate 10-year
bonds is 1.15%. What is the default risk premium on corporate
bonds?
A. 1.08%
B. 1.20%
C. 1.32%
D. 1.45%
E. None of the above.
6. A company has two $1,000 face value bonds outstanding bond
selling for $701.22....

A 10-year bond with a 8% annual coupon has a yield to maturity
of 9%. Which of the following statements is CORRECT?
a. The bond’s current yield is greater than 9%.
b. If the yield to maturity remains constant, the bond’s price
one year from now will be higher than its current price.
c. The bond is selling above its par value.
d. If the yield to maturity remains constant, the bond’s price
one year from now will be lower...

1. A 3-year annual coupon bond has a yield to maturity of 8%,
coupon rate of 5%. The face value of the bond is $1,000.
a. What is the price of the bond? Is it premium bond or discount
bond?
b. Suppose one year later immediately after you receive the
first coupon payment, the yield to maturity drops to 7%. What would
be your holding period return if you decide to sell the bond at the
market price then?
c....

Question 1 of 71
The yield to maturity on a coupon bond is …
· always greater than the
coupon rate.
· the rate an investor
earns if she holds the bond to the maturity date, assuming she can
reinvest all coupons at the current yield.
· the rate an investor earns
if she holds the bond to the maturity date, assuming she can
reinvest all coupons at the yield to maturity.
· only equal to the internal
rate of return of a bond...

Bond 1
Coupon rate
6%
Annual coupon frequency
2
Par
$1,000
Time to maturity (years)
10
2. (10 points) Compute the following yields:
a) the yield to maturity for
Bond 1, above, if the current bond price is
$875.
b) the yield to call for Bond 1 if its
current price is $1050 and it is callable in 4 years at a value of
par plus one year’s coupon interest.

Bond X is noncallable and has 20 years to maturity, a 10% annual
coupon, and a $1,000 par value. Your required return on Bond X is
9%; if you buy it, you plan to hold it for 5 years. You (and the
market) have expectations that in 5 years, the yield to maturity on
a 15-year bond with similar risk will be 8%. How much should you be
willing to pay for Bond X today? (Hint: You will need to...

1. Omega Enterprises has an 8% coupon bond with exactly 16 years
to maturity. Interest is paid semi-annually. The bond is priced at
$1,125 per $1,000 of face value. a.) What is the yield to maturity
on this bond? b.)An investor purchased the bond at $1,125 and sold
it 5 years later at a price of $1,023. What was the investor’s
return. (Hint: calculate the YTM as in a) above but use the sale
price as the future value.
2....

Bond X is noncallable and has 20 years to maturity, a 10% annual
coupon, and a $1,000 par value. Your required return on Bond X is
9%; if you buy it, you plan to hold it for 5 years. You (and the
market) have expectations that in 5 years, the yield to maturity on
a 15-year bond with similar risk will be 8.5%. How much should you
be willing to pay for Bond X today?

1.)
Last year Janet purchased a $1,000 face value corporate bond
with an 8% annual coupon rate and a 15-year maturity. At the time
of the purchase, it had an expected yield to maturity of 12.09%. If
Janet sold the bond today for $1,055.86, what rate of return would
she have earned for the past year? Do not round intermediate
calculations. Round your answer to two decimal places.
2.)
Bond X is noncallable and has 20 years to maturity, a...

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