Question

A foreign trade deficit occurs when a country's:​

	a.	​cash reserves are higher than the expenses.
	b.	​imports are greater than its exports.
	c.	​savings rate is higher than its borrowing rate.
	d.	​purchase of Treasury securities is more than sale of Treasury securities.
	e.	​tax revenue is greater than its expenditure.

​A $1,000 par value bond sells for $1,216. It matures in 20 years, has a 14 percent coupon, pays interest semiannually, and can be called in 5 years at a price of $1,100. The bond's yield to maturity is: (Round the answer to two decimal places.)

	a.	​10.00%.
	b.	​11.26%.
	c.	​8.59%.
	d.	​10.06%.
	e.	​6.05%.

A debt is said to be selling at par, when the _____ of the debt is equal to the _____.​

	a.	​market value; face value of the debt
	b.	​par value; discounted value of the interest payments
	c.	​face value; premium payment on the exercise of a call provision
	d.	​maturity value; par value of the debt
	e.	​principal value; discount on the issue of a zero coupon bond

A sinking fund call:​

	a.	​does not require the company to pay a call premium.
	b.	​requires the company to redeem bonds at market price.
	c.	​requires the company to claim back all the interest payments from the bondholders.
	d.	​requires the company to pay a penalty to investors.
	e.	​does not require the company to pay a small percentage of the issue every year.

Answer 1

1.

A foreign trade deficit occurs when a country's when imports are greater than its exports.

Option (B) is correct answer.

2.

Yield to maturity of bond is calculated in excel and screen shot provided below:

Yield to maturity of bond is 11.26%.

Option (B) is correct answer.

3.

The relationship between price of bond and market interest rate is inverse. That is when interest rate rise, price of bond decreases and when interest rate falls bond price increase. A debt is said to be selling at par, when the Market Value of the debt is equal to the face value of bond.

Option (A) is correct answer.

4.

A sinking fund call does not require the company to pay a call premium.

Option (A) is correct answer.