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1.Based on the following information concerning YYU bonds: Par value: $1,000 Years to maturity: 25 years Coupon rate: 8% paid semiannually Beta: 1.5 Risk-free rate: 4% Market risk premium: 8% What is the expected price of the bond in 4 years? Assume that the interest rate will remain at the current rate. Select one: a. $1,000 b. $1,075.56 c. $500 d. $519.73 Feedback

The correct answer is: $519.73

2.

You are considering buying a bond. The bond has a current price of $935, a coupon rate of 8% paid semiannually, a par value of 1,000, and a maturity of 20 years. You plan to hold the bond for only 5 years, that is, to sell the bond at the end of year 5. You expect the interest rate for the bond at the time of sale to be 9%. What is your expected rate of return from this investment?

Select one:

a. 9.11%

b. 10.83%

c. 8.27%

d. 10%

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The correct answer is: 8.27%

3.

Company E presently has access to floating interest rate funds at a margin of 3% over LIBOR. Its direct borrowing cost is 12% in the fixed-rate bond market. In contrast, company F has access to fixed-rate funds at 11% and floating-rate funds at LIBOR+1%. Is the fixed rate or the floating rate the better deal for Company E?

Select one:

a. Fixed rate

b. Can't tell from the information given.

c. Variable rate

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The correct answer is: Fixed rate

Answer 1

1)