Finance 380 Exam 2 (Answered) With
Complete Verified Solution
A bond with several years to maturity has a coupon rate that is greater than its
yield to maturity. The bond will:
have a price greater than its par value
or
be priced at a premium
The risk that the bond issuer might not make the promised coupon and/or par
value payments is referred to as:
default risk
What is the current yield for a bond with a par value of $1,000 and a 6% annual
coupon rate if the bond sells for $900?
6.67%
What is the price of a bond with a par value of $1,000, an 8% coupon rate paid
annually, and a yield to maturity of 6% if the bond matures in 10 years?
$1,147.20
A bond with a par value of $1,000 has a 6% coupon rate with semi-annual coupon
payments made on July 1 and January 1. If the bond changes hands on
December 1, which of the following is true with respect to accrued interest?
The buyer will pay the seller $25 of accrued interest
What is the price of a bond with a par value of $1,000, 11 years to maturity and a
7% coupon rate with semi-annual coupon payments if the bond has a yield to
maturity of 8%?
$927.74
What is the pre-tax equivalent yield for a municipal bond with a 5.14% yield if an
investor has a tax rate of 10%?
5.71%
What is the yield to maturity of a bond with a par value of $1,000, a 6% coupon
rate with semi-annual payments, and 5 years to maturity if the bond sells for
$1,100?
3.79%
What is the yield to maturity of a bond with a par value of $1,000, a coupon rate of
7% with annual payments, and 9 years to maturity if the bond sells for $1,100?
5.56%
The risk that the currency in which a bond is denominated may decline versus the
bondholder's home currency is referred to as:
Current risk
A YTM for a semiannual coupon bond is calculated by taking the semiannual rate
and multiplying it by two. Is the YTM for a semiannual bond an APR or EAR?
APR = rate per period x number of periods per year
, A bond has an 8% coupon rate, semiannual coupons, $1,000 par value, and six
years to maturity. Price the bond using a 10% YTM.
$911.37
Explain when and why a bond might sell for a discount price.
YTM > Coupon rate
Discount = Price < Par value
Explain when a a bond might sell for a premium price.
YTM < Coupon rate
Price > Par value
What is the price of a zero coupon bond with a $1,000 face value if investors
require a 7.0% YTM with a maturity of:
A) Six years
B) Eight years
C) Ten years
A) $666.34
B) $582.01
C) $508.35
What is the yield to maturity of a bond with a par value of $1,000, a coupon rate of
7% with annual payments, and 9 years to maturity if the bond sells for $1,300?
3.12%
The risk that interest rates may decline and the bondholder will earn a lower rate
as they invest the coupon payments that they receive is referred to as:
Reinvestment risk
What is the yield to maturity of a bond with a par value of $1,000, a 6% coupon
rate with semi-annual payments, and 5 years to maturity if the bond sells for
$1,200?
1.80%
What is the pre-tax equivalent yield for a municipal bond with a 4% yield if an
investor has a tax rate of 10%?
4.44%
The risk that a bond's price may need to be lowered to sell it quickly is referred to
as:
Lack of marketability risk
What is the price of a bond with a par value of $1,000, an 8% coupon rate paid
annually, and a yield to maturity of 6% if the bond matures in 9 years?
$1,136.03
What is the current yield for a bond with a par value of $1,000 and a 6% annual
coupon rate if the bond sells for $1,100?
5.45%
What is the price of a bond with a par value of $1,000, 11 years to maturity and a
7% coupon rate with semi-annual coupon payments if the bond has a yield to
maturity of 4%?
$1,264.87
Complete Verified Solution
A bond with several years to maturity has a coupon rate that is greater than its
yield to maturity. The bond will:
have a price greater than its par value
or
be priced at a premium
The risk that the bond issuer might not make the promised coupon and/or par
value payments is referred to as:
default risk
What is the current yield for a bond with a par value of $1,000 and a 6% annual
coupon rate if the bond sells for $900?
6.67%
What is the price of a bond with a par value of $1,000, an 8% coupon rate paid
annually, and a yield to maturity of 6% if the bond matures in 10 years?
$1,147.20
A bond with a par value of $1,000 has a 6% coupon rate with semi-annual coupon
payments made on July 1 and January 1. If the bond changes hands on
December 1, which of the following is true with respect to accrued interest?
The buyer will pay the seller $25 of accrued interest
What is the price of a bond with a par value of $1,000, 11 years to maturity and a
7% coupon rate with semi-annual coupon payments if the bond has a yield to
maturity of 8%?
$927.74
What is the pre-tax equivalent yield for a municipal bond with a 5.14% yield if an
investor has a tax rate of 10%?
5.71%
What is the yield to maturity of a bond with a par value of $1,000, a 6% coupon
rate with semi-annual payments, and 5 years to maturity if the bond sells for
$1,100?
3.79%
What is the yield to maturity of a bond with a par value of $1,000, a coupon rate of
7% with annual payments, and 9 years to maturity if the bond sells for $1,100?
5.56%
The risk that the currency in which a bond is denominated may decline versus the
bondholder's home currency is referred to as:
Current risk
A YTM for a semiannual coupon bond is calculated by taking the semiannual rate
and multiplying it by two. Is the YTM for a semiannual bond an APR or EAR?
APR = rate per period x number of periods per year
, A bond has an 8% coupon rate, semiannual coupons, $1,000 par value, and six
years to maturity. Price the bond using a 10% YTM.
$911.37
Explain when and why a bond might sell for a discount price.
YTM > Coupon rate
Discount = Price < Par value
Explain when a a bond might sell for a premium price.
YTM < Coupon rate
Price > Par value
What is the price of a zero coupon bond with a $1,000 face value if investors
require a 7.0% YTM with a maturity of:
A) Six years
B) Eight years
C) Ten years
A) $666.34
B) $582.01
C) $508.35
What is the yield to maturity of a bond with a par value of $1,000, a coupon rate of
7% with annual payments, and 9 years to maturity if the bond sells for $1,300?
3.12%
The risk that interest rates may decline and the bondholder will earn a lower rate
as they invest the coupon payments that they receive is referred to as:
Reinvestment risk
What is the yield to maturity of a bond with a par value of $1,000, a 6% coupon
rate with semi-annual payments, and 5 years to maturity if the bond sells for
$1,200?
1.80%
What is the pre-tax equivalent yield for a municipal bond with a 4% yield if an
investor has a tax rate of 10%?
4.44%
The risk that a bond's price may need to be lowered to sell it quickly is referred to
as:
Lack of marketability risk
What is the price of a bond with a par value of $1,000, an 8% coupon rate paid
annually, and a yield to maturity of 6% if the bond matures in 9 years?
$1,136.03
What is the current yield for a bond with a par value of $1,000 and a 6% annual
coupon rate if the bond sells for $1,100?
5.45%
What is the price of a bond with a par value of $1,000, 11 years to maturity and a
7% coupon rate with semi-annual coupon payments if the bond has a yield to
maturity of 4%?
$1,264.87
