FIN 300 EXAM 2 QUESTIONS AND
ANSWERS
A portfolio earns on average 10%. If the standard deviation of the same stocks was 5%,
what is the probability that you will lose money on this portfolio? - Answer- M= 10%-
5%= 5%
M= 5%-5%= 0
2 deviations= 95%
A corporate bond with a $1,000 face value pays a $50 coupon every six months. The
bond will mature in ten years, and has a yield to maturity of 9 percent. What is the price
of the bond? - Answer- N: 10 x 2= 20
I: 9%/2= 4.5
*PV: 739.8413
PMT: 50/2 =25
FV: 1000
Fish & Chips Inc. has two bond issues outstanding, and both sell for $701.22. The first
issue has an annual coupon rate of 8 percent and 20 years to maturity. The second has
an identical yield to maturity as the first bond, but only 5 years until maturity. Both
issues pay interest annually. What is the annual interest payment on the second issue?
- Answer- N: 20 N: 5
I: 12 I: 12
PV: 701.22 PV: 701.22
*PMT: 8 x 1000= 80 PMT: 37.1155
FV: 1000 FV: 1000
Which of the following statements is most incorrect? - Answer- Sinking fund provisions
do not require companies to retire their debt; they only establish "targets" for the
company to reduce its debt over time.
You intend to purchase a 10-year, $1,000 face value bond that pays interest of $60
every 6 months. If your nominal annual required rate of return is 10 percent with
semiannual compounding, how much should you be willing to pay for this bond? -
Answer- N: 10 x 2= 20
I: 10%/2= 5%
*PV: $1,124.62
PMT: $60
FV: $1000
, Due to a number of lawsuits related to toxic wastes, a major chemical manufacturer has
recently experienced a market reevaluation. The firm has a bond issue outstanding with
15 years to maturity and a coupon rate of 8 percent, with interest paid semiannually.
The required nominal rate on this debt has now risen to 16 percent. What is the current
value of this bond? - Answer- N: 15 x 2= 30
I: 16%/ 2= 8%
*PV: $550
PMT: 1000 x 8%= 80, 80/2= 40
FV: $1000
You just purchased a 15-year bond with an 11 percent annual coupon. The bond has a
face value of $1,000 and a current yield of 10 percent. Assuming that the yield to
maturity of 9.7072 percent remains constant, what will be the price of the bond one year
from now? - Answer- 1. Bond Today
N: 15
I: 9.7072 (yield-to-maturity)
PV: $1,099.99
PMT: 1000 x 11%= 110
FV: $1000
2. Because it's in one year. You have to decrease n, the year by 1
N: 14
I: 9.7072
*PV: $1,097 (1096.7758)
PMT: 110
FV: $1000
A corporate bond with a $1,000 face value pays a $50 coupon every six months. The
bond will mature in 10 years, and has a nominal yield to maturity of 9 percent. What is
the price of the bond? - Answer- N: 10 x 2= 20
I: 9%/2= 4%
*PV: $1,065.04
PMT: 50
FV: $1000
Palmer Products has outstanding bonds with an annual 8 percent coupon. The bonds
have a par value of $1,000 and a price of $865. The bonds will mature in 11 years.
What is the yield to maturity on the bonds? - Answer- N: 11
*I: 10.09% (10.0868)
PV: -865
PMT: 1000 x 8%= $80
FV: $1000
ANSWERS
A portfolio earns on average 10%. If the standard deviation of the same stocks was 5%,
what is the probability that you will lose money on this portfolio? - Answer- M= 10%-
5%= 5%
M= 5%-5%= 0
2 deviations= 95%
A corporate bond with a $1,000 face value pays a $50 coupon every six months. The
bond will mature in ten years, and has a yield to maturity of 9 percent. What is the price
of the bond? - Answer- N: 10 x 2= 20
I: 9%/2= 4.5
*PV: 739.8413
PMT: 50/2 =25
FV: 1000
Fish & Chips Inc. has two bond issues outstanding, and both sell for $701.22. The first
issue has an annual coupon rate of 8 percent and 20 years to maturity. The second has
an identical yield to maturity as the first bond, but only 5 years until maturity. Both
issues pay interest annually. What is the annual interest payment on the second issue?
- Answer- N: 20 N: 5
I: 12 I: 12
PV: 701.22 PV: 701.22
*PMT: 8 x 1000= 80 PMT: 37.1155
FV: 1000 FV: 1000
Which of the following statements is most incorrect? - Answer- Sinking fund provisions
do not require companies to retire their debt; they only establish "targets" for the
company to reduce its debt over time.
You intend to purchase a 10-year, $1,000 face value bond that pays interest of $60
every 6 months. If your nominal annual required rate of return is 10 percent with
semiannual compounding, how much should you be willing to pay for this bond? -
Answer- N: 10 x 2= 20
I: 10%/2= 5%
*PV: $1,124.62
PMT: $60
FV: $1000
, Due to a number of lawsuits related to toxic wastes, a major chemical manufacturer has
recently experienced a market reevaluation. The firm has a bond issue outstanding with
15 years to maturity and a coupon rate of 8 percent, with interest paid semiannually.
The required nominal rate on this debt has now risen to 16 percent. What is the current
value of this bond? - Answer- N: 15 x 2= 30
I: 16%/ 2= 8%
*PV: $550
PMT: 1000 x 8%= 80, 80/2= 40
FV: $1000
You just purchased a 15-year bond with an 11 percent annual coupon. The bond has a
face value of $1,000 and a current yield of 10 percent. Assuming that the yield to
maturity of 9.7072 percent remains constant, what will be the price of the bond one year
from now? - Answer- 1. Bond Today
N: 15
I: 9.7072 (yield-to-maturity)
PV: $1,099.99
PMT: 1000 x 11%= 110
FV: $1000
2. Because it's in one year. You have to decrease n, the year by 1
N: 14
I: 9.7072
*PV: $1,097 (1096.7758)
PMT: 110
FV: $1000
A corporate bond with a $1,000 face value pays a $50 coupon every six months. The
bond will mature in 10 years, and has a nominal yield to maturity of 9 percent. What is
the price of the bond? - Answer- N: 10 x 2= 20
I: 9%/2= 4%
*PV: $1,065.04
PMT: 50
FV: $1000
Palmer Products has outstanding bonds with an annual 8 percent coupon. The bonds
have a par value of $1,000 and a price of $865. The bonds will mature in 11 years.
What is the yield to maturity on the bonds? - Answer- N: 11
*I: 10.09% (10.0868)
PV: -865
PMT: 1000 x 8%= $80
FV: $1000
