FIN 301 Quiz: FIN301 Quiz 5 2015 Spring

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turquoisegnu128

28 Sep 2018

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The market value of the bond is higher than par. The market value of the bond is equal to its par value. Group 2: assume that a 20 year semi-annual, 7% bond is callable after 10 years at 101% of par value and the discount. The bond"s coupon rate is lower than the yield that it offers. The bond"s coupon rate is higher than the yield that it offers. The bond"s coupon rate is equal to the yield that it offers. The market value of the bond is less than its par value. The market value of the bond is equal to its par value. rate in today"s market is 4%. Using the price-to-worst method, what is the value of this bond: , ,410, , ,252, ,000. Answer: d: assume that a 30 year semi-annual, 9% bond is callable after 15 years at 103% of par value and the discount rate in today"s market is 6%.

Related Questions

QUESTION 1 The largest investors in corporate bonds are life insurance companies and pension funds. True False 5 points QUESTION 2 Most secondary market transactions for corporate bonds take place through dealers in the over-the-counter (OTC) market. True False 5 points QUESTION 3 The value (or price) of a bond is the present value of its expected future cash flows. True False 5 points QUESTION 4 Bond prices decline when the interest rate decreases. True False 5 points QUESTION 5 The face or par value for bonds is the amount paid to bondholders at maturity and is usually equal to $1,000. True False 5 points QUESTION 6 The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond. True False 5 points QUESTION 7 Zero coupon bonds have no coupon payments so they sell for more than their par value. True False 5 points QUESTION 8 Interest rate risk is the risk that bond prices will fluctuate when the interest rate changes. True False 5 points QUESTION 9 US Treasury securities are considered risky investments because the coupon payments are unpredictable. True False 5 points QUESTION 10 Bonds are very difficult to value because their future cash flows are very difficult to predict. True False 5 points QUESTION 11 If the bond's coupon rate is equal to the market rate then the bond will sell at a price equal to its face value greater than its face value less than its face value equal to its foreign currency value, e.g., its price in British pounds 5 points QUESTION 12 When calculating the price of a bond that pays a semiannual coupon one needs to use double the number of years until maturity for the number of payments use half the annual coupon payment use half the annual rate of return as the discount rate all of the above 5 points QUESTION 13 The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments more than the price of the bond equal to zero equal to the price of the bond less than the price of the bond 5 points QUESTION 14 Which one of the following statements is true? All else equal long-term bonds have lower price volatility than short-term bonds. There is an inverse relation between bond prices and market interest rates. All else equal short-term bonds are more risky than long-term bonds. All else equal US government bonds are more risky than corporate bonds. 5 points QUESTION 15 An investor owns a 10-year US government bond with a 9 percent coupon rate. If the yield-to-maturity on the bond is 8 percent then this bond is selling for its par value. a discount. a premium. its face value. 5 points QUESTION 16 BA Corp is issuing a 10-year bond with a coupon rate of 8 percent and a par value of $1,000. The market interest rate on similar bonds is currently 6 percent. If the coupon payments are made annually, what is the value of this bond? 5 points QUESTION 17 Knight, Inc. has issued a 3-year bond with a $1,000 par value and an annual coupon rate of 6 percent. The current market rate of interest is 5 percent. What is the value of this bond if the coupon payments are made semiannually? 5 points QUESTION 18 Diane Carter is interested in buying a 5-year zero coupon bond with a face value of $5,000. If the market interest rate on these types of bonds is currently 9 percent, what is the current price of this bond? 5 points QUESTION 19 Rudy Sandberg wants to invest in 4-year bonds that are currently priced at $933.76. The bonds have a coupon rate of 6 percent and annual coupon payments. If the par value of the bonds is $1,000, what is the bond's yield-to-maturity? 5 points QUESTION 20 You own a 5-year bond with a face value of $1,000 and a coupon rate of 5 percent with annual payments. The bond is currently worth $810.46. If market interest rates remain unchanged, what will be the value of the bond next year when there are 4 years left until maturity?

If a bond is currently trading at its face (par) value, then it must be the case that:

		the bond's yield to maturity is less than its coupon rate.
		the bond's yield to maturity is greater than its coupon rate.
		the bond is a zero-coupon bond.
		the bond's yield to maturity is equal to its coupon rate.

maroonllama551

A $1,000 par value bond is for sale. Its coupon rate is 3.50% and it will be outstanding for 4 years.

Current rates (discount rate or opportunity cost of money) are only 2.20%.

- Question 1: Without doing any math, do you think the price (value) of this bond is going to be higher or lower than $1,000 ?

- Question 2: Now, do the math. What is the market price of this bond, given the above facts?

- Question 3: Would you predict the current yield on this bond to be higher or lower than the coupon rate?

- Question 4: What is the current yield on this bond ?

- Question 5: Would you expect the Yield to Maturity of this bond to be higher or lower than its coupon rate?

- Question 6: Would you expect the Yield to Maturity of this bond to be higher or lower than its current yield?

- Question 7: Calculate the Yield to Maturity of this bond.

FIN 301 Quiz: FIN301 Quiz 5 2015 Spring

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