Question 1

A corporate bond is quoted at a current price of 103.68. What is the market price if the face value is $5,000?

Accepted Answer

The answer of A corporate bond is quoted at a...

Question 2

Today, you want to sell a zero coupon bond you currently own. The bond matures in 9 years. How much will you receive for your bond if the market yield to maturity is currently 8.88%? Ignore any
Accrued interest.

Accepted Answer

The price of a zero-coupon bond is calculated using the formula: Price = Face Value / (1 + Yield)^n. Assuming a face value of $1000, the price is $1000 / (1 + 0.0888)^9 = $465.02.

Question 3

The semiannual, 12-year bonds of Tracey United are selling at par and have an effective annual yield of 4.6529%. What is the amount of each interest payment if the face value of the bonds is
$1,000?

Accepted Answer

The answer of The semiannual, 12-year bonds of Tracey United...

Question 4

A zero coupon bond with a face value of $1,000 is issued with an initial price of $387.50. The bond matures in 30 years. What is the implicit interest, in dollars, for the ﬁrst year of the bond's life?

Accepted Answer

The answer of A zero coupon bond with a face...

Question 5

This morning Tim purchased a 15-year, $1,000 face value zero coupon bond for $394.34. Assume the yield-to-maturity remains constant over the life of the bond. What price should Tim receive for
His bond if he wants to sell it 4 years from today?

Accepted Answer

The correct answer is A because the price of a zero-coupon bond is equal to the present value of its future cash flows. In this case, the future cash flow is $1,000, and the yield-to-maturity is the same as the discount rate, which is 6.0%. The present value of $1,000 in 4 years at a discount rate of 6.0% is $505.40.

Question 6

A zero coupon bond with a face value of $1,000 is issued at an initial price of $375. The bond matures in 20 years. What is the implicit interest, in dollars, for the ﬁrst year of the bond's life?

Accepted Answer

The implicit interest is the difference between the face value and the initial price, which is $625. Dividing this by the number of years until maturity (20) gives an implicit interest of $31.25 per year. However, we only want to find the implicit interest for the first year, so we need to discount this amount by the interest rate for the first year.

To find the interest rate for the first year, we can use the formula for calculating the present value of a zero coupon bond:

PV = FV / (1 + r)n

where PV is the initial price, FV is the face value, r is the interest rate, and n is the number of years until maturity. Solving for r, we get:

r = (FV / PV)1/n - 1

Plugging in the values from the problem, we get:

r = ($1,000 / $375)1/20 - 1 
r = 0.07463

So the interest rate for the first year is 7.463%. To find the implicit interest for the first year, we need to discount the total implicit interest of $31.25 by this rate:

Implicit interest for first year = $31.25 / (1 + 0.07463) 
Implicit interest for first year = $18.85

Therefore, the best choice is B) $18.85.

Question 7

J&J Enterprises wants to issue eighty 20-year, $1,000 zero-coupon bonds. If each bond is to yield 8%, how much will J&J receive (ignoring issuance costs) when the bonds are ﬁrst sold?

Accepted Answer

We can use the present value formula to calculate the amount J&J will receive when the bonds are first sold.

PV = FV / (1 + r) ^ n

Where PV is the present value, FV is the future value, r is the interest rate, and n is the number of years.

In this case, each bond has a face value (FV) of $1,000 and a maturity of 20 years. The interest rate (r) is 8%.

Using this information, we can solve for the present value:

PV = $1,000 / (1 + 0.08) ^ 20
PV = $1,000 / 6.746
PV = $148.17

Since J&J wants to issue eighty of these bonds, the total amount they will receive when the bonds are first sold is:

Total = $148.17 x 80
Total = $11,813.60

The closest answer choice is C: $17,164.

Question 8

Moltado Corporation is issuing a zero-coupon bond that will have a maturity of ﬁfty years. The bond's par value is $1,000, and the current yield on similar bonds is 7.5%. Determine the value of
The bond.

Accepted Answer

The answer of Moltado Corporation is issuing a zero-coupon bond...

Question 9

The bonds offered by Glenwood Studios are callable in 4 years at a quoted price of 106. What is the amount of the call premium on a $1,000 par value bond?

Accepted Answer

The answer of The bonds offered by Glenwood Studios are...

Question 10

Suppose you purchase a zero coupon bond with face value $1,000, maturing in 20 years, for $214.51. If the yield to maturity on the bond remains unchanged, what will the price of the bond be
ﬁve years from now?

Accepted Answer

The answer of Suppose you purchase a zero coupon bond...

Question 11

This morning, Alicia bought a ten-year 7% coupon bond that pays interest annually. She paid $994 for a $1,000 bond. If the market interest rate on this type of bond declines to 6.5% tonight, how
Much will Alicia receive for her ﬁrst interest payment?

Accepted Answer

Alicia will receive 7% of the bond's face value ($1,000) as the interest payment, which is $70.00.

Question 12

A $1,000 face value zero coupon bond is quoted at a price of 43.30. What is the amount you would pay to purchase this bond?

Accepted Answer

The answer of A $1,000 face value zero coupon bond...

Question 13

Suppose you purchase a zero coupon bond with face value $1,000, maturing in 20 years, for $214.51. What is the implicit interest, in dollars, in the ﬁrst year of the bond's life?

Accepted Answer

The answer of Suppose you purchase a zero coupon bond...

Question 14

Party Time, Inc. has a 6% coupon bond that matures in 11 years. The bond pays interest semi- annually. What is the market price of a $1,000 face value bond if the yield to maturity is 12.9%?

Accepted Answer

First, we need to calculate the semi-annual coupon payments:
Coupon payment = 6% * $1,000 / 2 = $30

The bond has a total of 22 semi-annual payment periods (11 years * 2 payment periods per year).

Next, we can use the bond pricing formula:

P = (C / r) * [1 - 1 / (1 + r)^n] + FV / (1 + r)^n

Where:
- P = market price of the bond
- C = semi-annual coupon payment
- r = yield to maturity (12.9%/2 = 6.45% per semi-annual period)
- n = total number of semi-annual payment periods
- FV = face value of bond ($1,000)

Plugging in the values, we get:

P = ($30 / 0.0645) * [1 - 1 / (1 + 0.0645)^22] + $1,000 / (1 + 0.0645)^22
P = $324.36 + $276.98
P = $601.34

Therefore, the market price of the bond is $601.34. Thus, the best choice is C.

Question 15

A $1,000 face value zero coupon bond is quoted at a price of 38.62. What is the amount you will pay to purchase this bond?

Accepted Answer

The price of the bond is quoted at 38.62% of its face value, so we can calculate the purchase price by multiplying the face value by the quoted price: 1,000 * 0.3862 = $386.20. Therefore, the correct answer is D.

Question 16

Ted's Co. offers a zero coupon bond with an 11.3% yield to maturity. The bond matures in 16 years. What is the current price of a $1,000 face value bond?

Accepted Answer

To solve for the current price of the bond, we need to use the present value formula: 
PV = FV/(1+r)^n 
where PV is the present value or current price of the bond, FV is the face value or maturity value of the bond, r is the yield to maturity (as a decimal), and n is the number of years to maturity.

Plugging in the given values, we get: 
PV = 1000/(1+0.113)^16 
PV = 1000/(1.113)^16 
PV = 1000/5.38604

PV = $180.33

Therefore, the current price of the bond is $180.33. The answer is B.

Question 17

Alpha Manufacturing offers a zero coupon bond with a 12.25% yield to maturity. The bond matures in 13 years. What is the current price if the face value is $1,000?

Accepted Answer

The answer of Alpha Manufacturing offers a zero coupon bond...

Question 18

You purchased an investment which will pay you $15,000, in real dollars, a year for the next three years. The nominal discount rate is 8% and the inﬂation rate is 3.6%. What is the present value of
These payments?

Accepted Answer

To find the present value of the payments, we first need to calculate the real discount rate using the formula: (1 + nominal rate) / (1 + inflation rate) - 1. This gives us a real discount rate of approximately 4.26%. Then, we calculate the present value of each $15,000 payment for the next three years using this real discount rate and sum them up. The calculation results in approximately $41,431.91.

Question 19

You plan on depositing $10,000 a year in real terms into your investment account for the next four years. The relevant nominal discount rate is 7.5% and the inﬂation rate is 4.2%. What are these
Deposits worth in today's dollars?

Accepted Answer

The answer of You plan on depositing $10,000 a year...

Question 20

The semi-annual, ten-year bonds of Adep, Inc. are selling at par and have an effective annual yield of 4.295%. What is the amount of each interest payment on a $1,000 Adep bond?

Accepted Answer

The answer of The semi-annual, ten-year bonds of Adep, Inc....

Quiz 7: Interest Rates and Bond Valuation

A corporate bond is quoted at a current price of 103.68. What is the market price if the face value is $5,000?

Today, you want to sell a zero coupon bond you currently own. The bond matures in 9 years. How much will you receive for your bond if the market yield to maturity is currently 8.88%? Ignore any Accrued interest.

The semiannual, 12-year bonds of Tracey United are selling at par and have an effective annual yield of 4.6529%. What is the amount of each interest payment if the face value of the bonds is $1,000?

A zero coupon bond with a face value of $1,000 is issued with an initial price of $387.50. The bond matures in 30 years. What is the implicit interest, in dollars, for the ﬁrst year of the bond's life?

This morning Tim purchased a 15-year, $1,000 face value zero coupon bond for $394.34. Assume the yield-to-maturity remains constant over the life of the bond. What price should Tim receive for His bond if he wants to sell it 4 years from today?

A zero coupon bond with a face value of $1,000 is issued at an initial price of $375. The bond matures in 20 years. What is the implicit interest, in dollars, for the ﬁrst year of the bond's life?

J&J Enterprises wants to issue eighty 20-year, $1,000 zero-coupon bonds. If each bond is to yield 8%, how much will J&J receive (ignoring issuance costs) when the bonds are ﬁrst sold?

Moltado Corporation is issuing a zero-coupon bond that will have a maturity of ﬁfty years. The bond's par value is $1,000, and the current yield on similar bonds is 7.5%. Determine the value of The bond.

The bonds offered by Glenwood Studios are callable in 4 years at a quoted price of 106. What is the amount of the call premium on a $1,000 par value bond?

Suppose you purchase a zero coupon bond with face value $1,000, maturing in 20 years, for $214.51. If the yield to maturity on the bond remains unchanged, what will the price of the bond be ﬁve years from now?

This morning, Alicia bought a ten-year 7% coupon bond that pays interest annually. She paid $994 for a $1,000 bond. If the market interest rate on this type of bond declines to 6.5% tonight, how Much will Alicia receive for her ﬁrst interest payment?