Question 1

A coupon bond pays interest semi-annually,matures in 5 years,has a par value of $1,000 and a coupon rate of 12%,and an effective annual yield to maturity of 10.25%.The price the bond should sell for today is ________.

Accepted Answer

The answer of A coupon bond pays interest semi-annually,matures in...

Question 2

A coupon bond pays annual interest,has a par value of $1,000,matures in 4 years,has a coupon rate of 10%,and has a yield to maturity of 12%.The current yield on this bond is ___________.

Accepted Answer

The current yield is calculated by dividing the annual coupon payment by the current market price of the bond.

The annual coupon payment can be calculated as: 
10% x $1,000 = $100

To calculate the current market price of the bond, we need to use the yield to maturity. We can use a financial calculator or Excel to solve for this, but the formula is:

$1,000 = $100/(1 + r) + $100/(1 + r)^2 + $100/(1 + r)^3 + $1,100/(1 + r)^4

where r is the yield to maturity. Solving for r gives:

r = 10.65%

Therefore, the current yield is:

$100/$942.70 = 10.65%

So, the best choice is C) 10.65%.

Question 3

A Treasury bill with a par value of $100,000 due one month from now is selling today for $99,010.The effective annual yield is __________.

Accepted Answer

The answer of A Treasury bill with a par value...

Question 4

Consider the following $1,000 par value zero-coupon bonds: $$\begin{array} { l c c } 
\text { Bond } &\text { Years to Maturity } & \text { Price } \
\hline \text { A } & 1 & \$ 909.09 \
\text { B } & 2 & \$ 811.62 \
\text { C } & 3 & \$ 711.78 \
\text { D } & 4 & \$ 635.52
\end{array}$$
The yield to maturity on bond D is _______.

Accepted Answer

The yield to maturity (YTM) for a zero-coupon bond is calculated using the formula: YTM = [(Face Value / Present Value)^(1/n)] - 1. For bond D, YTM = [(1000 / 635.52)^(1/4)] - 1 = 0.12 or 12%.

Question 5

A Treasury bill with a par value of $100,000 due three months from now is selling today for $97,087,with an effective annual yield of _________.

Accepted Answer

The answer of A Treasury bill with a par value...

Question 6

A coupon bond that pays interest semi-annually has a par value of $1,000,matures in 7 years,and has a yield to maturity of 9.3%.The intrinsic value of the bond today will be ________ if the coupon rate is 9.5%.

Accepted Answer

The intrinsic value of the bond is calculated using the present value of its future cash flows, which include semi-annual coupon payments and the par value at maturity. Given the coupon rate of 9.5% and yield to maturity of 9.3%, the bond is priced slightly above par value, making $1,010.12 the correct intrinsic value.

Question 7

A coupon bond that pays interest of $100 annually has a par value of $1,000,matures in 5 years,and is selling today at a $72 discount from par value.The yield to maturity on this bond is __________.

Accepted Answer

The answer of A coupon bond that pays interest of...

Question 8

You purchased an annual interest coupon bond one year ago that now has 6 years remaining until maturity.The coupon rate of interest was 10% and par value was $1,000.At the time you purchased the bond,the yield to maturity was 8%.The amount you paid for this bond one year ago was

Accepted Answer

The answer of You purchased an annual interest coupon bond...

Question 9

A convertible bond has a par value of $1,000 and a current market price of $850.The current price of the issuing firm's stock is $29 and the conversion ratio is 30 shares.The bond's market conversion value is ______.

Accepted Answer

The market conversion value is calculated by multiplying the current stock price by the conversion ratio: $29 * 30 = $870.

Question 10

Consider the following $1,000 par value zero-coupon bonds: $$\begin{array} { l c c } 
\text { Bond } &\text { Years to Maturity } & \text { Price } \
\hline \text { A } & 1 & \$ 909.09 \
\text { B } & 2 & \$ 811.62 \
\text { C } & 3 & \$ 711.78 \
\text { D } & 4 & \$ 635.52
\end{array}$$
The yield to maturity on bond B is _________.

Accepted Answer

The yield to maturity on a zero-coupon bond is the annual rate of return that equates the present value of the bond's future cash flows to its current price. In this case, the present value of the bond's future cash flow is $1,000, and its current price is $811.62. Using a financial calculator, we can solve for the yield to maturity, which is approximately 11%.

Question 11

A coupon bond is reported as having an ask price of 113% of the $1,000 par value.If the last interest payment was made two months ago and the coupon rate is 12%,the invoice price of the bond will be ____________.

Accepted Answer

The answer of A coupon bond is reported as having...

Question 12

Consider the following $1,000 par value zero-coupon bonds: $$\begin{array} { l c c } 
\text { Bond } &\text { Years to Maturity } & \text { Price } \
\hline \text { A } & 1 & \$ 909.09 \
\text { B } & 2 & \$ 811.62 \
\text { C } & 3 & \$ 711.78 \
\text { D } & 4 & \$ 635.52
\end{array}$$
The yield to maturity on bond C is ____________.

Accepted Answer

The yield to maturity on a zero-coupon bond is the annual rate of return that equates the present value of the bond's future cash flows to its current price. In this case, the bond's future cash flow is $1,000, and its current price is $711.78. Using the formula for the present value of a single future cash flow, we can solve for the yield to maturity:$$PV = \frac{FV}{(1 + r)^n}$$where:* PV is the present value* FV is the future value* r is the annual rate of return* n is the number of yearsSubstituting the given values into the formula, we get:$$711.78 = \frac{1,000}{(1 + r)^3}$$Solving for r, we get:$$r = 12%$$Therefore, the yield to maturity on bond C is 12%.

Question 13

A Treasury bill with a par value of $100,000 due two months from now is selling today for $98,039,with an effective annual yield of _________.

Accepted Answer

First, we need to calculate the discount (which is the difference between the par value and the price at which it is selling):
Discount = par value - selling price
Discount = $100,000 - $98,039
Discount = $1,961

Next, we need to find the effective annual yield using the following formula:
Effective annual yield = (discount / selling price) x (365 / days until maturity)

Effective annual yield = ($1,961 / $98,039) x (365 / 60)
Effective annual yield = 0.02 x 6.08
Effective annual yield = 0.1216 or 12.16%

Therefore, the answer is C) 12.62%.

Question 14

You have just purchased a 10-year zero-coupon bond with a yield to maturity of 10% and a par value of $1,000.What would your rate of return at the end of the year be if you sell the bond? Assume the yield to maturity on the bond is 11% at the time you sell.

Accepted Answer

The rate of return is calculated by finding the initial price of the bond, the price after one year, and then determining the percentage change. The bond's initial price is $385.54 (calculated using the formula for zero-coupon bonds). After one year, with a YTM of 11%, the bond's price is $347.48. The rate of return is (347.48 - 385.54) / 385.54 = -9.87%, which is approximately a 1.4% loss.

Question 15

A zero-coupon bond has a yield to maturity of 9% and a par value of $1,000.If the bond matures in 8 years,the bond should sell for a price of _______ today.

Accepted Answer

The answer of A zero-coupon bond has a yield to...

Question 16

A coupon bond that pays interest semi-annually has a par value of $1,000,matures in 5 years,and has a yield to maturity of 10%.The intrinsic value of the bond today will be __________ if the coupon rate is 12%.

Accepted Answer

The intrinsic value of the bond is calculated using the present value of its future cash flows, which include semi-annual coupon payments and the par value at maturity. Given a 12% coupon rate, the bond pays $60 every six months. Using a yield to maturity of 10% (or 5% per period), the present value of these cash flows results in an intrinsic value of approximately $1,077.22.

Question 17

You purchased an annual interest coupon bond one year ago that had 6 years remaining to maturity at that time.The coupon interest rate was 10% and the par value was $1,000.At the time you purchased the bond,the yield to maturity was 8%.If you sold the bond after receiving the first interest payment and the yield to maturity continued to be 8%,your annual total rate of return on holding the bond for that year would have been _________.

Accepted Answer

The answer of You purchased an annual interest coupon bond...

Question 18

A convertible bond has a par value of $1,000 and a current market value of $850.The current price of the issuing firm's stock is $27 and the conversion ratio is 30 shares.The bond's conversion premium is _________.

Accepted Answer

The answer of A convertible bond has a par value...

Question 19

Consider the following $1,000 par value zero-coupon bonds: $$\begin{array} { l c c } 
\text { Bond } &\text { Years to Maturity } & \text { Price } \
\hline \text { A } & 1 & \$ 909.09 \
\text { B } & 2 & \$ 811.62 \
\text { C } & 3 & \$ 711.78 \
\text { D } & 4 & \$ 635.52
\end{array}$$
The yield to maturity on bond A is ____________.

Accepted Answer

The yield to maturity (YTM) for a zero-coupon bond is calculated using the formula: YTM = [(Face Value / Price)^(1/Years to Maturity)] - 1. For bond A: YTM = [(1000 / 909.09)^(1/1)] - 1 = 0.10 or 10%.

Question 20

A 10% coupon bond,annual payments,10 years to maturity is callable in 3 years at a call price of $1,100.If the bond is selling today for $975,the yield to call is _________.

Accepted Answer

To calculate the yield to call, we need to find the present value of the bond if it is called in 3 years at a price of $1,100.

PV = (C / (1 + r)^1) + (C / (1 + r)^2) + ... + (C + Par / (1 + r)^n)

where: 
C = annual coupon payment = 10% x $1,000 = $100 
r = yield to call 
n = number of years to call = 3

Using a financial calculator or spreadsheet, we can solve for the yield to call, which is approximately 13.98%.

Since this yield is higher than the coupon rate, the bond is likely to be called in 3 years. Therefore, the yield to call is the relevant yield to use when comparing this bond to other investments.

Option D is the only choice that matches this yield.

Quiz 12: Macroeconomic and Industry Analysis