Question 1

Suppose a coupon of $15 is paid on a bond that matures indefinitely and has a $200 face value. If the interest rate is 9 percent, what is the price of the bond?

Accepted Answer

The price of a perpetuity (a bond that matures indefinitely) is calculated by dividing the annual payment by the interest rate. Here, the annual payment is $15, and the interest rate is 9% or 0.09. Thus, the price of the bond is $15 / 0.09 = $166.67.

Question 2

Suppose a bond with a face value of $1,000 pays a coupon of $200, and the bond matures in 50 years. If the interest rate is currently 15 percent, calculate the approximate price of the bond.

Accepted Answer

The answer of Suppose a bond with a face value...

Question 3

What is the yield on a very long-term bond with a $500 face value, a coupon of $35, and a current price of $650?

Accepted Answer

To calculate the yield of a bond, we need to use the following formula:
Yield = (Coupon payment / Current price) * 100%
Yield = ($35 / $650) * 100%
Yield = 0.0538 or 5.38%
Therefore, the yield on the bond is 5.4 percent.

Question 4

Calculate the maximum price that should be paid for a bond with a face value of $100, a coupon of $12, and a maturity date of three years from now if the prevailing interest rate is 15 percent.

Accepted Answer

The answer of Calculate the maximum price that should be...

Question 5

The face value of a bond is the principal that will be paid back when the bond matures.

Accepted Answer

The face value or par value of a bond is indeed the principal amount that will be paid back to the bondholder when the bond reaches maturity.

Question 6

Answer the questions below:
 (A) Suppose the current interest rate is 12 percent and a bant wrth a face value of 500 that pays a coupan rate of 15 percent is selling far $\$ 450$. Calculate the yield an this band.
(B) What wril happen to band prices?

Accepted Answer

The answer of Answer the questions below:
 (A) Suppose the...

Question 7

For a bond, a higher yield means a lower face value.

Accepted Answer

A higher yield on a bond typically means that the bond is selling for a lower price relative to its face value, not that its face value is lower. The yield is a function of the bond's price relative to its interest payments and face value, not the face value itself.

Question 8

When the interest rate is 10 percent, what is the price of a bond that matures in one year, has a $300 face value, and has a coupon of $20 per year?

Accepted Answer

The price of a bond is calculated by discounting the future cash flows (coupon payments and the face value) back to their present value. In this case, the bond has a coupon of $20 and will pay the face value of $300 at maturity in one year. The total cash flow in one year is $320 ($20 coupon + $300 face value). To find the present value (price of the bond), we use the formula: Present Value = Future Cash Flow / (1 + interest rate). Plugging in the numbers: Price = $320 / (1 + 0.10) = $320 / 1.10 = $290.90.

Question 9

Suppose a share of stock was purchased 10 years ago for $10. One year ago it was worth $85 and today it is worth $81. A dividend of $.50 per share was paid by the corporation today. Calculate the rate of return for this stock.

Accepted Answer

The answer of Suppose a share of stock was purchased...

Question 10

Which of the following best describes a risk-averse individual?

Accepted Answer

A risk-averse individual is someone who is hesitant to take on risks, especially in regards to financial investments. Choice C reflects someone who would rather ensure a smaller but certain gain than take a gamble on a potentially larger payoff. The other choices involve potential investments and therefore do not reflect risk aversion. Option A involves spending money rather than investing it while option B involves choosing a safer investment. Option D involves investing in stocks, which are inherently riskier than a traditional bank account. Option E involves a separate issue of trust rather than risk aversion.

Question 11

The rate of return on a bond is equal to the dividend plus the change in the price of the bond as a percentage of the price.

Accepted Answer

The rate of return on a bond is not based on dividends but rather on the interest payments received from the bond. The formula for the rate of return on a bond is the change in price divided by the original price, not the change in price plus dividends.

Question 12

Suppose a share of stock was purchased 20 years ago for $20, and its current value is $300. Also suppose that the current dividend per share is $15 and that interest rates are 11.5 percent. Calculate the current dividend yield.

Accepted Answer

The answer of Suppose a share of stock was purchased...

Question 13

The yields on bonds tend to rise when firms have higher earnings.

Accepted Answer

Bond yields typically rise due to expectations of higher inflation or interest rates, not directly because of firms' higher earnings. Higher earnings can influence stock prices more directly than bond yields.

Question 14

A bond that matures in one year has a $500 face value and a $60 coupon What is the price of the bond if the interest rate is 6 percent and the bond was purchased by the present owner for $450?

Accepted Answer

To calculate the price of the bond, we need to use the formula:

Price = (coupon payment / (1 + interest rate)) + (face value / (1 + interest rate))

Substituting the given values, we get:

Price = (60 / 1.06) + (500 / 1.06) = $528.30

Since the bond was purchased for $450, it is a bargain for the present owner.

Question 15

A bond pays a fixed percent of its face value every year. Explain what happens to the price of the bond when interest rates in the economy increase.

Accepted Answer

The answer of A bond pays a fixed percent of...

Question 16

A bond's yield is the fixed amount that the borrower agrees to pay the bondholder each year.

Accepted Answer

A bond's yield is not a fixed amount but rather the rate of return the bondholder receives on their investment, which can fluctuate based on the bond's price and interest payments.

Question 17

Bond prices and bond yields are positively related.

Accepted Answer

Bond prices and bond yields are inversely related, meaning as bond prices increase, bond yields decrease and vice versa.

Question 18

Suppose an investor buys a share of stock for $40 and sells it for $45 after one year. At the end of that year, the dividend per stock is $1. The company has 100,000 shares outstanding and a total profit for the year of $500,000. Calculate the price-earnings ratio for this firm at the time the stock was sold.

Accepted Answer

The answer of Suppose an investor buys a share of...

Question 19

Suppose an investor buys a share of stock for $200 and sells it for $220 after one year. At the end of that year, the dividend per stock is $5. The company has 250,000 shares outstanding and a total profit for the year of $1,000,000. Calculate the rate of return on this stock for the investor.

Accepted Answer

The answer of Suppose an investor buys a share of...

Question 20

Suppose a bond with a face value of $100 matures in two years. If the coupon is $8 and the current interest rate is 5 percent, what is the current price of the bond?

Accepted Answer

The answer of Suppose a bond with a face value...

Quiz 16: Capital and Financial Markets

Suppose a coupon of $15 is paid on a bond that matures indefinitely and has a $200 face value. If the interest rate is 9 percent, what is the price of the bond?

Suppose a bond with a face value of $1,000 pays a coupon of $200, and the bond matures in 50 years. If the interest rate is currently 15 percent, calculate the approximate price of the bond.

What is the yield on a very long-term bond with a $500 face value, a coupon of $35, and a current price of $650?

Calculate the maximum price that should be paid for a bond with a face value of $100, a coupon of $12, and a maturity date of three years from now if the prevailing interest rate is 15 percent.

The face value of a bond is the principal that will be paid back when the bond matures.

Answer the questions below: (A) Suppose the current interest rate is 12 percent and a bant wrth a face value of 500 that pays a coupan rate of 15 percent is selling far $\$ 450$ . Calculate the yield an this band. (B) What wril happen to band prices?

For a bond, a higher yield means a lower face value.

When the interest rate is 10 percent, what is the price of a bond that matures in one year, has a $300 face value, and has a coupon of $20 per year?

Suppose a share of stock was purchased 10 years ago for $10. One year ago it was worth $85 and today it is worth $81. A dividend of $.50 per share was paid by the corporation today. Calculate the rate of return for this stock.

Which of the following best describes a risk-averse individual?

The rate of return on a bond is equal to the dividend plus the change in the price of the bond as a percentage of the price.

Suppose a share of stock was purchased 20 years ago for $20, and its current value is $300. Also suppose that the current dividend per share is $15 and that interest rates are 11.5 percent. Calculate the current dividend yield.

The yields on bonds tend to rise when firms have higher earnings.

A bond that matures in one year has a $500 face value and a $60 coupon What is the price of the bond if the interest rate is 6 percent and the bond was purchased by the present owner for $450?

A bond pays a fixed percent of its face value every year. Explain what happens to the price of the bond when interest rates in the economy increase.

A bond's yield is the fixed amount that the borrower agrees to pay the bondholder each year.

Bond prices and bond yields are positively related.

Suppose an investor buys a share of stock for $200 and sells it for $220 after one year. At the end of that year, the dividend per stock is $5. The company has 250,000 shares outstanding and a total profit for the year of $1,000,000. Calculate the rate of return on this stock for the investor.

Suppose a bond with a face value of $100 matures in two years. If the coupon is $8 and the current interest rate is 5 percent, what is the current price of the bond?

Quiz 16: Capital and Financial Markets

Suppose a coupon of $15 is paid on a bond that matures indefinitely and has a $200 face value. If the interest rate is 9 percent, what is the price of the bond?

Suppose a bond with a face value of $1,000 pays a coupon of $200, and the bond matures in 50 years. If the interest rate is currently 15 percent, calculate the approximate price of the bond.

What is the yield on a very long-term bond with a $500 face value, a coupon of $35, and a current price of $650?

Calculate the maximum price that should be paid for a bond with a face value of $100, a coupon of $12, and a maturity date of three years from now if the prevailing interest rate is 15 percent.

The face value of a bond is the principal that will be paid back when the bond matures.

Answer the questions below: (A) Suppose the current interest rate is 12 percent and a bant wrth a face value of 500 that pays a coupan rate of 15 percent is selling far $450\$ 450$450 . Calculate the yield an this band. (B) What wril happen to band prices?

For a bond, a higher yield means a lower face value.

When the interest rate is 10 percent, what is the price of a bond that matures in one year, has a $300 face value, and has a coupon of $20 per year?

Suppose a share of stock was purchased 10 years ago for $10. One year ago it was worth $85 and today it is worth $81. A dividend of $.50 per share was paid by the corporation today. Calculate the rate of return for this stock.

Which of the following best describes a risk-averse individual?

The rate of return on a bond is equal to the dividend plus the change in the price of the bond as a percentage of the price.

Suppose a share of stock was purchased 20 years ago for $20, and its current value is $300. Also suppose that the current dividend per share is $15 and that interest rates are 11.5 percent. Calculate the current dividend yield.

The yields on bonds tend to rise when firms have higher earnings.

A bond that matures in one year has a $500 face value and a $60 coupon What is the price of the bond if the interest rate is 6 percent and the bond was purchased by the present owner for $450?

A bond pays a fixed percent of its face value every year. Explain what happens to the price of the bond when interest rates in the economy increase.

A bond's yield is the fixed amount that the borrower agrees to pay the bondholder each year.

Bond prices and bond yields are positively related.

Suppose an investor buys a share of stock for $200 and sells it for $220 after one year. At the end of that year, the dividend per stock is $5. The company has 250,000 shares outstanding and a total profit for the year of $1,000,000. Calculate the rate of return on this stock for the investor.

Suppose a bond with a face value of $100 matures in two years. If the coupon is $8 and the current interest rate is 5 percent, what is the current price of the bond?

Answer the questions below: (A) Suppose the current interest rate is 12 percent and a bant wrth a face value of 500 that pays a coupan rate of 15 percent is selling far $\$ 450$ . Calculate the yield an this band. (B) What wril happen to band prices?