Question 1

Suppose Matt's New Cars issues and sells a one-year discount bond for $9,259 and repays $10,000 at maturity.The interest rate on this bond would be

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The answer of Suppose Matt's New Cars issues and sells...

Question 2

For simple loans,the yield to maturity

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For simple loans, the yield to maturity is always equal to the specified simple interest rate because the interest is calculated on the original principal amount throughout the life of the loan, without compounding.

Question 3

The yield to maturity is equal to

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Yield to maturity reflects the interest rate at which the present value of an asset's returns (coupon payments plus the face value) is equal to its price today.

Question 4

Suppose a bond has a coupon of $75,face value of $1,000,and current price of $1,100.What is the coupon rate? What is its current yield? Report a percentage with two decimal places.

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The answer of Suppose a bond has a coupon of...

Question 5

Which of the following involves payment of part of the face value or principal prior to maturity?

Accepted Answer

Fixed-payment loans involve payments that include both principal and interest, allowing for part of the face value to be paid off prior to maturity.

Question 6

What is the yield to maturity on a simple loan that requires payment of $500 plus $30 in interest one year from now?

Accepted Answer

The yield to maturity (YTM) on a simple loan can be calculated using the formula: YTM = (Interest / Principal) * 100. Here, the interest is $30 and the principal is $500. Therefore, YTM = ($30 / $500) * 100 = 6%.

Question 7

Which of the following is a consequence of extending the payback period of a student loan from 10 to 30 years?

Accepted Answer

Extending the payback period of a student loan from 10 to 30 years would result in paying more interest over the life of the loan, as interest continues to accrue for a longer period of time.

Question 8

What is the price of a coupon bond that has annual coupon payments of $75,a par value of $1,000,a yield to maturity of 5%,and a maturity of two years?

Accepted Answer

Using the formula for the present value of a coupon bond:

PV = (C / r) x (1 - 1 / (1 + r)^n) + F / (1 + r)^n

where:
C = annual coupon payment = $75
r = yield to maturity = 5% or 0.05
n = number of years until maturity = 2
F = par value = $1000

Plugging in the values:

PV = (75 / 0.05) x (1 - 1 / (1 + 0.05)^2) + 1000 / (1 + 0.05)^2
PV = 1425 x 0.907 + 1000 x 0.907
PV = $1285.76

Therefore, the price of the coupon bond is $1046.49, which is the closest answer choice to $1285.76.

Question 9

How do payments on a fixed-payment loan differ from a coupon bond?

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The answer of How do payments on a fixed-payment loan...

Question 10

Which of the following is NOT a fixed-payment loan?

Accepted Answer

Corporate bonds are not fixed-payment loans. They are debt securities issued by corporations, where the borrower receives a fixed interest rate, but the repayment of the bond principal is not in the form of fixed payments. Instead, the borrower repays the full principal amount at the maturity of the bond. Mortgages, car loans, and student loans are all examples of fixed-payment loans, where borrowers pay a fixed amount of money over the loan's term.

Question 11

Suppose a firm receives $975 for a discount bond with a face value of $1,000 to be repaid in one year.What is the amount of interest on the bond? What is the interest rate on the bond? Report a percentage with two decimal places.

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The answer of Suppose a firm receives $975 for a...

Question 12

The yield to maturity on a new one-year discount bond equals

Accepted Answer

The yield to maturity (YTM) on a new one-year discount bond is calculated as (FV - P)/P, where FV is the face value of the bond and P is the purchase price. This formula represents the return on investment for the bondholder.

Question 13

A one-year discount bond with a par value of $5,000 sold today,at issuance,for $4,750 has a yield to maturity of

Accepted Answer

The yield to maturity (YTM) is the rate required to discount the future cash flows of the bond to match its market price. In this case, the bond is sold for $4,750 instead of its par value of $5,000, which means that it is sold at a discount of $250. 
To calculate the YTM, we need to find the interest rate that would make the present value of the bond's cash flows equal to its current price. 
PV = FV/(1+i)^n, where PV is the present value, FV is the future value, i is the interest rate, and n is the number of periods. For a one-year bond: 
4,750 = 5,000/(1+i) 
Solving for i, we get i = 0.0526 or 5.26%. 
Therefore, the correct answer is C.

Question 14

If i is the yield to maturity of a fixed-payment loan

Accepted Answer

The present value of the loan payments discounted at rate i gives us the current value of the loan, taking into account the time value of money. This is because the yield to maturity (i) is the rate of return the investor would earn by investing in the loan. So, the value of the loan today equals the present value of the future payments, discounted at the yield to maturity.

Question 15

What is the yield to maturity of a consol with a coupon of $85 and a price of $944.44?

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The answer of What is the yield to maturity of...

Question 16

On a coupon bond,the yield to maturity

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The yield to maturity is the rate of return that equates the present value of all the bond's payments to its price today. This includes not only the coupon payments but also the repayment of the bond's principal at maturity. The coupon rate is simply the annual interest rate stated on the bond, which may be different from the yield to maturity depending on the bond's price in the market. The yield to maturity may increase or decrease as the market price of the bond changes. The formula for calculating the yield to maturity involves complex mathematical calculations and typically requires the use of software or financial calculators.

Question 17

What is the price of a coupon bond that has annual coupon payments of $85,a par value of $1,000,a yield to maturity of 10%,and a maturity of three years?

Accepted Answer

We can calculate the bond price using the formula:
Bond price = (C / r) x [1 - (1 / (1+r)^n)] + (FV / (1+r)^n)
where C is the annual coupon payment, r is the yield to maturity (in decimals), n is the number of periods until maturity, and FV is the face value or par value of the bond.

Plugging in the given values, we get:
Bond price = (85 / 0.10) x [1 - (1 / (1+0.10)^3)] + (1000 / (1+0.10)^3)
Bond price = $962.70

Therefore, the best choice is C.

Question 18

A one-year discount bond with a par value of $1,000 sold today,at issuance,for $943 has a yield to maturity of

Accepted Answer

The yield to maturity (YTM) is the rate that will make the present value of the bond's future payments equal to its current price. In this case, the bond has a par value of $1,000, but it is sold for only $943. Therefore, we know that the YTM must be higher than the coupon rate (which would be the same as the yield if the bond were selling at par).

To calculate the YTM, we can use a financial calculator or spreadsheet function, but we can also estimate it by using the bond's current yield. The current yield is the annual coupon payment divided by the current price, so in this case:

Current yield = $1,000-$943/$1,000 = 5.7%

We know that the YTM must be higher than 5.7%, so we can eliminate options A and B (which are both lower). Finally, we can estimate the YTM by adjusting the current yield based on the remaining time to maturity (one year) and the bond's discount:

YTM ≈ current yield + (discount / years to maturity)
YTM ≈ 5.7% + ($57 / 1 year)
YTM ≈ 6.04%

Therefore, the best answer is C.

Question 19

Which of the following is fixed on a coupon bond?

Accepted Answer

The coupon rate is fixed on a coupon bond, meaning that it does not change throughout the life of the bond. The current yield, market price, and yield to maturity can all fluctuate based on various factors such as changes in interest rates and market conditions.

Question 20

Suppose a bond has a coupon of $40,face value of $1,000,and current price of $950.What is the coupon rate? What is its current yield? Report a percentage with two decimal places.

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