Question 1

Fran and Ollie purchased a $1,000,20-year bond with a coupon rate of 6.5 percent.They paid $1,050 for the bond.What is this bond's yield to maturity?

Accepted Answer

The yield to maturity (YTM) is the interest rate at which the present value of all future cash flows from the bond (coupon payments and face value) equals the price paid for the bond. To calculate YTM, we need to solve for the discount rate that makes the present value of the cash flows equal to the price paid. Using a financial calculator or spreadsheet, we find that the YTM is approximately 6.1 percent. This is lower than the coupon rate of 6.5 percent, which indicates that the bond was purchased at a premium.

Question 2

Joel Barber purchased a $1,000 bond for $985.The coupon rate of interest is 8.5 percent,and the bond matures in 10 years.What is Joel's current yield on this bond?Joel Barber purchased a $1,000 bond for $985.The coupon rate of interest is 8.5 percent,and the bond matures in 10 years.What is Joel's current yield on this bond?​

Accepted Answer

First, we need to find out the annual interest payment on the bond. The coupon rate is 8.5 percent and the face value of the bond is $1,000, so the annual interest payment is ($1,000 x 8.5%) = $85.

Now, we need to calculate the current yield on the bond. This is the annual interest payment divided by the price paid for the bond:

($85 / $985) x 100% = 8.63%

Therefore, Joel's current yield on this bond is 8.63 percent, which is closest to answer choice D.

Question 3

​When a bond is purchased at a discount from its face value,yield to maturity will be ____ the coupon rate printed on the certificate.

Accepted Answer

When a bond is purchased at a discount from its face value, the yield to maturity will be more than the coupon rate because the investor is effectively getting a higher return due to purchasing the bond for less than its face value.

Question 4

A bond that allows the issuer to redeem the bond prior to maturity is said to be

Accepted Answer

A bond that allows the issuer to redeem the bond prior to maturity is called a callable bond.

Question 5

You bought a GMI bond for $1,000 that has a coupon rate of 7.75 percent.If you were to sell this bond several years before maturity when the interest rate on comparable new issues was 9.5 percent,you would probably get

Accepted Answer

When interest rates rise, the value of existing bonds with lower coupon rates decreases. Therefore, if you were to sell the bond when the interest rate on comparable new issues was 9.5 percent, investors would demand a discount on your bond since it has a lower coupon rate. This means you would receive less than the $1,000 you paid for the bond.

Question 6

An investor can make money on bond investments by receivingAn investor can make money on bond investments by receiving

Accepted Answer

The answer of An investor can make money on bond...

Question 7

____ investments have a variable value and a fixed yield.

Accepted Answer

The answer of ____ investments have a variable value and...

Question 8

Gloria purchased a $1,000 bond for $935.The coupon rate of interest is 7.5 percent,and the bond matures in 12 years.What is Gloria's current yield on this bond?

Accepted Answer

The current yield can be calculated by dividing the annual interest received ($75) by the amount paid for the bond ($935):
Current Yield = ($75 / $935) x 100% = 8.02% 
Therefore, the best choice is C, 8.02 percent.

Question 9

When a bond is purchased at its face value,yield to maturity will be ____ the coupon rate printed on the certificate.

Accepted Answer

When a bond is purchased at its face value, the yield to maturity will be the same as the coupon rate printed on the certificate.

Question 10

Paige and Frank purchased a $1,000,ten-year bond with a coupon rate of 7.5 percent.They paid $800 for the bond.What is this bond's yield to maturity?Paige and Frank purchased a $1,000,ten-year bond with a coupon rate of 7.5 percent.They paid $800 for the bond.What is this bond's yield to maturity?

Accepted Answer

The yield to maturity (YTM) is calculated based on the bond's current price, coupon payments, and time to maturity. Since Paige and Frank paid $800 for a bond with a face value of $1,000 and a 7.5% coupon rate, the YTM is higher than the coupon rate. Calculating the YTM using the formula or a financial calculator gives approximately 10.6%.

Question 11

The ____ of a bond is variable.

Accepted Answer

The answer of The ____ of a bond is variable.
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Quiz 14: Investing in Stocks and Bonds