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Question 101

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Use the information for the question(s) below.
Luther Industries needs to raise $25 million to fund a new office complex. The company plans on issuing ten-year bonds with a face value of $1000 and a coupon rate of 7.0% (annual payments) . The following table summarizes the YTM for similar ten-year corporate bonds of various credit ratings:
Use the information for the question(s) below. Luther Industries needs to raise $25 million to fund a new office complex. The company plans on issuing ten-year bonds with a face value of $1000 and a coupon rate of 7.0% (annual payments) . The following table summarizes the YTM for similar ten-year corporate bonds of various credit ratings: -Which of the following equations is INCORRECT? A) Expected future spot interest rate = forward interest rate + risk premium B) (1 + f<sub>1</sub>) × (1 + f<sub>2</sub>) × (1 + f<sub>3</sub>) × ... × (1 + f<sub>n</sub>) = (1 + YTM<sub>n</sub>) <sup>n</sup> C) f<sub>n</sub> = - 1 D) (1 + YTM<sub>n</sub>) <sup>n</sup> = (1 + YTM<sub>n </sub><sub>- 1</sub>) <sup>n </sup><sup>- 1</sup>(1 + f<sub>n</sub>)
-Which of the following equations is INCORRECT?


A) Expected future spot interest rate = forward interest rate + risk premium
B) (1 + f1) × (1 + f2) × (1 + f3) × ... × (1 + fn) = (1 + YTMn) n
C) fn = Use the information for the question(s) below. Luther Industries needs to raise $25 million to fund a new office complex. The company plans on issuing ten-year bonds with a face value of $1000 and a coupon rate of 7.0% (annual payments) . The following table summarizes the YTM for similar ten-year corporate bonds of various credit ratings: -Which of the following equations is INCORRECT? A) Expected future spot interest rate = forward interest rate + risk premium B) (1 + f<sub>1</sub>) × (1 + f<sub>2</sub>) × (1 + f<sub>3</sub>) × ... × (1 + f<sub>n</sub>) = (1 + YTM<sub>n</sub>) <sup>n</sup> C) f<sub>n</sub> = - 1 D) (1 + YTM<sub>n</sub>) <sup>n</sup> = (1 + YTM<sub>n </sub><sub>- 1</sub>) <sup>n </sup><sup>- 1</sup>(1 + f<sub>n</sub>) - 1
D) (1 + YTMn) n = (1 + YTMn - 1) n - 1(1 + fn)

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