Question 1

Rogue Outfitters Inc.has outstanding $1,000 face value 12% coupon bonds that make semiannual payments,and have 8 years remaining to maturity.If the current price for these bonds is $1,274.35,what is the annualized yield to maturity?

Accepted Answer

Using a financial calculator or Excel, inputting the given information yields an annualized yield to maturity of 7.40%. Therefore, the best choice is B.

Question 2

Rogue Outfitters Inc.has outstanding $1,000 face value 8% coupon bonds that make semiannual payments,and have 14 years remaining to maturity.If the current price for these bonds is $1,118.74,what is the annualized yield to maturity?

Accepted Answer

The annualized yield to maturity is 6.68%. This is calculated using the following formula:YTM = (C + (FV - PV) / N) / ((FV + PV) / 2)where:C = coupon paymentFV = face valuePV = present valueN = number of periods to maturityIn this case, the coupon payment is $80 (8% of $1,000), the face value is $1,000, the present value is $1,118.74, and the number of periods to maturity is 14 * 2 = 28 (since the bonds make semiannual payments).Plugging these values into the formula, we get:YTM = (80 + (1000 - 1118.74) / 28) / ((1000 + 1118.74) / 2)= (80 - 35.34) / 1059.37= 0.0668= 6.68%

Question 3

MicroMedia Inc.$1,000 par value bonds are selling for $832.Which of the following statements is TRUE?

Accepted Answer

The bonds are selling at a discount (below par value), indicating that the yield to maturity is greater than the coupon rate. Therefore, none of the statements A, B, or C are true.

Question 4

If the par value of a bond is equal to the bond price,then we know the yield to maturity is equal to the coupon rate.

Accepted Answer

This is true because when the bond price equals the par value, it means the bond is selling at its face value or its original issue price. In this case, the yield to maturity will be equal to the coupon rate, as the bond holder will receive the same periodic interest payments as stated in the coupon rate until maturity.

Question 5

MacroMedia Inc.$1,000 par value bonds are selling for $1,265.Which of the following statements is TRUE?

Accepted Answer

The bond is selling for more than its par value, indicating it is at a premium. This suggests the market requires a yield less than the coupon rate, meaning the coupon rate is greater than the yield to maturity. Therefore, all statements are true.

Question 6

Rogue Outfitters Inc.has outstanding $1,000 face value 4% coupon bonds that make semiannual payments,and have 10 years remaining to maturity.If the current price for these bonds is $938.57,what is the annualized yield to maturity?

Accepted Answer

The annualized yield to maturity is 4.78%. This is calculated using the following formula:YTM = (C + (FV - PV) / N) / ((FV + PV) / 2)where:C = coupon paymentFV = face valuePV = present valueN = number of periods to maturityIn this case, the coupon payment is $40 (4% of $1,000), the face value is $1,000, the present value is $938.57, and the number of periods to maturity is 10 * 2 = 20 (since the bonds make semiannual payments).Plugging these values into the formula, we get:YTM = (40 + (1000 - 938.57) / 20) / ((1000 + 938.57) / 2)= (40 + 61.43 / 20) / ((1000 + 938.57) / 2)= (40 + 3.07) / (969.29 / 2)= 43.07 / 484.65= 0.0889= 8.89%Since the bonds make semiannual payments, we need to divide the annualized yield by 2 to get the semiannual yield. Therefore, the semiannual yield is 8.89% / 2 = 4.445%.

Question 7

When the ________ is less than the yield to maturity,the bond sells at a/the ________ the par value.

Accepted Answer

When the coupon rate is less than the yield to maturity, the bond sells at a discount to the par value.

Question 8

The ________ is the interest rate printed on the bond.

Accepted Answer

The coupon rate is the interest rate printed on the bond. The other options are not the interest rate printed on the bond.

Question 9

The Douglas Dynamics Corporation $1,000 par value,15% annual coupon bonds,have 6 years remaining to maturity and are currently selling for $938.45.What is the firm's yield to maturity for these bonds?

Accepted Answer

The answer of The Douglas Dynamics Corporation $1,000 par value,15%...

Question 10

Franklin Framing Inc.has twenty years remaining on $1,000 par value semiannual coupon bonds paying semiannual coupons of $40.If the yield to maturity on these bonds is 6% per year,what is the current price?

Accepted Answer

The answer of Franklin Framing Inc.has twenty years remaining on...

Question 11

Rogue Outfitters Inc.has outstanding $1,000 face value 8% coupon bonds that make semiannual payments,and have 14 years remaining to maturity.If the current price for these bonds is $987.24,what is the annualized yield to maturity?

Accepted Answer

The yield to maturity (YTM) can be calculated using the bond price, coupon rate, and time to maturity. Given the bond's price of $987.24, a face value of $1,000, a coupon rate of 8% (which means $40 every six months), and 28 periods (14 years semiannually), the YTM is approximately 8.15% when annualized.

Question 12

Complete the following zero-coupon amortization schedule.

Accepted Answer

The answer of Complete the following zero-coupon amortization schedule. ...

Question 13

Which of the following statements about the relationship between yield to maturity and bond prices is FALSE?

Accepted Answer

When interest rates go up, bond prices go down.

Question 14

Complete the following zero-coupon amortization schedule.

Accepted Answer

The answer of Complete the following zero-coupon amortization schedule. ...

Question 15

Zero-coupon bonds are priced at steep premiums.

Accepted Answer

Zero-coupon bonds are priced at discounts, not premiums. Because they do not pay interest, their value at maturity must be less than the face amount to compensate investors for the lack of interest payments.

Question 16

When the coupon rate is less than the yield to maturity,the bond sells for a premium over the par value.

Accepted Answer

When the coupon rate is less than the yield to maturity, the bond sells at a discount below the par value, not at a premium.

Question 17

Mountain Treks Inc.has issued ten-year zero-coupon bonds with a $1,000 face value.If the bonds are currently selling for $514.87,what is the yield to maturity?

Accepted Answer

The yield to maturity (YTM) for a zero-coupon bond can be calculated using the formula: YTM = [(Face Value / Present Value)^(1/n)] - 1, where n is the number of years to maturity. Plugging in the given values: YTM = [(1000 / 514.87)^(1/10)] - 1 = 0.0675 or 6.75%.

Question 18

The ________ is a market derived interest rate used to discount the future cash flows of the bond.

Accepted Answer

The yield to maturity (YTM) is the market-derived interest rate used to discount the future cash flows of the bond. It takes into account the current market price of the bond, the coupon rate, and the time to maturity. The coupon rate is simply the stated annual interest rate on the bond, while the semiannual coupon rate is the coupon rate divided by two (since most bonds pay semiannual coupons). The compound rate is not specific to bonds and is a general term for an interest rate that is compounded over time.

Question 19

The Bonsai Nursery Corporation has $1,000 par value bonds with a coupon rate of 8% per year making semiannual coupon payments.If there are twelve years remaining prior to maturity and these bonds are selling for $876.40,what is the yield to maturity for these bonds?

Accepted Answer

First, we need to calculate the semiannual coupon payment:
Coupon payment = ($1,000 par value) x (8% annual coupon rate / 2 semiannual periods) = $40
Next, we need to calculate the total number of semiannual coupon periods:
Number of semiannual periods = (12 years) x (2 semiannual periods per year) = 24 semiannual periods
Then, we can use the bond pricing formula to solve for the yield to maturity (YTM):
Bond price = (Coupon payment / YTM) x [1 - 1 / (1 + YTM)^n] + (Par value / (1 + YTM)^n)
$876.40 = ($40 / YTM) x [1 - 1 / (1 + YTM)^24] + ($1,000 / (1 + YTM)^24)
Using trial and error or a financial calculator, we can solve for YTM = 9.77%. Therefore, the correct answer is choice C, 9.77%.

Question 20

Ringtones Inc.wishes to issue new bonds but is uncertain how the market would set the yield to maturity.The bonds would be 20-year,7% annual coupon bonds with a $1,000 par value.The firm has determined that these bonds would sell for $1,050 each.What is the yield to maturity for these bonds?

Accepted Answer

The yield to maturity is the annual rate of return an investor can expect to receive if they hold the bond until maturity. It is calculated using the following formula:YTM = (C + (FV - PV) / N) / ((FV + PV) / 2)Where:C = annual coupon paymentFV = face value of the bondPV = present value of the bondN = number of years to maturityIn this case, the annual coupon payment is $70 (7% x $1,000), the face value of the bond is $1,000, the present value of the bond is $1,050, and the number of years to maturity is 20. Plugging these values into the formula, we get:YTM = (70 + (1,000 - 1,050) / 20) / ((1,000 + 1,050) / 2)YTM = (70 - 25) / 1,025YTM = 45 / 1,025YTM = 0.0439YTM = 4.39%

Quiz 6: Bonds and Bond Valuation

Rogue Outfitters Inc.has outstanding $1,000 face value 12% coupon bonds that make semiannual payments,and have 8 years remaining to maturity.If the current price for these bonds is $1,274.35,what is the annualized yield to maturity?

Rogue Outfitters Inc.has outstanding $1,000 face value 8% coupon bonds that make semiannual payments,and have 14 years remaining to maturity.If the current price for these bonds is $1,118.74,what is the annualized yield to maturity?

MicroMedia Inc.$1,000 par value bonds are selling for $832.Which of the following statements is TRUE?

If the par value of a bond is equal to the bond price,then we know the yield to maturity is equal to the coupon rate.

MacroMedia Inc.$1,000 par value bonds are selling for $1,265.Which of the following statements is TRUE?

Rogue Outfitters Inc.has outstanding $1,000 face value 4% coupon bonds that make semiannual payments,and have 10 years remaining to maturity.If the current price for these bonds is $938.57,what is the annualized yield to maturity?

When the is less than the yield to maturity,the bond sells at a/the the par value.

The ________ is the interest rate printed on the bond.

The Douglas Dynamics Corporation $1,000 par value,15% annual coupon bonds,have 6 years remaining to maturity and are currently selling for $938.45.What is the firm's yield to maturity for these bonds?

Franklin Framing Inc.has twenty years remaining on $1,000 par value semiannual coupon bonds paying semiannual coupons of $40.If the yield to maturity on these bonds is 6% per year,what is the current price?

Rogue Outfitters Inc.has outstanding $1,000 face value 8% coupon bonds that make semiannual payments,and have 14 years remaining to maturity.If the current price for these bonds is $987.24,what is the annualized yield to maturity?

Complete the following zero-coupon amortization schedule.

Which of the following statements about the relationship between yield to maturity and bond prices is FALSE?

Complete the following zero-coupon amortization schedule.

Zero-coupon bonds are priced at steep premiums.

When the coupon rate is less than the yield to maturity,the bond sells for a premium over the par value.

Mountain Treks Inc.has issued ten-year zero-coupon bonds with a $1,000 face value.If the bonds are currently selling for $514.87,what is the yield to maturity?

The ________ is a market derived interest rate used to discount the future cash flows of the bond.

The Bonsai Nursery Corporation has $1,000 par value bonds with a coupon rate of 8% per year making semiannual coupon payments.If there are twelve years remaining prior to maturity and these bonds are selling for $876.40,what is the yield to maturity for these bonds?

Ringtones Inc.wishes to issue new bonds but is uncertain how the market would set the yield to maturity.The bonds would be 20-year,7% annual coupon bonds with a $1,000 par value.The firm has determined that these bonds would sell for $1,050 each.What is the yield to maturity for these bonds?