WEEK 6 STUDY GUIDE

QUESTION 1

The 8 percent coupon bonds of the Peterson Co. are selling for 98 percent of par value. The bonds mature in 5 years and pay interest semi-annually. These bonds have a yield to maturity of _____ percent.

QUESTION 2

The11.82 percent, $1,000 face value bonds of Tim McKnight, Inc., are currently selling at $930.02. What is the current yield?

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box.For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

QUESTION 3

ABC'sInc.'s bonds currently sell for $1,280 and have a par value of $1,000.They pay a $135 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,050.What is their yield to call (YTC)?

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box.For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

QUESTION 4

ABC Inc., has $1,000 face value bonds outstanding. These bonds mature in 3 years, and have a 6.5 percent coupon. The current price is quoted at 98.59 percent of par value. Assume semi-annual payments. What is the yield to maturity?

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box.For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

QUESTION 5

ABC Corp. issued 15-year bonds 2 years ago at a coupon rate of 10.6%. The bonds make semi-annual payments. If these bonds currently sell for 97% of par value, what is the YTM?

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box.For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

QUESTION 6

ABChas issued a bond with the following characteristics:

Par: $1,000;Time to maturity:12 years;Coupon rate: 11%;

Assume semi-annual coupon payments.Calculate the price of this bond if the YTM is 9.7%

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box.For example, if your answer is $12.345 then enter as 12.35 in the answer box.

QUESTION 7

ABChas issued a bond with the following characteristics:

Par: $1,000;Time to maturity:15 years;Coupon rate: 11%;

Assume semi-annual coupon payments.Calculate the price of this bond if the YTM is 5.35%

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box.For example, if your answer is $12.345 then enter as 12.35 in the answer box.

QUESTION 8

ABChas issued a bond with the following characteristics:

Par: $1,000;Time to maturity:9 years;Coupon rate: 7%;

Assume annual coupon payments.Calculate the price of this bond if the YTM is 4.81%

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box.For example, if your answer is $12.345 then enter as 12.35 in the answer box.

QUESTION 9

The yield to maturity on a Marshall Co. premium bond is 7.6 percent. This is the:

nominal rate.
effective rate.
real rate.
current yield.
coupon rate.

QUESTION 10

The12.45 percent coupon bonds of the Peterson Co. are selling for$1,194.51. The bonds mature in 5 years and pay interest semi-annually. These bonds have current yield of _____ percent.

Enter your answer in percentages rounded off to two decimal points.

QUESTION 11

Assume that you wish to purchase a 19-year bond that has a maturity value of $1,000 and a coupon interest rate of 10%, paid semiannually. If you require a 8.29% rate of return on this investment (YTM), what is the maximum price that you should be willing to pay for this bond? That is, solve for PV.

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box.For example, if your answer is $12.345 then enter as 12.35 in the answer box.

QUESTION 12

ABC'sbonds have a 9.5 percent coupon and pay interest semi-annually. Currently, the bonds are quoted at 106.315 percent of par value. The bonds mature in 8 years. What is the yield to maturity?

QUESTION 13

The rate required in the market on a bond is called the:

liquidity premium
call yield
risk premium
yield to maturity
current yield

QUESTION 14

You paid $888 for a corporate bond that has a 4.54% coupon rate. What is the current yield?

Hint: if nothing is mentioned, then assume par value = $1,000

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box.For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

QUESTION 15

A discount bond has a yield to maturity that:

exceeds the coupon rate.
equals zero.
is equal to the current yield.
is less than the coupon rate.
equals the bond's coupon rate.

QUESTION 16

The principal amount of a bond that is repaid at the end of term is called the par value or the:

back-end amount
coupon rate
coupon
discount amount
face value

QUESTION 17

Stealers Wheel Software has 5.25% coupon bonds on the market with nine years to maturity. The bonds make semi-annual payments and currently sell for 109.17% of par. What is the current yield?

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box.For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

QUESTION 18

BCD’s $1,000 par value bonds currently sell for $798.40. The coupon rate is 10%, paid semi-annually. If the bonds have 5 years to maturity, what is the yield to maturity?

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box.For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

QUESTION 19

A bond which sells for less than the face value is called a:

debenture.
par value bond.
premium bond.
discount bond.
perpetuity.

QUESTION 20

A firm's bonds have maturity of 10 years with a $1000 face value, an 8% semi-annual coupon, are callable in 5 years, at $1,050, and currently sells at a price of $1,100. What is the yield to call (YTC)?

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box.For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

QUESTION 21

A premium bond is a bond that:

has a market price which exceeds the face value.
is callable within 12 months or less.
has a face value in excess of $1,000.
is selling for less than par value.
has a par value which exceeds the face value.

QUESTION 22

ABCwants to issue 8-year, zero coupon bonds that yield9.97 percent. What price should they charge for these bonds if they have a par value of $1,000? That is, solve for PV. Assume annual compounding.

Hint: zero coupon bonds means PMT = 0

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box.For example, if your answer is $12.345 then enter as 12.35 in the answer box.

QUESTION 23

Suppose the returns forStock A for last six years was 4%, 7%, 8%, -2%, 9%, and 7%.
Compute the standard deviation of the returns.

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

QUESTION 24

You have observed the following returns on ABC's stocks over the last five years:

4.1%, 8.2%, -11.5%, 11.8%, -3.3%

What is thegeometric average returns on the stock over this five-year period.

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

QUESTION 25

You have observed the following returns on ABC's stocks over the last five years:

3.8%, 8.1%, 4.8%, 10.2%, 8.9%

What is thegeometric average returns on the stock over this five-year period.

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

QUESTION 26

You have observed the following returns on ABC's stocks over the last five years:

3.5%, 8.2%, -13.5%, 12.7%, -2.2%

What is thearithmetic average returns on the stock over this five-year period.

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

QUESTION 27

You have observed the following returns on ABC's stocks over the last five years:

4.9%, 9.3%, 10.3%, 13.3%, 6.4%

What is thearithmetic average returns on the stock over this five-year period.

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.For example, if your answer is 0.12345 then enter as 12.35 in the answer box.