ABC wants to issue 8-year, zero coupon bonds that yield 6.94 percent.

| March 14, 2016

Question 1

ABC has issued a bond with the following characteristics:

Par: $1,000; Time to maturity: 13 years; Coupon rate: 11%;

Assume annual coupon payments. Calculate the price of this bond if the YTM is 10.44%

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 2

ABC wants to issue 8-year, zero coupon bonds that yield 6.94 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 = 0Note: 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 3

ABC’s Inc.’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 has issued a bond with the following characteristics:

Par: $1,000; Time to maturity: 16 years; Coupon rate: 11%;

Assume semi-annual coupon payments. Calculate the price of this bond if the YTM is 11.69%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 5

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 6

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 7

You paid $1,183 for a corporate bond that has a 5.38% 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 8

A premium bond is a bond that:

is selling for less than par value.

has a market price which exceeds the face value.

has a par value which exceeds the face value.

is callable within 12 months or less.

has a face value in excess of $1,000.

Question 9

The 10.4 percent, $1,000 face value bonds of Tim McKnight, Inc., are currently selling at $1,001.77. 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 10

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 11

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

par value bond.

discount bond.

debenture.

premium bond.

perpetuity.

Question 12

Stealers Wheel Software has 9.99% coupon bonds on the market with nine years to maturity. The bonds make semi-annual payments and currently sell for 104.68% 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 13

The 14.11 percent coupon bonds of the Peterson Co. are selling for $855.87. 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 14

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 15

ABC’s bonds 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 16

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?

Question 17

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.

Answer

Question 18

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

Answer

face value

back-end amount

coupon rate

discount amount

coupon

Question 19

ABC has issued a bond with the following characteristics:

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

Assume semi-annual coupon payments. Calculate the price of this bond if the YTM is 6.28%

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.

Answer

Question 20

Assume that you wish to purchase a 12-year bond that has a maturity value of $1,000 and a coupon interest rate of 8%, paid semiannually. If you require a 4.03% 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.

Answer

Question 21

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

Answer

current yield

liquidity premium

risk premium

yield to maturity

call yield

Question 22

A discount bond has a yield to maturity that:

Answer

exceeds the coupon rate.

equals zero.

is equal to the current yield.

is less than the coupon rate.

equals the bond’s coupon rate.

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