Question 1 2 pts If the yield curve is upward sloping, or normal, short-term rat
ID: 2626501 • Letter: Q
Question
Question 1
2 pts
If the yield curve is upward sloping, or normal, short-term rates are higher than longer-term rates.
True or False
Question 2
2 pts
If the market rate of interest (required return or YTM) on a bond is less than the bond's coupon rate the bond's current market price will be less than par (face).
True or False
Question 3
2 pts
If you looked at the bond trading pages online or in the newspaper and saw a bond price quote for a $1,000 par value bond of "96.500" you would know the actual dollar price of the bond was:
$96.50
$965
$9,650
$96,500
$1,000
Question 4
2 pts
All other things being equal, the higher a bonds yield to maturity (YTM), the lower will be its price.
True or False
Question 5
2 pts
A basic characteristic of all bonds is that both the Coupon Interest Rate and the Yield to Maturity (YTM) can be expected to change during the life of the bond as economic conditions and investors' expectations change
True or False
Question 6
2 pts
MCI has issued a 7 1/4% coupon interest rate bond that matures in five years. If the yield on other bonds of similar risk and maturity is 9%, what is the present value of the bond? (Assume the coupon interest payments are paid annually.)
About $282
About $650
About $932
About $1000
Question 7
2 pts
A bond matures in 12 years, and pays 8 percent coupon interest annually. The bond has a face value of $1,000, and currently sells for $985. What is the bond's current yield and yield to maturity?
Current yield = 8.00%; yield to maturity = 7.92%.
Current yield = 8.12%; yield to maturity = 8.20%.
Current yield = 8.20%; yield to maturity = 8.37%.
Current yield = 8.12%; yield to maturity = 8.37%.
Current yield = 8.12%; yield to maturity = 7.92%.
Question 8
2 pts
A 20-year bond with a par value of $1,000 and pays 9 percent coupon interest annually. The bond currently sells for $925. If the bond's yield to maturity remains at its current rate, what will be the price of the bond 5 years from now?
$966.79
$831.35
$1,090.00
$933.09
$925
Question 9
2 pts
You may have heard of zero coupon bonds (zero-coupon bonds pay their owners $1,000 at maturity and involve no other cash flows other than the purchase price). If you bought a zero coupon bond for $300, held the bond for 10 years, and then cashed it in for $1,000 at the end of the 10th year, what average annual rate of return would you realize on your investment?
30%
233%
113%
1.28%
12.79%
Question 10
2 pts
In the newspaper one of Microsoft's bonds is listed as follows: Microsoft 7 30
According to this listing
The bond was issued on July 30 (7/30).
The bond matures in 7 years and it's yield if held to maturity is 30%.
The coupon interest rate for this bond is 7% and it matures in 2030.
The yield to maturity (YTM) for this bond is 7% and it matures in 30 years.
$96.50
$965
$9,650
$96,500
$1,000
Explanation / Answer
1. False
2. False
3. $965.00 -
4 .True
5. False
6. About $932 - Excel "PV" Finance formula where Rate = 0.09, NPER = 5, PMT = 72.50, FV = 1000
7. Current yield = 8.12% and Yeild to maturity = 8.20% - 80/985 = 0.0812. Then in Excel use the "Rate" Finance formula where NPER = 12, PMT = 80, PV = -985, and FV = 1000
8. 933.09
9. 12.79% - Excel "Rate" finance formula where NPER = 10, PMT = 0, PV = -300, and FV = 1000
10. The coupon interest rate for this bond is 7% and it matures in 2030.
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