Part I: True or false (no explanation required) If the current yield on a bond i

Question

Part I: True or false (no explanation required)

If the current yield on a bond is higher than the coupon rate then its price is less than its par value.

A US equity mutual fund that last year had = 0 underperformed over that period.

A US bond mutual fund that last year had a Sharpe ratio = 0 underperformed over that period.

If we sell a fully depreciated asset for $10,000 and our tax rate is 30%, the resulting after-tax cash flow is $7,000.

The average EBITDA multiple for real estate is higher than for computer software.

A firm will increase its market value only if its EVA > WACC.

On November 7, 2013, the Twitter IPO ended the day at $44.90. In determining the proper price for a Twitter share a reasonable approach would be to use a net income multiple.

Portfolio C is composed of equal investment in (normally distributed) assets A and B. The of C is the average of the betas of assets A and B.

Portfolio C is composed of equal investment in (normally distributed) assets A and B. The Sharpe ratio of C is the average of the Sharpe ratios of assets A and B.

As the maturity date for a zero coupon bond approaches, its price normally rises.

Explanation / Answer

1)

If the current yield on a bond is higher than the coupon rate then its price is less than its par value

This statement is TRUE.

Bond yield and price has inverse relationship. If bond price is less than the face value, yield will be higher than the coupon rate and vice-versa.

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