#1. Determine the amount you would be willing to pay for an 8% semi-annual bond
ID: 2773990 • Letter: #
Question
#1. Determine the amount you would be willing to pay for an 8% semi-annual bond maturing in 12 years, assuming you wanted to earn a 9% rate of return
A. 928
B. 942
C. 1114
D. 969
#2. The State of Adaven issued perpetual bonds in 1960. The bonds pay forever an annual coupon interest rate of 5%. Determine the value of these bonds today to an investor who requires a 10% return on his investment.
A. 250
B. 700
C. 100
D. 500
#3. Junk bonds are…
A. Usually rated BBB or higher
B. Considered investment grade bonds
C. Always issued with coupon rates at least 8% or more above Treasury Bill rates
D. None of the above
#4. Two years ago, Trans-Atlantic Airlines sold $250 million worth of bonds at $1,000 each. These semi-annual bonds had a maturity of 12 years and a coupon rate of 12.5%. Today these bonds are selling for $1,000. Determine the yield-to-maturity.
A. 13.24%
B. 5.59%
C. 13.72%
D. 10.84%
#5. A semi-annual pay bond is on the market with 10.5 years to maturity, YTM of 8% and a current price of $1,075. What must be the bond’s coupon rate?
A. 8.53%
B. 9.07%
C. 9.34%
D. 8.78%
Explanation / Answer
#1. Determine the amount you would be willing to pay for an 8% semi-annual bond maturing in 12 years, assuming you wanted to earn a 9% rate of return
Bond Value = pv(rate, nper,pmt,fv)
Nper (indicates the semi annual period) = 12*2 = 24
PV (indicates the price) = ?
PMT (indicate the semi annual payment) = 1000*8%*1/2 = 40
FV (indicates the face value) = 1000
Rate (indicates Half year YTM) = 9%*1/2 = 4.5%
Bond Value = pv( 4.5%,24,40,1000)
Bond Value = $ 928
Answer
A. 928
#2. The State of Adaven issued perpetual bonds in 1960. The bonds pay forever an annual coupon interest rate of 5%. Determine the value of these bonds today to an investor who requires a 10% return on his investment.
Value of these bonds = Annual Coupon/Required return
Value of these bonds = (5%*1000)/10%
Value of these bonds = 500
Answer
D. 500
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