attach your scantron to the finished test 1) The cost of a short-term debt gener

Question

attach your scantron to the finished test 1) The cost of a short-term debt generally the cost of a long-term debt. A) is less than B) is equal to C) is greater than D) is less than or equal to 2) Which of the following would typically signal an upcoming recession? A) declining risk spread B) declining term spread C) an upward-sloping yield curve D) increasing term spread 3) A bond that sells below its par value and pays no coupon interest is called a A) junk bond B) floating rate bond C) zero-coupon bond D) subordinated debenture 4) A year ago, Jack invested his savings into corporate bonds. Today, he sold the bonds and calculated his rate of return from this investment. What exact nominal rate of return did he receive, if his purchasing power increased by 7.30% as a result of this investment and the inflation rate during the year was 2.00%? A) 109.45% B) 9.45% C) 4.65% D) 5.30% 5) Calculate the current price of a $1,000 par value bond that has 4 years left until maturity and pays quarterly interest at an annual coupon rate of 8 percent. Assume the annual required return on similar-risk bonds is currently 10 percent. A) $936.60 B) $934.72 C) $922.05 D) $924.18

Explanation / Answer

Question - 1

Short term debt is less risky, ...........since short term means means less risk and long term means more risk.

Question - 2

Declining term spread

Question - 3

Option - C .............Zero coupon bond ...As the term itself indicates, it does not pay any annual interest as there is no promised coupon rate.

Question - 4

Sorry...........hard to understand the question.............may be the question is not properly designed or ........it may be even my inability to understand the real sense of the question.

But at the rate of my knowledge on real and nominal rates, ........I will suggest ........to select the option _ D

i.e 7.30 - 2 = 5.30.......as suggested final answer

Question - 5

Bond price = 20 [ 1 - ( 1.025)-16 ]/ 0.025 + 1000 (1.025) -16

= 261.10 +  673.62 = 934.72 ..............final answer

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