34) The Franklin Company issued a 6% bordthree years ago at par value. The man t

Question

34) The Franklin Company issued a 6% bordthree years ago at par value. The man tntre comparable bonds today is 5%. The Franklin and the bond sells at a Company bond currently pays a year in nterest A) $60, discount B) $60; premium C) $50; discount D) $50; premium 35) The most widely used calculated measure of interest rate in bond markets is the A) coupon rate. B) discount rate. C) yield to maturity. D) current yield. 36) If an investor pays $1,025 for a bond with a face value of $1,000, it follows that the current yield is than the coupon rate, and the investor will realize a capital if he holds the bona until maturity A) greater, gain B) less; gain C) greater, loss D) less; loss A) lower, lowerveld to maturity implies a D) None of the above. 38) If the yield on short-term securities is greater than the yield on comparable long-term securities, the 37) A B) higher; lower C) higher; higher yield curve will have a A) positive slope. B) negative slope. C) constant slope. D) zero slope. 39) A negatively sloped yield curve indicates that the economy A) is likely to show strong growth in the coming months. B) will not change noticeably in the coming months. C) is likely to show significant weakness in the coming months. D) None of the above.

Explanation / Answer

34 ) if the coupon is greater than ytm(5%) then the bond sells at premium , if it is less than ytm then it sells at discount so in option b coupon 6% (60$ on 1000 par) is greater than 5% hence it sells at premium (option b is correct)

35) option c yield to maturity (ytm)

36) option a as price is greater than par (1025>1000) coupon is greater than ytm

37)option b yield and price are inversely proportional

38) option a positive slope as yield are smaller now and gretaer in future

39)option c

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