7. Which of these statements answers why bonds are known as fixed income securit

Question

7. Which of these statements answers why bonds are known as fixed income securities? A. Investors on fixed incomes buy them B. Investors know how much they will receive in interest payments C. Investors will not receive their fixed principal when the bond matures at a fixed date D. All of these 8. Calculate the price of an 8% coupon bond with 6 years left to maturity and a YTM of 3%. (Assume interest payments are semiannual and par value is $1,000.) A. $1,1122.55 B. $1,1142.72 C. $1,272.69 D. None of the above 9. Which of the following determines the dollar amount of interest paid to bondholders? A. Original issue discount B. Call premium C. Coupon rate D. Market rate 10. Which of following is true: A. NPV = 0 when WACC = IRR B. IRR=0 when NPV=wACC C. WACC-0 when IRR = NPV D. None of the above 11, As of today, AMZN's WACC = 10.6% and AAPL's wACC = 9.896. Both AMZN (Amazon) and AAPL (Apple) are publicly traded companies. This means: A. AMZN's stock is more expensive than AAPL's stock. B. The coupon on a bond AAPL issues today would be 9.8%. C. AMZN is expected to grow faster than AAPL. D. The market expects a higher return on investment from AMZN than AAPL. 12. An NPV of $100K means: A. The project has $100K in revenue. B. The project has $100K in profit. C. The project is expected to have $100K in revenue. D. The project is expected to have $100K in profit.

Explanation / Answer

7) Option B
Bonds are called fixed income securities because investors have the information about the rate of interest they will receive on investment known well in advance.
8)

9. option C is correct (coupon rate)
10. option A is correct
11 .option d is correct

Face value (FV) $1,000.00 Coupon rate = 8%/2 4.00% Coupon Payment = $1000 x 4% $40.00 Period = 6 * 2 12 YTM 1.50% Current price = PV(1.5%,12,-400 ,-1000) $1,272.69

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