5. The _ is the interest rate printed on the bond. a) Coupon rate b) Semiannual

Question

5. The _ is the interest rate printed on the bond.
a) Coupon rate
b) Semiannual coupon rate
c) yield to maturity
d) compound rate

6. A _ is an unsecured bond, and most of the bond sold today in the united state are of this typr.
a) Mortgage bond
b) Debenture
c) senior bond
d) bond indenture

11. Five years ago, Simpson Warehouse Inc. issued twenty-five year 10% annual coupon bonds with a $1,000 face value each. Since then, interest rates in genral have risen and the yield to maturity on the Thompson bonds is now 12%. Given this information, what is the price today for a Thompson Tarps bond?
a) $843.14
b) $850.61
c) $1,181.54
d) $1,170.27

Explanation / Answer

5.

a) Coupon rate

Coupon rate is printed on bond which is committed by issuer to investors.

6.

b) Debenture

Debentures are unsecured.

11.

Correct option is > b) $850.61

Using financial calculator BA II Plus - Input details:

#

I/Y = R = Rate or yield / frequency of coupon in a year =

                   12.000000

PMT = Coupon rate x FV / frequency =

-$100.00

N = Number of years remaining x frequency =

20

FV = Future Value =

-$1,000.00

CPT > PV = Present value of bond =

$850.61

Formula for bond value = |PMT| x ((1-((1+R%)^-N)) / R%) + (|FV|/(1+R%)^N)

$850.61

Using financial calculator BA II Plus - Input details:

#

I/Y = R = Rate or yield / frequency of coupon in a year =

                   12.000000

PMT = Coupon rate x FV / frequency =

-$100.00

N = Number of years remaining x frequency =

20

FV = Future Value =

-$1,000.00

CPT > PV = Present value of bond =

$850.61

Formula for bond value = |PMT| x ((1-((1+R%)^-N)) / R%) + (|FV|/(1+R%)^N)

$850.61

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