1. A Treasury bond has a 10% annual coupon and a 10.5% yield to maturity. Which of the following statements is CORRECT? * a. The bond sells at a price below par. b. The bond has a current yield less than 10%. c. The bond sells at a discount. d. a & c. e. None of the above 2. J&J Company's bonds mature in 10 years, have a par value of $1,000, and make an annual coupon interest payment of $75. The market requires an interest rate of 8% on these bonds. What is the bond's price? * a. $966.45 b. $925.62 c. $948.76 d. $972.48 e. None of the above 3. Film Co. non-callable bonds currently sell for $1,150. They have a 10-year maturity, an annual coupon of $100, and a par value of $1,000. What is their yield to maturity? * a. 5.84% b. 6.15% c. 7.91% d. 6.81% e. None of the above 4. Tosh. Inc.'s bonds currently sell for $980 and have a par value of $1,000. They pay a $95 annual coupon and have a 12-year maturity, but they can be called in 3 years at $1,150. What is their yield to call (YTC)? * a. 7.73% b. 7.50% c. 7.91% d. 8.12% e. None of the above 5. An investor has a bond with face value of $1000 and coupon rate of 10% and maturity of 5 years, is selling at par. What would be the yield to maturity for this bond? * a. 5% b. 10% c. 6% d. 8% e. None of the above 6. OSM Co. bonds have a 15-year maturity, an 8.4% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 6.40%, based on semiannual compounding. What is the bonds price? * a. $1,047.19 b. $1,074.05 c. $1,191.03 d. $1,129.12 e. None of the above 7. Jack has now $1,000. How much would he have after 6 years if he leaves it invested at 5.5% with annual compounding? * a. $1,378.84 b. $1,622.20 c. $1,654.95 d. $1,678.84 e. None of the above 8. Suppose a State of New Jersey bond will pay $1,000 eight years from now. If the going interest rate on these 8-year bonds is 6%, how much is the bond worth today? * a. $627.41 b. $634.70 c. $645.44 d. $677.71 e. None of the above 9. You plan to invest in bonds that pay 4.0%, compounded annually. If you invest $20,000 today, how many years will it take for your investment to grow to $30,000? * a. 10.34 b. 7.74 c. 8.27 d. 9.97 e. None of the above 10. You just inherited some money, and a broker offers to sell you an annuity that pays $10,000 at the end of each year for 30 years. You could earn 5% on your money in other investments with equal risk. What is the most you should pay for the annuity? * a. $150,753.0 b. $153,724.5 c. $156,236.2 d. $159,195.5 e. None of the above 11. Your father is about to retire, and he wants to buy an annuity that will provide him with $85,000 of income a year for 25 years, with the first payment coming immediately. The going rate on such annuities is 5.15%. How much would it cost him to buy the annuity today? * a. $1,063,968 b. $1,119,966 c. $1,178,912 d. $1,240,960 e. None of the above 12. Your grandmother just died and left you $100,000 in a trust fund that pays 6.5% interest. You must spend the money on your college education, and you must withdraw the money in 4 equal installments, beginning immediately. How much could you withdraw today and at the beginning of each of the next 3 years and end up with zero in the account? * a. $24,736 b. $26,038 c. $27,409 d. $28,779 e. None of the above 13. You inherited an oil well that will pay you $25,000 per year for 25 years, with the first payment being made today. If you think a fair return on the well is 7.5%, how much should you ask for it if you decide to sell it? * a. $284,595 b. $299,574 c. $314,553 d. $330,281 e. None of the above 14. Candia Corporation's 5-year bonds yield 7.00%, and 5-year T-bonds yield 5.15%. The real risk-free rate is r* = 3.0%, the inflation premium for 5-year bonds is IP = 1.75%, the liquidity premium for Candia's bonds is LP = 0.75% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t 1) *0.1%, where t = number of years to maturity. What is the default risk premium (DRP) on Candia's bonds? * a. 1.50% b. 1.56% c. 1.10$ d. 2.09% e. None of the above 15. A 5-year Treasury bonds yield 5.5%. The inflation premium (IP) is 1.9%, and the maturity risk premium (MRP) on 5-year bonds is 0.4%. What is the real risk-free rate, r*? * a. 2.59% b. 2.88% c. 3.55% d. 3.20% e. None of the above 16. Suppose your credit card issuer states that it charges a 15.00% nominal annual rate, but you must make monthly payments, which amounts to monthly compounding. What is the effective annual rate? * a. 15.27% b. 16.08% c. 16.88% d. 17.72% e. None of the above 17. Your colleague has just invested in a discount bond that offers an annual coupon rate of 10%, with interest paid annually. The face value of the bond is $1,000 and the difference between the bonds yield to maturity and coupon rate is 2%. The bond matures in 5 years. What is the bonds price? * a. $808.05 b. $990.50 c. $928 d. $298 e. None of the above 18. AKEA Company has a bond issued outstanding with a 10% semi-annual coupon and 5 years remaining until maturity. The par value of the bond is $1,000 and the yield to maturity is 11%. What would be the price of the bond? * a. $1000 b. $962 c. $1100 d. $850 e. None of the above 19. A bond has a par value of $1,000, a time to maturity of 10 years, and a coupon rate of 8% with interest paid annually. If the current market price is $750, what is the capital gain yield of this bond over the next year? * a. 1.85% b. 8% c. 10% d. 3.5% e. None of the above 20. What is the approximate yield to maturity of a 14 percent coupon rate, $1,000 par value bond priced at $1,160 if it has 16 years to maturity? * a. 10% b. 11.8% c. 14%% d. 20% e. None of the above