1. AcmeCorporation's bonds have a 15-year maturity, a 7.25% semiannual coupon, and a par value of $1,000. The going interest rate is 6.20%, based on semiannual compounding. What is the bonds price?

a.$1,047.19 b.$1,074.05 c.$1,101.58 d.$1,129.12 e.$1,157.35

2. Generally, new bond issues are issued close to par, therefore the coupon rate is set to be similar to discount rate used by market participants looking at bonds of similar default risk,maturity, and other characteristics listed in the bond indenture.

a.True b.False

3. Suppose that a ten-year maturity bond with $1,000 face value and 10% annual coupon is available for $800. You should buy this bond if your required rate for this type of bond is 14%? Hint: Do the math and price the bond!

a.True b.False

4. Junk bonds are bonds of firms that are in the middle of a financial crisis, therefore they should be avoided by prudent investors.

a.True b.False