1- Nesmith Corporation's outstanding bonds have a $1,000 par value, a 9% semiannual coupon, 6 years to maturity, and a 13% YTM. What is the bond's price? Round your answer to the nearest cent.

2-

A firm's bonds have a maturity of 12 years with a $1,000 face value, have an 8% semiannual coupon, are callable in 6 years at $1,065.40, and currently sell at a price of $1,123.13. What are their nominal yield to maturity and their nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places.

YTM: %

YTC: %

What return should investors expect to earn on these bonds?

Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.

Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.

Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.

Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.

-Select-

3-

An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 11% annual coupon. Bond L matures in 20 years, while Bond S matures in 1 year.

What will the value of the Bond L be if the going interest rate is 6%, 8%, and 12%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 20 more payments are to be made on Bond L. Round your answers to the nearest cent.

	6%	8%	12%
Bond L	$	$	$
Bond S	$	$	$

Why does the longer-term bonds price vary more than the price of the shorter-term bond when interest rates change?

The change in price due to a change in the required rate of return increases as a bond's maturity decreases.

Long-term bonds have greater interest rate risk than do short-term bonds.

The change in price due to a change in the required rate of return decreases as a bond's maturity increases.

Long-term bonds have lower interest rate risk than do short-term bonds.

Long-term bonds have lower reinvestment rate risk than do short-term bonds.

4-

An investor purchased the following five bonds. Each bond had a par value of $1,000 and a 11% yield to maturity on the purchase day. Immediately after the investor purchased them, interest rates fell, and each then had a new YTM of 7%. What is the percentage change in price for each bond after the decline in interest rates? Fill in the following table. Enter all amounts as positive numbers. Do not round intermediate calculations. Round your monetary answers to the nearest cent and percentage answers to two decimal places.

	Price @ 11%	Price @ 7%	Percentage Change
10-year, 10% annual coupon	$	$	%
10-year zero
5-year zero
30-year zero
$100 perpetuity

4-

Seven years ago the Templeton Company issued 22-year bonds with a 12% annual coupon rate at their $1,000 par value. The bonds had a 7% call premium, with 5 years of call protection. Today Templeton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places.

%

Why should or should not the investor be happy that Templeton called them?

Investors should be happy. Since the bonds have been called, interest rates must have risen sufficiently such that the YTC is greater than the YTM. If investors wish to reinvest their interest receipts, they can now do so at higher interest rates.

Investors should be happy. Since the bonds have been called, investors will receive a call premium and can declare a capital gain on their tax returns.

Investors should be happy. Since the bonds have been called, investors will no longer need to consider reinvestment rate risk.

Investors should not be happy. Since the bonds have been called, interest rates must have fallen sufficiently such that the YTC is less than the YTM. If investors wish to reinvest their interest receipts, they must do so at lower interest rates.

-Select-