1. When the bond's coupon rate is greater to the bondholder's required return, the bond's intrinsic value will______ its par value, and the bond will trade at a premium.

2. When the bond's coupon rate is less than the bondholder's required return, the bond's intrinsic value will be less than its par value, and the bond will trade at _______

3. Remember, a bond's coupon rate partially determines the interest based return that a bond______ pay, and a bondholder' required return reflects the return that a bondholder______ to receive from a given instrument.

4. Swing Co has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $1,220.35. However, Swing Co may call the bonds in eight years at a call price of $1,060.0

What are the YTM and yield to call (YTC) on Swing Co bonds?

YTM=

YTC=

4A. If interest rates are expected to remain constant, what is the best estimate of the remaining life left for Swing Co Inc's bonds?______

8 years

5 years

10 years

18 years

5. Assume that a $1,000,000 par value, semiannual coupon U.S. Treasury note with 3 years to maturity has a coupon rate of 6%. The yield to maturity of the bond is 11%. Using this information and ignoring the other costs involved calculate the value of the Treasury note:

5A. Assuming that interest rates remain constant the t-notes price is expected to_______.

5B. The T note described is selling at a_____

5C. When valuing a semiannual coupon bond, the time period N in the present value formula used to calculate the price of the bond is treated in terms of_______ periods.

6. Rich is retiring soon, so he is concerned about this investments providing him steady income every year. He is aware that if interest rates______, the potential earnings power of the cash flow from his investments will increase. In particular, he is concerned that a decline in interest rates might lead ot _______ annual income from his investments. What kind of risk is Rich most concerned about protecting against_________?

7. In February 2010 Party City closed all its stores and sold all of its merchandise is an example of______.

8. CDC announced that it launched a USD 1 Billion 5-year Global bond, the first global bond of its size in its corporate history. The global bond was issued to support CDC funding needs, thereby enabling CDC to support more Canadian exporters and investors to do more business internationally and help grow Canada's export trade. Such bonds have the same risk profiles as government bonds but pay a premium. Which bond best describes this example____________.

9. You heard that rating agencies have downgraded a bond's ratings. The yield on the bond is likely to ______ and the bond's price will _________.

10. Assume you make the following investments:

-10,000 investment in a 10-year T-bond that has a yield of 13%

-20,000 investment in a 10-year corporate bond with an A rating and a yield of 13%

10A. What is the estimate of the corporate bond's default risk premium? _______-

11. NYC issued a general obligation bond for a canal in 1912. It was the first formal debt instrument with a fixed repayment schedule issued by a city.

11A. Who is the issuer of the bonds?_____

a. Bank of New York

b. Federal Reserve Bank of New York

c. The New York City government

11B. What type of bonds are these?_______

a. Corporate

b. Treasury

c. Municipal

12. George bought JCP Inc convertible bonds at par ($1,000) with a yield of 3.25%. This bond had a conversion ratio of 25:1 at the price of $40 per share. If JCP shares are currently trading at $28 per share, should George convert his bond into shares? ____

12A. Which of the following companies would you choose to evaluate if you were using the discounted dividend model to estimate the value of the company's stock?_______

Company that is in a high-growth stage and plans to retain all its earnings for the next few years to support its growth

Company that has been distributing a portion of their earnings every quarter for the past six years

Company that is in a low-growth stage and plans to get rid of all its earnings for the next few years to support its growth

13. The following graph shows the value of a stock's dividends over time. The stock's current dividend is $1.00 and dividends are expected to grow at a constant rate of 2.70% per year. The intrinsic value of a stock should equal the sum of the PV of all of the dividends that a stock is supposed to pay in the future, but many people find it difficult to imagine adding up an infinite number of dividends.

13A. Calculate the PV of the dividend paid today (Do) and the PV of the dividends expected to be paid 10 and 20 years from now (D10 and D20). Assume that the stocks required return is5.40%

Time Period	Dividend's Expected Future Value	Expected Dividend's Present Value
Now	N/A
End of Year 10
End of Year 20