1A)

What happens to the Present Value (PV) of a fixed amount to be received in 15 years if your rate of return decreases?

a. The PV goes to infinity

b. The PV decreases

c. The PV increases

d. The PV doesn't change

1B)

What happens to the Present Value (PV) of a fixed amount if the length of time shrinks from 10 to 5 years, but the rate stays the same?

The PV increases

The PV decreases

The PV goes to infinity

The PV doesn't change

1C)

The last bond issued by the Borg Face Plate Manufacturing Company was a series of $1,000 face value bonds which paid an 8.5% coupon. These bonds have a maturity date 5 years from today and make semi-annual payments. They currently have a yield to maturity of 12.34%. What will happen to the price of the bond if the market interest rate suddenly decreases to 7.41%?

The bond price will increase and trade at a premium.

The bond price will decrease and trade at a discount.

The bond price will decrease but still trade at a premium.

The bond price will increase but still trade at a discount.

The bond price will remain unchanged.

ANSWER