Question
1A) Which of the following bonds would offer the lowest coupon rate if they were sold to the public today at par value? a. 15-year
1A) Which of the following bonds would offer the lowest coupon rate if they were sold to the public today at par value?
a. | 15-year AAA-rated corporate bond | |
b. | 15-year BAA-rated corporate bond | |
c. | 15-year U.S. Treasury bond | |
d. | 15-year CCC-rated corporate bond |
1B) Paraground Studios is issuing a 10.5% annual coupon rate bond that matures on December 31, 2022. The face value of the bond is $1,000. If the required rate of return is 9%, what is the current value of the bond assuming the date today is December 31, 2013?
a. | $1,096.26 | |
b. | $1,089.93 | |
c. | $1,000.00 | |
d. | $909.78 |
1C) Which of the following statements correctly describes the relationship between existing bonds and interest rates?
a. | The price of an existing bond has an inverse relationship with interest rates; bond prices decrease when interest rates increase. | |
b. | If interest rates do not change, as the time approaches 0 (i.e. the bond approaches maturity) the price of the bond will drop. | |
c. | There is no relationship between the price of existing bonds and interest rates. | |
d. | The price of an existing bond has a direct relationship with interest rates; bond prices increase when interest rates increase |
1D) What is the yield to maturity for a $10,000, 7% annual coupon bond that pays annually and matures in 8 years if the current price is $9,637.00?
a. | 6.67% | |
b. | 7.62% | |
c. | 7.00% | |
d. | 8.64% |
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