1.LO3

Bond FeaturesMaturity (years)5Face Value =$1,000Coupon Rate =5.00%Coupon dates (Annual)Marketinterest rate today5.00%Time to call (years)3Price if Called$1,050.00Marketinterest rate in Year 34.00%

The above bond is callable in 3 years. When the bond is issued today, interest rates are 5.00% . In 3 years, the market interest rate is 4.00% . Should the firm call back the bonds in year 3 and if so, how much would the firm save or lose by calling back the bonds?

Group of answer choices

no it should not call back the bonds, it will lose $29.58

yes it should call back the bonds, it will save $29.58

no it should not call back the bonds, it will lose $32.07

no it should not call back the bonds, it will lose $31.14

yes it should call back the bonds, it will save $32.07

yes it should call back the bonds, it will save $31.14

2.LO3

Bond FeaturesMaturity (years)5Face Value =$1,000Coupon Rate =5.00%Coupon dates (Annual)Marketinterest rate today5.00%Time to call (years)3Price if Called$1,050.00Marketinterest rate in Year 32.00%

The above bond is callable in 3 years. When the bond is issued today, interest rates are 5.00% . In 3 years, the market interest rate is 2.00% . Should the firm call back the bonds in year 3 and if so, how much would the firm save or lose by calling back the bonds?

Group of answer choices

yes it should call back the bonds, it will save $8.49

yes it should call back the bonds, it will save $7.83

yes it should call back the bonds, it will save $8.25

no it should not call back the bonds, it will lose $8.49

no it should not call back the bonds, it will lose $7.83

no it should not call back the bonds, it will lose $8.25

3.Bond A has the following features:

Face value = $1,000,

Coupon Rate = 4%,

Maturity = 5 years, Yearly coupons

The market interest rate is 3.14%

What is today's price of bond A?

4.How much would you pay today for a bond that has a face value of $1,000, and annual coupon of $70 and a maturity of 7 years? (=what is the price of the bond?)

The annual interest rate is 4.34%?

5Bond A has the following features:

Face value = $1,000,

Coupon Rate = 10%,

Maturity = 7 years, Yearly coupons

The market interest rate is 3.82%

If interest rates remain at 3.82%, what will the price of bond A be in year 1?

6.What is the price of a bond with the following features?

• Face Value= $1,000
• Coupon Rate = 2% (stated as an ANNUAL rate)
• Semiannualcoupon payments
• Maturity = 9 years
• YTM = 6.32% (Stated as an APR)

State your answer to the nearest penny (e.g., 984.25)

7.You own a bond with the following features:

Face value of $1000,

Coupon rate of 3% (annual)

12 years to maturity.

The bond is callable after1 years with the call price of $1,068.

If the market interest rate is 4.28% in 1 years when the bond can be called, if the firm calls the bond, how much will it save or lose by calling the bond?

State your answer to the nearest penny (e.g., 84.25)

If there would be a loss, state your answer as a negative (e.g., -37.51

8.Bond Features

Maturity (years) =

7

Face Value =

$1,000

Starting Interest Rate

3.01%

Coupon Rate =

4%

Coupon dates (Annual)

If interest rates change from 3.01% to 5.94% immediately after you buy the bond today (and stay at the new interest rate), what is the price effect in year 3 ?

State your answer to the nearest penny (e.g., 48.45)

If there is a loss, state your answer with a negative sign (e.g., -52.30)

9.Assume you buy a bond with the following features

Bond maturity = 4

Coupon Rate = 4%

Face Value = $1,000

Annual Coupons

When you buy the bond the market interest rate = 4.54%

Immediately after you buy the bond the interest rate changes to 5.81%

What is the "reinvestment" effect in year 3 ?

10.In a typical bond arrangement, a firm issues a bond to the investing public.

In this arrangement who is the borrower and who is the lender?

Group of answer choices

The firm is the lender AND the investor is the borrower

The firm is the borrower AND the investor is the lende

11.If the coupon rate on a bond equals the market interest rate, then the bond's price will equal

Group of answer choices

the face value

The capital gains rate

The coupon rate

12.When interest rates rise bond prices

Group of answer choices

Rise

Fall

13.The coupons associated with a bond are most closely related to the time value of money (TVM) concept of

Group of answer choices

a lump sum

the par value

the discount rate

an annuity

14.When a bond's price is greater than its par value, we say the bond is selling ____________.

This occurs when YTM is ___________ the coupon rate.

Group of answer choices

at a premium; greater than

at a discount; less than

at a discount; greater than

at a premium; less than

15.If the YTM stays constant, the one periodCurrent Yieldand the one periodExpected Capital Gains/Losson the bond add-up to the bond's _____________

Group of answer choices

coupon rate

current price

par value

yield to maturity

16.If a bond is selling at a PREMIUM and the yield to maturity (YTM) on the bond stays constant for the bond's life, then the bond's price will _____________ compared to the price at the previous coupon payment date.

Group of answer choices

fall

stay the same

rise

17.What is the price of a bond with the following features?

• Face Value= $1,000
• Coupon Rate = 2% (stated as an ANNUAL rate)
• Semiannualcoupon payments
• Maturity = 9 years
• YTM = 6.71% (Stated as an APR)

State your answer to the nearest penny (e.g., 984.25)

18.You own a bond with the following features:

Face value of $1000,

Coupon rate of 4% (annual)

14 years to maturity.

The bond is callable after2 years with the call price of $1,057.

If the market interest rate is 3.43% in 2 years when the bond can be called, if the firm calls the bond, how much will it save or lose by calling the bond?

State your answer to the nearest penny (e.g., 84.25)

If there would be a loss, state your answer as a negative (e.g., -37.51)

19.Assume you buy a bond with the following features

Bond maturity = 4

Coupon Rate = 6.00%

Face Value = $1,000

Annual Coupons

When you buy the bond the market interest rate = 6.00%

Immediately after you buy the bond the interest rate changes to 7.00%

What is the "reinvestment" effect in year 4 ?

Group of answer choices

-$4.04

-$3.92

$4.04

$3.92