1.You own a bond with the following features:

Face value of $1000,

Coupon rate of 3% (annual)

9 years to maturity.

The bond is callable after1 years with the call price of $1,062.

If the market interest rate is 4.21% 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)

2.LO1

Base on the principles of TVM, which cash-flow is worth more in present value terms. Assume the interest rate is positive.

Time Period01234Cash Flows Asset A10020050Cash-Flows Asset B20010050

Group of answer choices

There is not enough information to tell

Cash-Flow B is worth more in PV terms

Cash-Flow A is worth more in PV terms

The two cash-flows are both worth $350 in PV terms

3.If congress passes a law that makes interest on corporate bonds tax free (i.e., no tax on corporate bond interest), you would expect the interest rate on corporate bonds to ....

Group of answer choices

increase because the demand for corporate bonds would increase.

decrease because the demand for corporate bonds would increase.

increase because the supply of corporate bonds would decrease.

decrease because the demand for corporate bonds would decrease.

4.LO1

If two annuities are identical in every way except that one is an "ordinary" annuity and the other is an "annuity due", the annuity due will sell at a ____________ price because its cash-flows come __________.

Group of answer choices

lower; later

lower; sooner

higher; later

higher; sooner

5.Assume that there are three assets that you can own:

Cash (lowest risk) , Bonds (medium risk) Stocks (high risk)

The economy has just experience a financial crisis so investors become VERY VERY risk averse.

Under these conditions you would expect interest rates to

(choose the best answer)

Group of answer choices

Increase because bond prices would fall.

Decrease because bond prices would fall.

Increase because bond prices would rise.

Decrease because bond prices would rise

6.If congress passes a law that makes interest on corporate bonds tax free (i.e., no tax on corporate bond interest), you would expect the interest rate on corporate bonds to ....

Group of answer choices

increase because the supply of corporate bonds would decrease.

decrease because the demand for corporate bonds would decrease.

increase because the demand for corporate bonds would increase.

decrease because the demand for corporate bonds would increase.

7.LO2

Why dohouseholds save?

Group of answer choices

For future consumption

For future consumption AND as a precaution AND for speculation

For future consumption AND as a precaution

8.LO3

Long maturity bonds usually have _________ price risk and _______ reinvestment risk than short term maturity bonds.

Group of answer choices

less; more

less; less

more; more

more; less

9.LO2

Illiquid assets tend to be

Group of answer choices

Homogeneous with low information costs

Heterogeneous with high information costs

Heterogeneous with low information costs

Homogeneous with high information costs

10.LO3

All else equal, HIGHER expected inflation will _________ the nominal riskless interest rate.

Group of answer choices

increase

decrease

11.LO3

Which of the following contributes to the DEMAND for bonds?

Group of answer choices

Expected inflation

Production opportunities

Total asset risk

Time preference of consumption