43. You plan to borrow $35,000 at a 7.5%% annual interest rate. The terms require you to amortize the loan with 7 equal end-of-year payments. How much interest would you be paying in Year 2? a. $1,994,49 b. $2,099.46 c. $2,209.96 d. $2,326.27 e. $2,442.59 44. Your child's orthodontist offers you two alternative payment plans. The first plan requires a $4,000 immediate up-front payment. The second plan requires you to make monthly payments of $137.41, payable at the end of each month for 3 years. What nominal annual interest rate is built into the monthly payment plan? a. 12.31% b. 12.96% c. 13.64 % d. 14.36% e. 15.08% 45. Farmers Bank offers to lend you $50,000 at a nominal rate of 5.0% , simple interest, with interest paid quarterly. Merchants Bank offers to lend you the $50,000, but it will charge 6.0 % , simple interest, with interest paid at the end of the year. What's the difference in the effective annual rates charged by the two banks? a. 1.56% b. 1.30% c. 1.09% d. 0.91 % e. 0.72% 8: Interest Rates and Bond Valuation and Stock Valuation Chapters 7 46. An investor is considering buying one of two 10-year, $1,000 face value, noncallable bonds: Bond A has a 7% annual coupon, while Bond B has a 9 % annual coupon. Both bonds have a yield to maturity of 8% , and the YTM is expected to remain constant for the next 10 years. Which of the following statements is CORRECT? a. Bond B has a higher price than Bond A today, but one year from now the bonds will have the same price. b. One year from now, Bond A's price will be higher than it is today, c. Bond A's current yield is greater than 8%. d. Bond A has a higher price than Bond B today, but one year from now the bonds will have the price. same price today, and the price of each bond is expected to remain e. Both bonds have the same constant until the bonds mature. 47. Bond X has an 8% annual coupon, Bond Y has a 10% annual coupon, and Bond Z has a 125% annual coupon. Each of the bonds is noncallable, has a maturity of 10 vears, and has a yield to maturity of 10%6. Which of the following statements is CORRECT? a. If the bonds' market interest rate remains at 10 % , Bond Z's price will be lower one year from now than it is today b. Bond X has the greatest reinvestment risk c. If market interest rates decline, the prices of all three bonds will increase, but Z's price will have the largest percentage increase. d. If market interest rates remain at 10 % , Bond Z's price will be 10% higher one year from today e. If market interest rates increase, Bond X's price will increase, Bond Z's price will decline, and Bond Y's price will remain the same. 48. Bond A has a 9% annual coupon, while Bond B has a 7% annual coupon. Both bonds have the same maturity, a face value of $1,000, an 8% yield to maturity, and are noncallable. Which of the following statements is CORRECT? a. Bond A's capital gains yield is greater than Bond B's capital gains yield. A b. Bond A trades at a discount, whereas Bond B trades at a premium. c. If the yield to maturity for both bonds remains at 8% , Bond A's price one year from now will be higher than it is today, but Bond B's price one vear from now will be lower than it is today. d. If the yield to maturity for both bonds immediately decreases to 6 %, Bond A's bond will have a larger percentage increase in value. e. Bond A's current yield is greater than that of Bond B. 49, Which of the following statements is CORRECT? a. Assume that two bonds have equal maturities and are of equal risk, but one bond sells at par while the other sells at a premium above par. The premium bond must have a lower current yield and a higher capital gains yield than the par bond. b. A bond's current vield must always be either equal to its yield to maturity or between its yield to maturity and its coupon rate. c. If a bond sells at par, then its current yield will be less than its yield to maturity ess than its coupon rate. d. If a bond sells for less than par, then its yield to maturity is e. A discount bond's price declines each year until it matures, when its value equals its par value. 50. Grossnickle Corporation issued 20-year,, noncallable, 7.5 % annual coupon bonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds is 5.5 %. What is the current price of the bonds, given that they now have 19 years to maturity? a. $1,113.48 b. $1,142.03 c. $1,171.32 d. $1,201.35 e. $1,232.15 51, McCue Inc.'s bonds currently sell for $1,250. They pay a $90 annual coupon, have a 25-year maturity, and a $1,000 par value, but they can be called in 5 years at $1,050. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the difference between this bond's YTM and its YTC? (Subtract the YTC from the YTM; it is possible t answer.) get a negative a. 2.62% b. 2.88% c. 3.17 % d. 3.48% e. 3.83%