6. This morning, Mary bought a ten-year, $1000 par value bond with a 7.0% coupon rate and semi-annual payments. She paid $994 for the bond. If the market interest rate on this type of bond decreases to 6.5% tonight, how much will Mary receive for her first coupon payment? $32.50 $35.00 $65.00 $69.58 $70.00 a. b. c. d. e. a 7. Suppose that interest rates decrease. Assuming all other parameters that impact the price of bonds and stocks remain constant, what would you expect to happen to bond and stock prices? Bond prices would increase and stock prices would decrease. Bond prices would decrease and stock prices would decrease. Bond prices would decrease and stock prices would increase. Bond prices would increase and stock prices would increase. Stock prices would increase. More information would be needed to determine the impact on bond prices. b. c. d. e. a. 8. Which of the following bonds would have the largest change in price (in percentage terms) for a given change in interest rates (that is, in yield to maturity) - that is, if the yield to maturity on a bond increases from 8% to 10%, all else constant, which of the following bond prices will change the most (in percentage terms)? A $1000 par value bond with a 10% coupon rate annual payments) that matures in 2 years. b. A $1000 par value bond with a 10% coupon rate (semi-annual payments) that matures in 25 years. c. A $1000 par value bond with a 2% coupon rate (annual payments) that matures in 4 years. d. A $1000 par value bond with a 2% coupon rate (semi-annual payments) that matures in 30 years. The bond that changes the most in price percentage terms) cannot be determined from the information given. e. 9. Five years ago, ABC Inc. issued 25-year fixed coupon bonds at par. Since then the bond's yield-to- maturity (YTM) has increased by 1.5%. Based on this information, which of the following is true regarding the current market price of the bond? The bond is selling at discount. The bond is selling at premium. The bond is selling at book value. d. The bond is selling at par. Insufficient information. a. b. c. e 10. Assume that you have the following information on project A: (i) it will yield cash flows of $900 per year forever; (ii) the IRR is 16%; (iii) the required rate of return (i.e., the cost of capital) for this project is 11.35%. What is the NPV of this project? a. $8,458.15 b. $2,304.52 $2,242.88 d. $2,458.15 None of the numbers listed above are within $10 of the correct answer. c. e