An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 10 annual coupon Bond L matures in 10 years, while Bond S matures in 1 year What will the value of the Bond L be if the going interest rate is 5 , 7 , and 11 Assume that only one more interest payment is to be made on Bond S at its maturity and that 10 more payments are to be made on Bond L Round your answers to the nearest cent 5 7 11 Bond L $ $ $ Bond S $ $ $ Why does the longer term bond's price vary more than the price of the shorter term bond when interest rates change Long term bonds have lower reinvestment rate risk than do short term bonds The change in price due to a change in the required rate of return increases as a bond's maturity decreases Long term bonds have greater interest rate risk than do short term bonds The change in price due to a change in the required rate of return decreases as a bond's maturity increases Long term bonds have lower interest rate risk than do short term bonds Select IIIIIIIVV 2, Ten years ago the Templeton Company issued 25 year bonds with a 10 annual coupon rate at their $1,000 par value The bonds had a 9 call premium, with 5 years of call protection Today Templeton called the bonds Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called Round your answer to two decimal places Why should or should not the investor be happy that Templeton called them Investors should be happy Since the bonds have been called, investors will receive a call premium and can declare a capital gain on their tax returns Investors should be happy Since the bonds have been called, investors will no longer need to consider reinvestment rate risk Investors should not be happy Since the bonds have been called, interest rates must have fallen sufficiently such that the YTC is less than the YTM If investors wish to reinvest their interest receipts, they must do so at lower interest rates Investors should be happy Since the bonds have been called, interest rates must have risen sufficiently such that the YTC is greater than the YTM If investors wish to reinvest their interest receipts, they can now do so at higher interest rates 3, Harrimon Industries bonds have 4 years left to maturity Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 8 What is the yield to maturity at a current market price of $826 Round your answer to two decimal places $1,041 Round your answer to two decimal places Would you pay $826 for each bond if you thought that a fair market interest rate for such bonds was 13 that is, if r d 13 You would buy the bond as long as the yield to maturity at this price is greater than your required rate of return You would buy the bond as long as the yield to maturity at this price is less than your required rate of return You would buy the bond as long as the yield to maturity at this price equals your required rate of return You would not buy the bond as long as the yield to maturity at this price is greater than your required rate of return You would not buy the bond as long as the yield to maturity at this price is less than the coupon rate on the bond 4, Pelzer Printing Inc has bonds outstanding with 9 years left to maturity The bonds have an 8 annual coupon rate and were issued 1 year ago at their par value of $1,000 However, due to changes in interest rates, the bond's market price has fallen to $910 40 The capital gains yield last year was 8 96 What is the yield to maturity Do not round intermediate calculations Round your answer to two decimal places For the coming year, what are the expected current and capital gains yields (Hint Refer toFootnote 6for the definition of the current yield and toTable 7 1 ) Do not round intermediate calculations Round your answers to two decimal places Expected current yield Expected capital gains yield Will the actual realized yields be equal to the expected yields if interest rates change If not, how will they differ As long as promised coupon payments are made, the current yield will change as a result of changing interest rates However, changing rates will cause the price to change and as a result, the realized return to investors will differ from the YTM As long as promised coupon payments are made, the current yield will not change as a result of changing interest rates However, changing rates will cause the price to change and as a result, the realized return to investors should equal the YTM As long as promised coupon payments are made, the current yield will change as a result of changing interest rates However, changing rates will cause the price to change and as a result, the realized return to investors should equal the YTM As long as promised coupon payments are made, the current yield will change as a result of changing interest rates However, changing rates will not cause the price to change and as a result, the realized return to investors should equal the YTM As rates change, they will cause the end of year price to change and thus the realized capital gains yield to change As a result, the realized return to investors will differ from the YTM 5,It is now January 1, 2021, and you are considering the purchase of an outstanding bond that was issued on January 1, 2019 It has an 8 5 annual coupon and had a 30 year original maturity (It matures on December 31, 2048 ) There is 5 years of call protection (until December 31, 2023), after which time it can be called at 108that is, at 108 of par, or $1,080 Interest rates have declined since it was issued, and it is now selling at 116 57 of par, or $1,165 70 What is the yield to maturity Do not round intermediate calculations Round your answer to two decimal places What is the yield to call Do not round intermediate calculations Round your answer to two decimal places If you bought this bond, which return would you actually earn Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC Select IIIIIIIVItem 3 Suppose the bond had been selling at a discount rather than a premium Would the yield to maturity have been the most likely return, or would the yield to call have been most likely Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC Select IIIIIIIVItem 4 6,Bond X is noncallable and has 20 years to maturity, an 8 annual coupon, and a $1,000 par value Your required return on Bond X is 9 if you buy it, you plan to hold it for 5 years You (and the market) have expectations that in 5 years, the yield to maturity on a 15 year bond with similar risk will be 6 5 How much should you be willing to pay for Bond X today (Hint You will need to know how much the bond will be worth at the end of 5 years ) Do not round intermediate calculations Round your answer to the nearest cent

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An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 10% annual coupon. Bond L matures in

An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 10% annual coupon. Bond L matures in 10 years, while Bond S matures in 1 year.

What will the value of the Bond L be if the going interest rate is 5%, 7%, and 11%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 10 more payments are to be made on Bond L. Round your answers to the nearest cent.

	5%	7%	11%
Bond L	$	$	$
Bond S	$	$	$

Why does the longer-term bond's price vary more than the price of the shorter-term bond when interest rates change?
1. Long-term bonds have lower reinvestment rate risk than do short-term bonds.
2. The change in price due to a change in the required rate of return increases as a bond's maturity decreases.
3. Long-term bonds have greater interest rate risk than do short-term bonds.
4. The change in price due to a change in the required rate of return decreases as a bond's maturity increases.
5. Long-term bonds have lower interest rate risk than do short-term bonds.

-Select-IIIIIIIVV

2, Ten years ago the Templeton Company issued 25-year bonds with a 10% annual coupon rate at their $1,000 par value. The bonds had a 9% call premium, with 5 years of call protection. Today Templeton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places.

Why should or should not the investor be happy that Templeton called them?

Investors should be happy. Since the bonds have been called, investors will receive a call premium and can declare a capital gain on their tax returns.
Investors should be happy. Since the bonds have been called, investors will no longer need to
consider reinvestment rate risk.
Investors should not be happy. Since the bonds have been called, interest rates must have fallen sufficiently such that the YTC is less than the YTM. If investors wish to reinvest their interest receipts, they must do so at lower interest rates.
Investors should be happy. Since the bonds have been called, interest rates must have risen sufficiently such that the YTC is greater than the YTM. If investors wish to reinvest their interest receipts, they can now do so at higher interest rates.

3, Harrimon Industries bonds have 4 years left to maturity. Interest is paid annually, and the bonds have a $1,000 par value and a coupon rate of 8%.

What is the yield to maturity at a current market price of
1. $826? Round your answer to two decimal places.

$1,041? Round your answer to two decimal places.

Would you pay $826 for each bond if you thought that a "fair" market interest rate for such bonds was 13%that is, if r_d= 13%?
1. You would buy the bond as long as the yield to maturity at this price is greater than your required rate of return.
2. You would buy the bond as long as the yield to maturity at this price is less than your required rate of return.
3. You would buy the bond as long as the yield to maturity at this price equals your required rate of return.
4. You would not buy the bond as long as the yield to maturity at this price is greater than your required rate of return.
5. You would not buy the bond as long as the yield to maturity at this price is less than the coupon rate on the bond.

4, Pelzer Printing Inc. has bonds outstanding with 9 years left to maturity. The bonds have an 8% annual coupon rate and were issued 1 year ago at their par value of $1,000. However, due to changes in interest rates, the bond's market price has fallen to $910.40. The capital gains yield last year was -8.96%.

What is the yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places.

For the coming year, what are the expected current and capital gains yields? (Hint: Refer toFootnote 6for the definition of the current yield and toTable 7.1.) Do not round intermediate calculations. Round your answers to two decimal places.

Expected current yield:%

Expected capital gains yield:%

Will the actual realized yields be equal to the expected yields if interest rates change? If not, how will they differ?
1. As long as promised coupon payments are made, the current yield will change as a result of changing interest rates. However, changing rates will cause the price to change and as a result, the realized return to investors will differ from the YTM.
2. As long as promised coupon payments are made, the current yield will not change as a result of changing interest rates. However, changing rates will cause the price to change and as a result, the realized return to investors should equal the YTM.
3. As long as promised coupon payments are made, the current yield will change as a result of changing interest rates. However, changing rates will cause the price to change and as a result, the realized return to investors should equal the YTM.
4. As long as promised coupon payments are made, the current yield will change as a result of changing interest rates. However, changing rates will not cause the price to change and as a result, the realized return to investors should equal the YTM.
5. As rates change, they will cause the end-of-year price to change and thus the realized capital gains yield to change. As a result, the realized return to investors will differ from the YTM.

5,It is now January 1, 2021, and you are considering the purchase of an outstanding bond that was issued on January 1, 2019. It has an 8.5% annual coupon and had a 30-year original maturity. (It matures on December 31, 2048.) There is 5 years of call protection (until December 31, 2023), after which time it can be called at 108that is, at 108% of par, or $1,080. Interest rates have declined since it was issued, and it is now selling at 116.57% of par, or $1,165.70.

What is the yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places.

What is the yield to call? Do not round intermediate calculations. Round your answer to two decimal places.

If you bought this bond, which return would you actually earn?
1. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.
2. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.
3. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.
4. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.

-Select-IIIIIIIVItem 3

Suppose the bond had been selling at a discount rather than a premium. Would the yield to maturity have been the most likely return, or would the yield to call have been most likely?
1. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.
2. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.
3. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.
4. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.

-Select-IIIIIIIVItem 4

6,Bond X is noncallable and has 20 years to maturity, an 8% annual coupon, and a $1,000 par value. Your required return on Bond X is 9%; if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15-year bond with similar risk will be 6.5%. How much should you be willing to pay for Bond X today? (Hint: You will need to know how much the bond will be worth at the end of 5 years.) Do not round intermediate calculations. Round your answer to the nearest cent.