AU.S. Treasury bond will pay a lump sum of $1,000 exactly 3 years from today. The nominal interest rate is 6 % , semiannual compounding. Which of the following statements is 4. CORRECT? a The periodic interest rate is greater than 3%. b. The periodic rate is less than 3 %. c The present value would be greater if the lump sum were discounted back for more periods. d The present value of the $1,000 would be larger if interest were compounded monthly rather than semiannually. e The PV of the $1,000 lump sum has a smaller present value than the PV of a 3-year, $333.33 ordinary annuity. Which of the following statements about flotation costs on bonds is not correct? a. Flotation costs on bonds need to be paid to the investment bank that manages the primary market transaction. b. Flotation costs on bonds increase the Rd in the WACC formula. c. Flotation costs on bonds lead to less capital per bond that flows to the firm. d. Flotation costs on bonds are typically a higher percentage than flotation costs on equity. e. Flotation costs on bonds could, in theory, be avoided by issuing bonds directly to investors. 5. 6 The BB Bus Corporation has 15-year, non-callable, 9% semi-annual coupon bonds outstanding with 9 years remaining until maturity. They are currently trading at $1,034. What is the semi-annual payment on this bond? a. $45 b. $46.53 c. $50 d. $90 There is not enough information to answer this question. e. Gossnickle Corporation issued 20-year, non-callable, 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 7. Morin Company's bonds mature in 8 years, have a par value of $1,000, and make an annual coupon interest payment of $65. The market requires an interest rate of 8.2 % on these bonds. What is the bond's price? 8 a $903.04 b. $925.62 c. $948.76 d. $972.48 e. $996.79