Like hell....

1 A $1,000 par value bond makes two coupon payments per year of $60 each. What is the bonds yield to maturity if the bond currently trades at $1,200 and will mature in two years? a. 1.78% b. 3.48% c. 6.00% d. 6.43%

2 A one-year Treasury security currently returns a 4.50% yield to maturity. A two-year Treasury security offers a 4.80% yield to maturity. If the expectations hypothesis is true, what is the expected return on a one-year security next year? a. 4.80% b. 4.90% c. 5.00% d. 5.10%

3 A TIPS bond issued by the Treasury Department was issued with an annual coupon of 5%. The bond has a par value of $1,000 and will mature in 10 years. Suppose that inflation during the first year of the bonds life was 3%. What is the new coupon payment for this bond? a. $50.97 b. $51.50 c. $53.00 d. $81.50

4. Suppose you have a chance to buy a Treasury strip. The strip is from a government bond with a 6% coupon rate (face value of $1,000). You will receive this strip in one year and have a discount rate of 10%. What is the price you are willing to pay for this strip? a. $36.87 b. $54.55 c. $60.00 d. $94.34

NARRBEGIN: EarthCOM EarthCOM On October 4th, 2000, long distance company, EarthCOM, issued bonds to finance a new wireless product. The bonds were issued for 30 years (mature on October 4th, 2030), with a face value of $1,000, and semi-annual coupons. The coupon rate on these bonds is 8% APR. Over the last 4 years, the company has experienced financial difficulty as the long distance market has grown more competitive. NARREND

5 Refer to EarthCOM. The risk associated with EarthCOM bonds has increased dramatically, as investors now want a 15% APR return to hold the bonds. What price should the bonds trade at TODAY (October 4th, 2004)? a. $544.19 b. $545.66 c. $794.99 d. $800.15

6. Refer to EarthCOM. Suppose that today (October 4th, 2002), EarthCOM admits to fraud in reporting revenues over the last 3 years. The price of EarthCOM immediately tumbles to $500. What is the new yield-to-maturity on EarthCOM bonds? (Express as an APR) a. 16.04% b. 16.21% c. 18.12% d. 20.77%

7. Which of the following statements are CORRECT?

Statement I: A change in a bonds interest rate risk has a greater price impact on bonds with longer maturities. Statement II: Government bonds have lower default risk than corporate bonds or municipal bonds. Statement III: Trading volume is greater for corporate bonds than government bonds.

a. Statement I only b. Statement II only c. Statements I and II only d. Statements II and III only

8. A bond pays $60 interest payments twice a year. What is the coupon rate for the bond if the par value of the bond is $1,000? a. 6.00% b. 9.00% c. 12.00% d. 15.00%