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Chapter 6- PostAssessment_NEW x X + G File | C:/Users/micha/Downloads/Chapter%2... ABP G R TP OP # M Assumption: all the bonds are semi-annually compounding. 1 . Meredith Company issued 13-year bonds three years ago at 5% coupon rate. The market interest rate for the bonds is 7.5%. What is the current bond's price? a. $ 832.22 b. $ 922.07 C. $ 817.51 d. $1,005.96 e . $ 826.30 2. Derek Enterprises' non-callable bonds currently sell for $1,165. They have a 17-year maturity, an annual coupon rate of 11.5%. What is their yield to maturity? a. 7.63% b. 9.52% C. 12.80% d. 6.35% e. 11.34% 3. Changes in interest rates affect bond prices. Which one of the following compensates bond investors for this risk? a. Interest rate risk premium b. Taxability risk premium C. Default risk premium d. Real rate of return 4. Which of the following characteristics are most commonly associated with corporate bonds issued in the U.S.? a. Bearer form b. Registered form C. Semiannual coupon payment d. Both a and c e. Both b and c 5. A seven-year, semiannual coupon bond is selling for $1,036.73. The bond has a face value of $1,000 and a yield to maturity of 7.11%. What is the coupon rate? a. 14.80% b. 7.79% C. 6.71% d. 10.00% e. 10.50%Chapter 6- PostAssessment_NEW x + X C O File | C:/Users/micha/Downloads/Chapter%2.. If ABP G TP OP # M 6. If Gray-Sloan, Inc. has $1,000 face value bonds outstanding with a market price of $759.17. The bonds pay interest semi-annually, mature in 11 years, and have a yield to maturity of 14%. What is the current yield? a. 15.71% b. 9.36% C. 10.54% d. 7.32% 12.71% 7. Which of the following has the lowest reinvestment rate risk? a. 10-year corporate bond with coupon rate of 5% . 5-year corporate bond with coupon rate of 8% C. 5-year corporate bond with coupon rate of 10% d. 10-year zero coupon bond 8. Which of the following statement is/are CORRECT? a. Zero-coupon bonds sell well above par value because they offer an attractive return. b. Convertible bonds can be converted into a certain amount of cash at the discretion of CEO of the firm. C. Most bonds are trading in the OTC market. d. Municipal bond interest is not tax-exempt at the federal level. e. Statements c and d are correct. 9. Which of the following statements is/are most INCORRECT? Junk bonds typically offer high risk and high yields relative to AAA investment grade bonds. b. All else equal, bond prices move inversely with changes in yield to maturity. c. All else equal, a bond is sold at a premium when its YTM is lower than its coupon rate. d. As for the callable bond, the firm normally calls the bond for early redemption when interest rates rise because the firm can save on interest expenses. 10. All else equal, a firm will have to pay a lower coupon rate on its subordinated debentures than on its bonds with a sinking fund. a. True b. False 2
