QUESTION 1

1. You purchased a $1,000 bond that matures in 15 years and has a 7.0% coupon rate. If current interest rates fall to 6.25% what would be the price of the bond?

   		$1,000
   		$1,071.67
   		$975.64

10 points

QUESTION 2

1. From the above, what would the price of the bond be if the maturity date was 12 years?

   		$1,062.03
   		$1,054.62
   		$874.29

10 points

QUESTION 3

1. Expected return is always greater than realized return.

   True

   False

7.5 points

QUESTION 4

1. Interest rate risk would affect bondholders more than stockholders.

   True

   False

7.5 points

QUESTION 5

1. We expect a stock to pay a $1.00 dividend increasing 4% annually. If we anticipate the price of the stock to be $65.00 in year 3 and require a 8.5% return what would we pay for the stock today?

   		$47.60
   		$58.25
   		$53.54

10 points

QUESTION 6

1. Bond prices move in line with interest rates. As interest rates rise so do bond prices.

   True

   False