QUESTION 24

1. Questions 24 to 27:

   Bill Jennings made the following statements regarding zero coupon bonds and the term structure of interest rates. Statement 1: bond that sells at par consists entirely of an interest yield. However, if the bond sells at any price other than its par value, the YTM consists of the interest yield together with a positive or negative capital gains yield.

   Statement 2: A downward-sloping term structure of interest rates indicates long-term yield are higher than short-term yields.

   Statement 3: Zero coupon bonds provide an annual tax deduction to the investor and are issued at a deep discount.

   Statement 4: A 10-year zero coupon bond with face value of $1,000 and the 1-year interest rate is 5%. If the interest rate remains constant, the value of the zero coupon bond would be closed $632.

   Is Jennings correct with respect to?

   A.

   Statement 1	Statement 2
   YES	NO

   B.

   YES

   YES

   C.

   NO

   NO

   D.

   NO

   YES

2. QUESTION 25: Is Jennings correct with respect to?

3. A.

   Statement 3	Statement 4
   NO	YES

   B.

   YES

   NO

   C.

   YES

   YES

   D.

   NO

   NO

4. QUESTION 26: Today you are buying a $1,000 face value bond at an invoice price of $955. The bond has a 7% coupon and pays interest semiannually. There are 3 months until the next coupon date. What is the clean price of this bond?

5. 	A.	$937.50
   	B.	$885.00
   	C.	$943.33
   	D.	$955.00

6. QUESTION 27: A bond has a 10-year maturity, a $1,000 face value, and a 7% coupon rate. If the market requires a yield of 8% on the bond, it will most likely trade at a:

7. 	A.	Discount.
   	B.	Premium.
   	C.	Discount or premium, depending on its duration.