1. Suppose an investment provides a single cash flow in one year of $15,000. If you expect inflation of 1.5% and demand a real return of 3%, what is the most you would pay for the investment today?
2. 15,000
3. $14,563
4. 14,347
5. $13,556
6. Suppose a typical corporate bond sells for 97% of face value in the secondary market. Which of the follow MUST be true regarding this bond?
7. The Yield to Maturity is less than the Coupon Rate
8. The Coupon Rate is less than the Yield to Maturity
9. The time to maturity is less than 15 years
10. If the investor holds the bond to maturity she will experience a negative Capital Gains Yield
11. Suppose GHF Corp wants to issue new bonds for a much needed expansion project and desires to sell the bonds at par value. The company has 8% coupon bonds outstanding that make semi-annual payments, sell for 109.5% of par value and have 10 years to maturity. What coupon rate should GHF put on its new bonds?
12. 8%
13. 7.25%
14. 4%
15. 6.68%
16. Suppose an investor bought highly rated corporate bonds at a YTM of 6.5%. Two years later she sold them in the secondary market and realized a Holding Period Yield of 9.75%. The most likely explanation for this turn of events is:
17. Interest rates rose during the two year investment period
18. The Face value of the bonds rose during the two year investment period
19. The Coupon Rate of the bonds rose during the two year investment period
20. Interest rates fell during the two year investment period

1. Suppose an investment provides a single cash flow in one year of $15,000. If you expect inflation of 1.5% and demand a real return of 3%, what is the most you would pay for the investment today? a. 15,000 b. $14,563 c. 14,347 d. $13,556 2. Suppose a typical corporate bond sells for 97% of face value in the secondary market. Which of the follow MUST be true regarding this bond? a. The Yield to Maturity is less than the Coupon Rate b. The Coupon Rate is less than the Yield to Maturity c. The time to maturity is less than 15 years d. If the investor holds the bond to maturity she will experience a negative Capital Gains Yield 3. Suppose GHF Corp wants to issue new bonds for a much needed expansion project and desires to sell the bonds at par value. The company has 8% coupon bonds outstanding that make semiannual payments, sell for 109.5% of par value and have 10 years to maturity. What coupon rate should GHF put on its new bonds? a. 8% b. 7.25% c. 4% d. 6.68% 4. Suppose an investor bought highly rated corporate bonds at a YTM of 6.5%. Two years later she sold them in the secondary market and realized a Holding Period Yield of 9.75%. The most likely explanation for this turn of events is: a. Interest rates rose during the two year investment period b. The Face value of the bonds rose during the two year investment period c. The Coupon Rate of the bonds rose during the two year investment period d. Interest rates fell during the two year investment period