Investments

Dr. Sudhakar Raju

FN 6700

PRACTICE QUESTIONS FOR EXAM 1

1.) Find the YTM (yield-to-maturity) of a 20-year zero coupon bond that is selling for $372.50. Assume annual compounding and a maturity value of $1,000).

a) 5.1%

b) 8.8%

c) 10.1%

d) 13/4%

2.) A semi-annual bond with a 12% coupon, 10 years to maturity and selling at 88 (i.e. $880) has yield-to-maturity of:

a) 14.29%

b) 13.65%

c) 12.33%

d) Less than 12%

3.) A 10% annual pay, 20 year bond is priced at $850.61 to yield 12%; if it paid interest semiannually (rather than annually), but continued to be priced $850.61, the resulting YTM would be:

a) Less than 12%

b) More than 12%

c) Less than 10%

d) Cannot be determined

4.) Using semiannual compounding, a 15-year, zero coupon bond that has a par value of $1,000 and a required return of 8% would be priced at:

a) $308

b) $315

c) $464

d) $555.

5.) If an investor’s required return is 12%, the value of a 10-year maturity zero-coupon bond (discounted semi-annually) with a maturity value of $1,000 is closest to:

a) $312

b) $688

c) $1,000

d) $1,312

6.) Zello Corporation’s $1,000 par value bond sells for $960, matures in five years, and has a 7% coupon rate paid semiannually. What is the bond’s current yield?

a) 7.0%

b) 7.3%

c) 8.0%

d) Insufficient information provided

7.) The yield to maturity on a bond is:

a) Below the coupon rate when the bond sells at a discount and above the coupon rate when the bond sells at a premium.

b) The interest rate that makes the present value of the payments equal to the bond price.

c) Based on the assumptions that all future payments received are reinvested at the coupon rate.

d) Based on the assumption that all future payments received are reinvested at future market rates.

8.) Zello Corporation’s $1,000 par value bond sells for $960, matures in five years, and has a 7% coupon rate paid semiannually. What is the bond’s yield to maturity?

a) 7.0%

b) 7.3%

c) 8.0%

d)...