Ch. 8 Quiz

The market price of a bond increases when the: coupon is paid annually rather than semiannually. discount rate decreases. coupon rate decreases. face value decreases. par value decreases.

discount rate decreases.

A bond with a coupon rate of 6 percent that pays interest semiannually and is priced at par will have a market price of ________ and interest payments in the amount of ________ each. $1,006; $60 $1,060; $60 $1,060; $30 $1,000; $60 $1,000; $30

$1,000; $30

A corporate bond is currently quoted at 101.633. What is the market price of a bond with a $1,000 face value? $1,016.33 $1,102.77 $1,276.70 $1,000.28 $1,002.77

$1,016.33 Market price = 101.633%($1,000)Market price = $1,016.33

Whatever, Inc., has a bond outstanding with a coupon rate of 5.92 percent and semiannual payments. The yield to maturity is 4.9 percent and the bond matures in 21 years. What is the market price if the bond has a par value of $1000? $1136.08 $1132.84 $1134.59 $1131.93 $1155.50

$1132.84 PV = $29.60{[1 − (1/1.024542)]/0.0245} + $1000/1.024542PV = $1132.84 N = 42 I/Y = 4.9/2% PMT = -$29.60 FV = -$1000 PV = $1132.84

Consider a bond with a coupon rate of 8 percent that pays semiannual interest and matures in eight years. The market rate of return on bonds of this risk is currently 11 percent. What is the current value of a $1,000 face value bond? $893.30 $843.07 $854.08 $929.17 $830.58

$843.07 Bond value = [.08($1,000)/2]{[1 − 1/(1 + .11/2)8(2)]/(.11/2)} + $1,000/(1 + .11/2)8(2) Bond value = $843.07

The 6 percent coupon bonds of Precision Engineering are selling for 98 percent of par value. The bonds mature in eight years and pay interest semiannually. These bonds have a current yield of __(a)__ percent, a yield to maturity of __(b)__ percent, and an effective annual yield of __(c)__ percent. (Hint: Refer to the concept of EAR in Chapter 4 for (c).) (a) 6.32; (b) 6.42; (c) 6.12 (a) 6.42; (b) 6.32; (c) 6.12 (a) 6.12; (b) 6.32; (c) 6.42 (a) 6.32; (b) 6.12; (c) 6.42

(a) 6.12; (b) 6.32; (c) 6.42

Kasey Corp. has a bond outstanding with a coupon rate of 6 percent and semiannual payments. The bond has a yield to maturity of 5.9 percent, a par value of $1000, and matures in 16 years. What is the quoted price of the bond? 203.04 206.51 2027.75 162.61 1626.11

162.61 PV = $60{[1 − (1/1.029532)]/0.0295} + $1000/1.029532PV = $1626.11 Quoted price = $1626.11/10 = 162.61 N = 16*2 I/Y = 5.9/2% PMT = -$60 FV = -$1000 PV = $1626.11

An investment had a nominal return of 10.7 percent last year. The inflation rate was 2.4 percent. What was the real return on the investment? 13.36% 8.11% 7.50% 9.01% 10.43%

8.11% r = [(1 + 0.107)/(1 + 0.024)] − 1 = 0.0811, or 8.11%

A corporate bond with a face value of $1,000 matures in 4 years and has a coupon rate of 6.25 percent. The current price of the bond is $932 and interest is paid semiannually. What is the yield to maturity? 8.28 percent 9.05 percent 7.92 percent 8.58 percent 6.67 percent

8.28 percent $932 = (.0625/2)($1,000){[1 − 1/(1 + YTM/2)4(2)]/(YTM/2)} + $1,000/(1 + YTM/2)4(2)YTM = .0828, or 8.28%

A 12-year, semiannual coupon bond is priced at $1,102.60. The bond has a $1,000 face value and a yield to maturity of 5.33 percent. What is the coupon rate in %? Round our answer to two decimal places. (For example, if your answer is 4.25% or 0.0425, input 4.25.)

?

The annual interest paid by a bond divided by the bond's face value is called the: yield to maturity. coupon. coupon rate. face value. maturity.

coupon rate.

The stated interest payment, in dollars, made on a bond each period is called the bond's: face value. coupon. maturity. coupon rate. yield to maturity.

coupon.

The rate of return required by investors in the market for owning a bond is called the: coupon. coupon rate. face value. yield to maturity. maturity.

yield to maturity.