Corporate Finance Exam 2

Assuming the appropriate YTM on the Sisyphean bond is 7.5%, then the price that this bond trades for will be closest to:

$1045 FV = 1000 I = 3.75 (7.5/2) PMT = 40 (80/2) N = 30 (15 × 2) Compute PV = 1044.57

Consider a zero coupon bond with 20 years to maturity. The price will this bond trade if the YTM is 6% is closest to:

$312 FV = 1000 I = 6 PMT = 0 N =20 Compute PV = 311.80

Consider a zero-coupon bond with a $1000 face value and 10 years left until maturity. If the YTM of this bond is 10.4%, then the price of this bond is closest to:

$372 FV = 1000 I = 10.4 PMT = 0 N =10 Compute PV = 371.80

How much will each semiannual coupon payment be?

$40 Coupon = (coupon rate × face value)/number of coupons per year= (.08 × 1000)/2 = $40

The price per $100 face value of a four-year, zero-coupon, risk-free bond is closest to:

$84.66 $100 / (1.0425)^4 - Percent at year 4 is 4.25%

The price per $100 face value of a three-year, zero-coupon, risk-free bond is closest to:

$89.16 $100 / (1.039)^3 - Percent at year 3 is 3.9%

Assuming the appropriate YTM on the Sisyphean bond is 9.0%, then the price that this bond trades for will be closest to:

$919 FV = 1000 I = 4.5 (9/2) PMT = 40 (80/2) N = 30 (15 × 2) Compute PV = 918.56

Suppose a ten-year bond with semiannual coupons has a price of $1,071.06 and a yield to maturity of 7%. This bond's coupon rate is closest to:

8.0% I = 3.5, FV = 1000, PV = -1071.06, N = 20, Compute PMT = 40 × 2 = 80/1000 = 8.0%

Suppose a five- year bond with a 7% coupon rate and semiannual compounding is trading for a price of $951.58. Expressed as an APR with semiannual compounding, this bonds yield to maturity (YTM) is closest to:

8.2% PMT = 35, FV = 1000, PV = -951.58, N = 10, Compute I = 4.099949 × 2 = 8.199898%

Assuming the appropriate YTM on the Sisyphean bond is 9%, then this bond will trade at

A discount

Assuming the appropriate YTM on the Sisyphean bond is 7.5%, then this bond will trade at

A premium

Which of the following statements is FALSE?

Bond traders typically quote bond prices rather than bond yields .

Which of the following statements is FALSE?

By convention the coupon rate is expressed as an effective annual rate.

Which of the following statements is FALSE?

Prior to its maturity date, the price of a zero-coupon bond is always greater than its face value.

Which of the following statements is FALSE?

The only cash payments the investor will receive from a zero coupon bond are the interest payments that are paid up until the maturity date.