chapter 7- finance exam

The 7 percent bonds issued by Modern Kitchens pay interest semiannually, mature in eight years, and have a $1,000 face value. Currently, the bonds sell for $1,032. What is the yield to maturity? 6.87 percent 6.92 percent 6.08 percent 6.48 percent 7.20 percent

$1,032 = $35 × [(1 − {1 / [1 + (r / 2)](8 × 2)}) / (r / 2)] + $1,000 / [1 + (r / 2)](8 × 2) To solve for r, use trial-and-error, a financial calculator, or a computer. Enter: 16 −1,032 35 1,000 N I/Y PV PMT FV Solve for: 3.2405 YTM = 2 × 3.2405% = 6.48%

You own a bond that pays $64 in interest annually. The face value is $1,000 and the current market price is $1,062.50. The bond matures in 11 years. What is the yield to maturity? 5.62 percent 6.22 percent 6.46 percent 6.71 percent 5.80 percent

$1,062.50 = $64 × ({1 − [1 / (1 + r)11]} / r) + $1,000 / (1 + r)11 To solve for r, use trial-and-error, a financial calculator, or a computer. Enter: 11 −1,062.50 64 1,000 N I/Y PV PMT FV Solve for: 5.62

New Homes has a bond issue with a coupon rate of 5.5 percent that matures in 8.5 years. The bonds have a par value of $1,000 and a market price of $972. Interest is paid semiannually. What is the yield to maturity? 6.36 percent 6.42 percent 5.61 percent 5.74 percent 5.92 percent

$972 = $27.50 × ({1 − [1 / (1 + r)(8.5 × 2)]} / r) + $1,000 / (1 + r)(8.5 × 2) To solve for r, use trial-and-error, a financial calculator, or a computer. Enter: 17 −972 27.50 1,000 N I/Y PV PMT FV Solve for: 2.962 YTM = 2 × 2.962% = 5.92%

Bare Trees United issued 15-year bonds 2 years ago at a coupon rate of 8.5 percent. The bonds make semiannual payments. If these bonds currently sell for 98.6 percent of par value, what is the YTM? 8.98 percent 8.68 percent 9.13 percent 9.27 percent 8.42 percent

$986 = $42.50 × ({1 - [1 / (1 + r)(13 × 2)]} / r) + $1,000 / (1 + r)(13 × 2) To solve for r, use trial-and-error, a financial calculator, or a computer. Enter: 26 -986 42.50 1,000 N I/Y PV PMT FV Solve for: 4.34 YTM = 2 × 4.34% = 8.68%

The 7 percent, semiannual coupon bonds offered by House Renovators are callable in two years at $1,054. What is the amount of the call premium on a $1,000 par value bond? $52 $54 $72 $84 $89

Call premium = $1,054 − 1,000 = $54

A 3.25 percent Treasury bond is quoted at a price of 101.16. The bond pays interest semiannually. What is the current yield? 3.06 percent 3.17 percent 3.21 percent 3.33 percent 3.38 percent

Current yield = (.0325 × $1,000) / (1.0116 × $1,000) = .0321, or 3.21 percent

A Treasury bond is quoted at a price of 101.6533 with a current yield of 6.276 percent. What is the coupon rate on a $10,000 bond? 7.20 percent 6.48 percent 6.41 percent 6.38 percent 6.27 percent

Price = 1.016533 × $10,000 = $10,165.33 Annual interest = .06276 × $10,165.33 = $637.98 Coupon rate = $637.98 / $10,000 = 6.38 percen

A Treasury bond is quoted at a price of 105.4620. What is the market price of this bond if the face value is $5,000? $5,005.46 $5,105.46 $5,273.10 $5,264.44 $5,215.00

Price = 1.054620 × $5,000 = $5,273.10