FIN 125 Exam 2 Ch.7

MC algo 7-33 Accrued Interest You purchase a bond with an invoice price of $997. The bond has a coupon rate of 5.3 percent, it makes semiannual payments, and there are 2 months to the next coupon payment. The par value is $1,000. What is the clean price of the bond?

$1,014.67

MC algo 7-28 Zero Coupon Bond Pricing There are zero coupon bonds outstanding that have a YTM of 5.67 percent and mature in 24 years. The bonds have a par value of $10,000. If we assume semiannual compounding, what is the price of the bonds?

$2,613.57

MC algo 7-31 Zero Coupon Implicit Interest You purchase a zero coupon bond with 13 years to maturity and a yield to maturity of 4.97 percent. The bond has a par value of $1,000. What is the implicit interest for the first year? Assume semiannual compounding.

$26.58

S07-19 Interest Rate Risk [LO2] Both Bond Sam and Bond Dave have 7.3 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has three years to maturity, whereas Bond Dave has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam and Bond Dave?

%Change in Price of Bond Sam : -.0513 %Change in Price of Bond Dave : -.1801 -- If rates suddenly rise --- %Change in Price of Bond Sam : .0548 %Change in Price of Bond Dave : .2447

MC algo 7-19 Calculating Years To Maturity The Lo Sun Corporation offers a 5.0 percent bond with a current market price of $753.50. The yield to maturity is 8.55 percent. The face value is $1,000. Interest is paid semiannually. How many years until this bond matures? 5.38 years 21.51 years 20.63 years 10.76 years 30.14 years

10.76

S07-25 Finding the Bond Maturity [LO2] Excey Corp. has 8 percent coupon bonds making annual payments with a YTM of 7.2 percent. The current yield on these bonds is 7.55 percent. How many years do these bonds have left until they mature?

11.06

MC algo 7-22 Current Yield A bond that pays interest semiannually has a coupon rate of 5.44 percent and a current yield of 4.91 percent. The par value is $1,000. What is the bond's price?

1107.94

S07-31 Real Cash Flows [LO4] You want to have $2.5 million in real dollars in an account when you retire in 40 years. The nominal return on your investment is 10.3 percent and the inflation rate is 3.7 percent. What real amount must you deposit each year to achieve your goal?

14733.11

TB MC Qu. 07-124 You want to have $2 million in real dollars in an account when you retire in 35 years. The nominal return on your investment is 9.94 percent and the inflation rate is 3.2 percent. What is the real amount you must deposit each year to achieve your goal?

16017

MC algo 7-2 The Fisher Effect An investment had a nominal return of 10.2 percent last year. If the real return on the investment was only 8.0 percent, what was the inflation rate for the year?

2.26%

MC algo 7-15 Calculating Coupon Rates A bond has a par value of $1,000, a current yield of 6.66 percent, and semiannual coupon payments. The bond is quoted at 98.05. What is the amount of each coupon payment?

32.65

MC algo 7-26 Critical Rax Rate A municipal bond has a YTM of 4.83 percent while the YTM of a comparable taxable bond is 7.60 percent. What is the tax rate that will make an investor indifferent between the municipal bond and the taxable bond?

36.45%

TB MC Qu. 07-123 An investment offers a total return of 13.8 percent over the coming year. You believe the total real return will be only 9.4 percent. What do you believe the exact inflation rate will be for the next year

4.02%

MC algo 7-30 Zero Coupon Bond YTM There is a zero coupon bond that sells for $4,550.90 and has a par value of $10,000. If the bond has 18 years to maturity, what is the yield to maturity? Assume semiannual compounding.

4.42%

MC algo 7-21 Current Yield Sweet Sue Foods has bonds outstanding with a coupon rate of 4.96 percent paid semiannually and sell for $1,902.14. The bonds have a par value of $2,000 and 17 years to maturity. What is the current yield for these bonds?

5.22%

MC algo 7-20 Current Yield A bond that pays interest semiannually has a price of $958.56 and a semiannual coupon payment of $29.50. If the par value is $1,000, what is the current yield?

6.16%

MC algo 7-1 The Fisher Effect An investment had a nominal return of 10.0 percent last year. The inflation rate was 3.3 percent. What was the real return on the investment?

6.49%

MC algo 7-16 Calculating Coupon Rates A bond has a par value of $1,000, a current yield of 7.43 percent, and semiannual coupon payments. The bond is quoted at 98.83. What is the coupon rate of the bond?

7.34

MC algo 7-13 Calculating YTM Crossfade Corp. has a bond with a par value of $2,000 that sells for $1,910.50. The bond has a coupon rate of 7.05 percent and matures in 19 years. If the bond makes semiannual coupon payments, what is the YTM of the bond?

7.50%

MC algo 7-24 Aftertax Yield A municipal bond has a coupon rate of 5.08 percent and a YTM of 5.39 percent. If an investor has a marginal tax rate of 30 percent, what is the equivalent pretax yield on a taxable bond?

7.70%

MC algo 7-7 Bond Pricing Whatever, Inc., has a bond outstanding with a coupon rate of 5.62 percent and semiannual payments. The yield to maturity is 7 percent and the bond matures in 14 years. What is the market price if the bond has a par value of $1,000?

878.10

MC algo 7-5 Bond Pricing Wine and Roses, Inc., offers a bond with a coupon of 5.5 percent with semiannual payments and a yield to maturity of 6.32 percent. The bonds mature in 11 years. What is the market price of a $1,000 face value bond? $1,367.02 $1,504.37 $1,008.79 $1,431.32 $935.69

935.69

S07-21 Bond Yields [LO2] Workman Software has 6.4 percent coupon bonds on the market with 18 years to maturity. The bonds make semiannual payments and currently sell for 94.31 percent of par. a. What is the current yield on the bonds? b. What is the YTM? c. What is the effective annual yield?

Current Yield: .0679 YTM: 6.96% Effective Annual Yield: .0708 or 7.08%

S07-02 Interpreting Bond Yields [LO2] Suppose you buy a 7 percent coupon, 20-year bond today when it's first issued. If interest rates suddenly rise to 15 percent, what happens to the value of your bond? A. The price of the bond will fall. B. The price of the bond will rise.

The price of the bond will fall.

S07-18 Bond Price Movements [LO2] Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 7.4 percent, has a YTM of 6.8 percent, and has 13 years to maturity. Bond Y is a discount bond making semiannual payments. This bond pays a coupon rate of 6.8 percent, has a YTM of 7.4 percent, and also has 13 years to maturity. Assume a par value of $1,000. What is the price of each bond today? If interest rates remain unchanged, what do you expect the price of these bonds to be one year from now? In three years? In eight years? In 12 years? In 13 years? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

X: P0= $1,051.24 P1=$1,048.69 P3=$1,043.03 P8= $1,005.71 P12=$1005.71 P13 = $1,000 Y: P0 = $= $950.45 P1 = $952.82 P3= $958.12 P8 =$975.30 P12 = $994.32 P13 = $1,000