FIN 3000 Chapter 7 Homework

Say you own an asset that had a total return last year of 10.3 percent. If the inflation rate last year was 4.1 percent, what was your real return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

5.96% R+1=(1+r)x(1+h) 1.103=(1+r)x(1.041) 1.059558=1+r r=5.96%

Westco Company issued 14-year bonds a year ago at a coupon rate of 8 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 6.3 percent, what is the current bond price in dollars? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

1,149.36 https://www.thecalculator.co/finance/Bond-Price-Calculator-606.html

Real rates are defined as nominal rates that have been adjusted for which of the following?

inflation

The current yield is defined as the annual interest on a bond divided by the:

market price

Which one of the following is the price at which a dealer will sell a bond?

asked price

West Corporation issued 18-year bonds 2 years ago at a coupon rate of 9.6 percent. The bonds make semiannual payments. If these bonds currently sell for 101 percent of par value, what is the YTM?

10.43%

Genova Corporation has a four year 10% annual coupon bond. The price of the bond is $956.12. The Yield to Maturity is 11.43%. What is the current yield on this bond?

10.46%

Yan Yan Corporation has a $2,000 par value bond outstanding with a coupon rate of 5.4 percent paid semiannually and 24 years to maturity. The yield to maturity on this bond is 4.7 percent. What is the dollar price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

2200.19 https://www.thecalculator.co/finance/Bond-Price-Calculator-606.html

You find a zero coupon bond with a par value of $10,000 and 15 years to maturity. If the yield to maturity on this bond is 4.4 percent, what is the price of the bond? Assume semiannual compounding periods. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

5205.63 Price of bond=Par value/(1+YTM/2)^(2*time period)Price of Bond=10,000/(1+0.044/2)^(2x15)Price of bond=10,000/(1.022)^(30)=$5,205.63

Treasury bills are currently paying 6 percent and the inflation rate is 3.3 percent. a. What is the approximate real rate of interest? (Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the exact real rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

a. 2.7% 6-3.3 b. 2.61 R+1=(1+r)x(1+h) 1.06=(1+r)(1.033)

A bond that can be paid off early at the issuer's discretion is referred to as being which type of bond?

callable

Ana just received the semiannual payment of $35 on a bond she owns. This is called the ______ payment

coupon

The Fisher Effect has all of the following components, except:

expected rate of return, E

Current Yield is the bond's annual coupon divided by its yield to maturity.

false

Olivares, Incorporated, bonds mature in 17 years and have a coupon rate of 5.4 percent. If the market rate of interest increases, then the:

market price of the bond will decrease

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?

the price of the bond will fall

The bond market requires a return of 6.2 percent on the 15-year bonds issued by Mingwei Manufacturing. The 6.2 percent is referred to as the:

yield to maturity

Assume the current market price of a bond exceeds its par value. Which one of these equations applies?

yield to maturity < coupon rate

McConnell Corporation has bonds on the market with 10 years to maturity, a YTM of 7.6 percent, a par value of $1,000, and a current price of $1,236.50. The bonds make semiannual payments. What must the coupon rate be on these bonds?

11.02

Cooks Creek issued $1000 par value, 17-year bonds 2 years ago at a coupon rate of 10.8 percent. The bonds make semiannual payments. If these bonds currently sell for 97 percent of par value, what is the YTM?

11.22%

Chubb Co. issued 8-year bonds two years ago at a coupon rate of 9 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 6 percent, what is the current bond price?

1149.31 https://www.thecalculator.co/finance/Bond-Price-Calculator-606.html

Warren Corporation is interested in a three-year, 11% annual coupon bond. A broker quotes a price of $930.35. What is the yield to Maturity?

14%

Brown Boxes Inc. has 6.2 percent coupon bonds outstanding with a current market price of $704. The yield to maturity is 10.4 percent and the face value is $1,000. Interest is paid annually. How many years is it until these bonds mature?

7.67 years

Assume the nominal rate was 11.50% and the inflation rate was 3%. Using the Fisher Effect, what was the real rate?

8.25% 1+R=(1+r)x(1+h) 1+0.115=(1+r)x(1+0.03) 1.115=(1+r)x(1.03) 1.0825=(1+r) 0.0825=r r=8.25%

Randall's Robots has bonds outstanding with 13 years to maturity, make annual interest payments, have a par value of $1,000, and are currently selling for $880. At this price the bonds yield 11 percent. What must the coupon rate be on the bonds?

9.22%

Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 15 years to maturity, and a coupon rate of 6.9 percent paid annually. If the yield to maturity is 8 percent, what is the current price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

905.85 Current price = Coupon [1 - 1 /(1 + r)^n] / r + FV /(1 + r)^n

Which one of the following premiums is compensation for the possibility that a bond issuer may not pay a bond's interest or principal payments as expected?

default risk

Dilan owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. The $1,000 is referred to as the:

face value

A bond's principal is repaid on the ________ date.

maturity