second finance midterm

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?

$16,017

Which one of the following applies to a premium bond?

Coupon rate > Current yield > Yield to maturity

A premium bond that pays $60 in interest annually matures in seven years. The bond was originally issued three years ago at par. Which one of the following statements is accurate in respect to this bond today?

The yield to maturity is less than the coupon rate

The taxability risk premium compensates bondholders for which one of the following?

a bond's unfavorable tax status

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

callable

Bonds often provide tax benefits to

issuers

Given a positive rate of inflation, the real rate must be

less than the nominal rate

Viveros Foods has an investment-grade bond issue outstanding that pays $30 semiannual interest payments. The bonds sell at par and are callable at a price equal to the present value of all future interest and principal payments discounted at a rate equal to the comparable Treasury rate plus .50percent. Which one of the following correctly describes this bond?

the bond has a "make-whole" call price

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

A deferral call provision

prohibits the bond issuer from redeeming callable bonds prior to a specified date

You are purchasing a 15-year, zero coupon bond. The yield to maturity is 6.85 percent and the face value is $1,000. What is the current market price? Assume semiannual compounding.

$364.11

A bond has a coupon rate of 8 percent, seven years to maturity, semiannual interest payments, and a YTM of 7 percent. If interest rates suddenly rise by 1.5 percent, what will be the percentage change in the bond price?

-7.64%

The yield to maturity on a bond is currently 8.76 percent. The real rate of return is 4.48 percent. What isthe rate of inflation?

4.10%

Goldfarb Paints has 6.8 percent coupon bonds on the market with 11 years left to maturity. The bonds make semiannual payments and currently sell for 98.6 percent of par. What is the effective annual yield?

7.11%

Lampson bonds have a face value of $1,000 and are currently quoted at 867.25. The bonds havecoupon rate of 6.5 percent. What is the current yield on these bonds?

7.49%

Stoessel, Incorporated, issued 20-year bonds 3 years ago at a coupon rate of 8.5 percent. The bondsmake semiannual payments. If these bonds currently sell for 91.4 percent of par value, what is the YTM?

9.53%

Split-rate bonds are called

crossover bonds

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

Yield to maturity < Coupon rate

The interest rate risk premium is the

compensation investors demand for accepting interest rate risk

Charles owns a reverse convertible bond. At maturity, the principal amount will be repaid in

either cash or shares of stock