FIN_3610_CH_7_124

A bond has a yield to maturity of 11.68 percent. If the inflation rate is 3.2 percent, what is the real rate of return on the bond? A. 8.86 percent B. 15.90 percent C. 15.04 percent D. 8.22 percent E. 9.19 percent

D. 8.22 percent

Sunset Sales has 7.2 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? A. 7.34 percent B. 7.39 percent C. 7.93 percent D. 7.52 percent E. 7.47 percent

D. 7.52 percent

You purchase a bond with an invoice price of $1,319. The bond has a coupon rate of 6.25 percent, a face value of $1,000, and there are two months to the next semiannual coupon date. What is the clean price of this bond? A. $1,298.17 B. $1,352.17 C. $1,314.14 D. $1,408.12 E. $1,283.50

A. $1,298.17

You will receive $5,000 a year in real terms for the next 5 years. Each payment will be received at the end of the period with the first payment occurring one year from today. The relevant nominal discount rate is 10.725 percent and the inflation rate is 3 percent. What are your winnings worth today in real dollars? A. $20,229 B. $17,367 C. $17,401 D. $21,500 E. $17,838

A. $20,229

The yield to maturity on a bond is currently 9.84 percent. The real rate of return is 3.29 percent. What is the rate of inflation? A. 6.34 percent B. 5.64 percent C. 6.24 percent D. 6.53 percent E. 6.71 percent

A. 6.34 percent

Wheeler's has bonds on the market with 13 years to maturity, a YTM of 7.6 percent, and a current price of $901.98. The bonds make semiannual payments and have a face value of $1,000. What is the coupon rate? A. 6.40 percent B. 6.33 percent C. 6.60 percent D. 6.67percent E. 6.50 percent

A. 6.40 percent

A newly issued 20-year, $1,000, zero coupon bond just sold for $311.05. What is the implicit interest, in dollars, for the first year of the bond's life? A. $17.72 B. $18.70 C. $18.47 D. $17.63 E. $17.89

B. $18.70

You purchased an investment that will pay you $8,000, in real dollars, a year for the next three years. Each payment will be received at the end of the period with the first payment occurring one year from today. The nominal discount rate is 9.897 percent and the inflation rate is 2.9 percent. What is the present value of these payments in real dollars? A. $21,720 B. $21,072 C. $22,511 D. $25,112 E. $23,529

B. $21,072

The semiannual, 8-year bonds of Alto Music are selling at par and have an effective annual yield of 8.6285 percent. What is the amount of each interest payment if the face value of the bonds is $1,000? A. $41.50 B. $42.25 C. $43.15 D. $85.00 E. $86.29

B. $42.25

You want to have $2 million in real dollars in an account when you retire in 43 years. The nominal return on your investment is 9.939 percent and the inflation rate is 3.2 percent. What is the real amount you must deposit each year to achieve your goal? A. $10,403 B. $10,878 C. $9,210 D. $8,887 E. $9,711

C. $9,210

An investment offers a total return of 12.4 percent over the coming year. You believe the total real return will be only 9.7 percent. What do you believe the exact inflation rate will be for the next year? A. 2.52 percent B. 2.67 percent C. 2.46 percent D. 2.70 percent E. 2.58 percent

C. 2.46 percent

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

C. 3.21 percent

A bond that pays interest annually yielded 6.48 percent last year. The inflation rate for the same period was 2.5 percent. What was the actual real rate of return? A. 4.19 percent B. 4.25 percent C. 3.88 percent D. 3.41 percent E. 3.49 percent

C. 3.88 percent

Suppose the real rate is 2.45 percent and the inflation rate is 1.8 percent. What rate would you expect to see on a Treasury bill? A. 3.35 percent B. 3.30 percent C. 4.29 percent D. 3.56 percent E. 4.60 percent

C. 4.29 percent

Dexter Mills issued 20-year bonds a year ago at a coupon rate of 10.2 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 9.2 percent, what is the current bond price? A. $985.55 B. $991.90 C. $1,042.16 D. $1,089.02 E. $1,098.00

D. $1,089.02

A Treasury bond is quoted as 99.6325 asked and 99.1250 bid. What is the bid-ask spread in dollars on a $5,000 face value bond? A. $.508 B. $.675 C. $17.500 D. $25.375 E. $16.250

D. $25.375

A bond has a coupon rate of 8 percent, 7 years to maturity, semiannual interest payments, and a YTM of 7 percent. If interest rates suddenly rise by 2 percent, what will be the percentage change in the bond price? A. -10.16 percent B. -9.87 percent C. -9.56 percent D. -10.02 percent E. -10.67 percent

D. -10.02 percent

A $1,000 face value bond has a coupon rate of 7 percent, a market price of $911.02, and 10 years left to maturity. Interest is paid semiannually. If the inflation rate is 2.8 percent, what is the yield-to-maturity when expressed in real terms? A. 5.50 percent B. 4.68 percent C. 4.92 percent D. 5.38 percent E. 5.68 percent

D. 5.38 percent

Bonner Metals wants to issue new 20-year bonds for some much-needed expansion projects. The company currently has 8.5 percent bonds on the market that sell for $959, make semiannual payments, and mature in 16 years. What should the coupon rate be on the new bonds if the firm wants to sell them at par? A. 8.75 percent B. 9.23 percent C. 8.41 percent D. 8.99 percent E. 8.67 percent

D. 8.99 percent

The outstanding bonds of Winter Tires Inc. provide a real rate of return of 5.6 percent. If the current rate of inflation is 4.68 percent, what is the actual nominal rate of return on these bonds? A. 8.58 percent B. 9.33 percent C. 9.71 percent D. 9.76 percent E. 10.54 percent

E. 10.54 percent

Kaiser Industries has bonds on the market making annual payments, with 14 years to maturity, a par value of $1,000, and selling for $1,382.01. At this price, the bonds yield 7.5 percent. What is the coupon rate? A. 8.00 percent B. 8.50 percent C. 9.00 percent D. 10.50 percent E. 12.00 percent

E. 12.00 percent

The yield-to-maturity on a bond is the interest rate you earn on your investment if interest rates do not change. If you actually sell the bond before it matures, your realized return is known as the holding period yield. Suppose that today you buy a 9 percent annual coupon bond for $1,000. The bond has 12 years to maturity. Three years from now, the yield-to-maturity has declined to 7 percent and you decide to sell. What is your holding period yield? A. 8.84 percent B. 9.49 percent C. 10.96 percent D. 13.01 percent E. 12.83 percent

E. 12.83 percent

Global Exporters wants to raise $29.6 million to expand its business. To accomplish this, it plans to sell 20-year, $1,000 face value, zero coupon bonds. The bonds will be priced to yield 7.75 percent. What is the minimum number of bonds it must sell to raise the money it needs? A. 110,411 B. 139,800 C. 154,907 D. 126,029 E. 135,436

E. 135,436