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1. Which of the next statements is CORRECT?
 [removed]a. Assume that two bonds have equal maturities and are of equal danger, however one bond sells at par whereas the opposite sells at a premium above par. The premium bond should have a decrease present yield and the next capital positive factors yield than the par bond.
 [removed]b. A bond's present yield should at all times be both equal to its yield to maturity or between its yield to maturity and its coupon charge.
 [removed]c. If a bond sells at par, then its present yield might be lower than its yield to maturity.
 [removed]d. If a bond sells for lower than par, then its yield to maturity is lower than its coupon charge.
 [removed]e. A reduction bond's worth declines annually till it matures, when its worth equals its par worth.

2. Drawback 5-14

Present Yield with Semiannual Funds

A bond that matures in 9 years sells for \$950.The bond has a face worth of \$1,000 and a yield to maturity of 9.8764%. The bond pays coupons semiannually. What's the bond's present yield? Spherical your reply to 2 decimal locations.

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Three. Drawback 5-7

Bond Valuation with Semiannual Funds

Renfro Leases has issued bonds which have a 10% coupon charge, payable semiannually. The bonds mature in 9 years, have a face worth of \$1,000, and a yield to maturity of 10%. What's the worth of the bonds? Spherical your reply to the closest cent.

\$  [removed]

Four. Drawback 5-19

1. Maturity Danger Premiums

Assume that the actual risk-free charge, r*, is Four% and that inflation is predicted to be 7% in 12 months 1, 6% in 12 months 2, and Four% thereafter. Assume additionally that every one Treasury securities are extremely liquid and freed from default danger. If 2-year and 5-year Treasury notes each yield 10%, what's the distinction within the maturity danger premiums (MRPs) on the 2 notes; that's, what's MRP5 minus MRP2? Spherical your reply to 2 decimal locations.

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5. Which of the next occasions would make it extra doubtless that an organization would select to name its excellent callable bonds?

 [removed]a. The corporate's bonds are downgraded.
 [removed]b. The corporate's monetary state of affairs deteriorates considerably.
 [removed]c. Market rates of interest rise sharply.
 [removed]d. Inflation will increase considerably.
 [removed]e. Market rates of interest decline sharply.

6. You might be contemplating two bonds. Bond A has a 9% annual coupon whereas Bond B has a 6% annual coupon. Each bonds have a 7% yield to maturity, and the YTM is predicted to stay fixed. Which of the next statements is CORRECT?

 [removed]a. The worth of Bond B will lower over time, however the worth of Bond A will improve over time.
 [removed]b. The costs of each bonds will improve by 7% per yr.
 [removed]c. The worth of Bond A will lower over time, however the worth of Bond B will improve over time.
 [removed]d. The costs of each bonds will improve over time, however the worth of Bond A will improve by extra.
 [removed]e. The costs of each bonds will stay unchanged.

7.

 [removed]a. The shorter the time to maturity, the better the change within the worth of a bond in response to a given change in rates of interest.
 [removed]b. You maintain two bonds. One is a 10-year, zero coupon, bond and the opposite is a 10-year bond that pays a 6% annual coupon. The identical market charge, 6%, applies to each bonds. If the market charge rises from the present degree, the zero coupon bond will expertise the smaller share decline.
 [removed]c. You maintain two bonds. One is a 10-year, zero coupon, subject and the opposite is a 10-year bond that pays a 6% annual coupon. The identical market charge, 6%, applies to each bonds. If the market charge rises from the present degree, the zero coupon bond will expertise the bigger share decline.
 [removed]d. The time to maturity doesn't have an effect on the change within the worth of a bond in response to a given change in rates of interest.
 [removed]e. The longer the time to maturity, the smaller the change within the worth of a bond in response to a given change in rates of interest.

Eight. Tucker Company is planning to subject new 20-year bonds. Initially, the plan was to make the bonds non-callable. If the bonds had been made callable after 5 years at a 5% name premium, how would this have an effect on their required charge of return?

 [removed]a. There is no such thing as a purpose to anticipate a change within the required charge of return.
 [removed]b. The required charge of return would decline as a result of the bond would then be much less dangerous to a bondholder.
 [removed]c. Due to the decision premium, the required charge of return would decline.
 [removed]d. The required charge of return would improve as a result of the bond would then be extra dangerous to a bondholder.
 [removed]e. It's not possible to say with out extra data.

9. Bond A has a 9% annual coupon, whereas Bond B has a 7% annual coupon. Each bonds have the identical maturity, a face worth of \$1,000, and an Eight% yield to maturity. Which of the next statements is CORRECT?

 [removed]a. If the yield to maturity for each bonds instantly decreases to six%, Bond A's bond could have a bigger share improve in worth.
 [removed]b. Bond A's capital positive factors yield is larger than Bond B's capital positive factors yield.
 [removed]c. If the yield to maturity for each bonds stays at Eight%, Bond A's worth one yr from now might be larger than it's in the present day, however Bond B's worth one yr from now might be decrease than it's in the present day.
 [removed]d. Bond A trades at a reduction, whereas Bond B trades at a premium.
 [removed]e. Bond A's present yield is larger than that of Bond B.

10. A 10-year bond with a 9% annual coupon has a yield to maturity of Eight%. Which of the next statements is CORRECT?

 [removed]a. If the yield to maturity stays fixed, the bond's worth one yr from now might be decrease than its present worth.
 [removed]b. The bond's present yield is larger than 9%.
 [removed]c. The bond is promoting at a reduction.
 [removed]d. If the yield to maturity stays fixed, the bond's worth one yr from now might be larger than its present worth.
 [removed]e. The bond is promoting under its par worth

11. Drawback 5-Eight

1. Yield to Maturity and Name with Semiannual Funds

Thatcher Company's bonds will mature in 10 years. The bonds have a face worth of \$1,000 and an Eight% coupon charge, paid semiannually. The worth of the bonds is \$1,100. The bonds are callable in 5 years at a name worth of \$1,050. Spherical your solutions to 2 decimal locations.

What's their yield to maturity?
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What's their yield to name?
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12. Which of the next statements is CORRECT?

 [removed]a. Most sinking funds require the issuer to offer funds to a trustee, who saves the cash in order that it will likely be obtainable to repay bondholders when the bonds mature.
 [removed]b. Sinking fund provisions typically end up to adversely have an effect on bondholders, and that is almost definitely to happen if rates of interest decline after the bond has been issued.
 [removed]c. A sinking fund provision makes a bond extra dangerous to traders on the time of issuance.
 [removed]d. Sinking fund provisions by no means require firms to retire their debt; they solely set up "targets" for the corporate to scale back its debt over time.
 [removed]e. If rates of interest have elevated since an organization issued bonds with a sinking fund, the corporate is much less doubtless to retire the bonds by shopping for them again within the open market, versus calling them in on the sinking fund name worth.

13. Drawback 5-6

Maturity Danger Premium

The actual risk-free charge is Three%, and inflation is predicted to be Four% for the subsequent 2 years. A 2-year Treasury safety yields Eight.Four%. What's the maturity danger premium for the 2-year safety?

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14. Drawback 5-Four

Determinant of Curiosity Charges

The actual risk-free charge is 2%. Inflation is predicted to be Three% this yr and 5% throughout the subsequent 2 years. Assume that the maturity danger premium is zero.

What's the yield on 2-year Treasury securities? Spherical your reply to 2 decimal locations.
[removed]%

What's the yield on Three-year Treasury securities? Spherical your reply to 2 decimal locations.
[removed]%

15. Drawback 5-2 Yield to Maturity for Annual Funds

Wilson Wonders's bonds have 10 years remaining to maturity. Curiosity is paid yearly, the bonds have a \$1,000 par worth, and the coupon rate of interest is 7%. The bonds promote at a worth of \$985. What's their yield to maturity? Spherical your reply to 2 decimal locations.

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16. Drawback 5-1

Bond Valuation with Annual Funds

Jackson Company's bonds have 16 years remaining to maturity. Curiosity is paid yearly, the bonds have a \$1,000 par worth, and the coupon rate of interest is Eight%. The bonds have a yield to maturity of 12%. What's the present market worth of those bonds? Spherical your reply to the closest cent.

\$  [removed]

17. Assume that every one rates of interest within the financial system decline from 10% to 9%. Which of the next bonds would have the largest share improve in worth?

 [removed]a. A 1-year bond with a 15% coupon.
 [removed]b. An Eight-year bond with a 9% coupon.
 [removed]c. A 10-year zero coupon bond.
 [removed]d. A 10-year bond with a 10% coupon.
 [removed]e. A Three-year bond with a 10% coupon.