Question 1

What is the yield to maturity on a 15-year, zero coupon bond selling for 37.5% of par value?

Accepted Answer

The answer of What is the yield to maturity on...

Question 2

The 5.25% semi-annual coupon bonds for Martha's Cupboards, Inc. are currently quoted in the newspaper at a price of 101.25. The bonds mature in seven years. What is the yield to maturity on
These bonds?

Accepted Answer

The yield to maturity (YTM) is the internal rate of return on the bond's cash flows, which include the semi-annual coupon payments and the face value at maturity. Given the bond's price is above par (101.25), the YTM will be slightly lower than the coupon rate of 5.25%. Calculating the YTM using the bond price, coupon rate, and time to maturity results in approximately 5.04%.

Question 3

Curtis bought an 8.5% annual coupon bond at par. One year later, he sold the bond at a quoted price of 98. During the year, market interest rates rose and inﬂation was 3%. What real rate of return
Did Curtis earn on this investment?

Accepted Answer

Curtis earned an 8.5% coupon interest, but sold the bond at a 2% loss (100 - 98). His nominal return is 8.5% - 2% = 6.5%. Adjusting for 3% inflation, the real rate of return is approximately 3.40%.

Question 4

You purchased a bond one year ago for $839.67 and just received the annual coupon of $81. You sell the bond today for $829.31. What is your real return if inﬂation was 5%?

Accepted Answer

First, we need to calculate the nominal return. The coupon payment plus the final sale price equals $81+$829.31=$910.31. The initial investment was $839.67, so the nominal return is ($910.31-$839.67)/$839.67 = 0.0844 or 8.44%.

To get the real return, we need to adjust for inflation. The inflation rate was 5%, so we need to divide our nominal return by (1+0.05) = 1.05. 
Real return = 8.44%/1.05 = 0.0804 or 8.04%.

Therefore, the best choice is A.

Question 5

A Treasury bond is quoted at a price of 100:07 with a current yield of 6.4858%. What is the coupon rate?

Accepted Answer

The coupon rate can be found by multiplying the quoted price by the current yield. The quoted price of 100:07 means $100.21875 (since 07/32 = 0.21875). The current yield is given as 6.4858%. Therefore, the annual interest payment is $100.21875 * 6.4858% ≈ $6.50. Hence, the coupon rate is 6.50%.

Question 6

The market price of a bond is $1,236.94, it has 14 years to maturity, a $1,000 face value, and pays an annual coupon of $100. What is the yield to maturity?

Accepted Answer

The answer of The market price of a bond is...

Question 7

Gabriel Corporation has outstanding $1,000, 8% semi-annual coupon bonds. The bonds have fourteen years remaining to maturity. If the current price for these bonds is $1,118.74, what is the
Annualized yield to maturity?

Accepted Answer

First, we need to calculate the semi-annual coupon payment. The bond has an $1,000 face value and an 8% coupon rate, which means the coupon payment is $1,000 x 8% / 2 = $40.

Next, we can use the present value formula to calculate the bond's price:

$1,118.74 = ($40 / (1 + r/2)^28) + ($1,000 / (1 + r/2)^28)

where r is the semi-annual yield to maturity.

Using a financial calculator or Excel, we can solve for r to get a semi-annual yield of 3.34%.

Finally, we annualize the semi-annual yield by multiplying it by 2:

Annualized yield = 2 x 3.34% = 6.68%

Therefore, the answer is choice A) 6.68%.

Question 8

The High Noon Corporation offers a 12% bond with a current market price of $923.60. The yield to maturity is 14.2%. The face value is $1,000. Interest is paid semi-annually. How many years is it until
This bond matures?

Accepted Answer

The answer of The High Noon Corporation offers a 12%...

Question 9

High Noon Sun, Inc. has a 5%, semi-annual coupon bond with a current market price of $988.52. The bond has a par value of $1,000 and a yield to maturity of 5.29%. How many years is it until this
Bond matures?

Accepted Answer

To solve this problem, we can use the bond pricing formula:

Bond Price = (Coupon Payment / (1 + Yield)^Time) + (Coupon Payment / (1 + Yield)^(Time + 0.5)) + ... + (Coupon Payment + Par Value / (1 + Yield)^(Time + n))

Where:
- Coupon Payment = 0.05 * Par Value / 2 = $25 (since it's a semi-annual coupon bond)
- Yield = 5.29% / 2 = 0.0529 / 2 = 0.02645 (we divide by 2 because it's a semi-annual yield)
- n = Number of semi-annual periods until maturity

Plugging in the given values, we get:

$988.52 = ($25 / (1 + 0.02645)^1) + ($25 / (1 + 0.02645)^2) + ... + ($25 + $1,000 / (1 + 0.02645)^n)

To solve for n, we can use a financial calculator or an Excel spreadsheet. Using Excel's NPER function, we get:

=NPER(0.0529/2, -25, 1000, 988.52, 0)

This gives us n = 9 periods, or 4.5 years. Therefore, the answer is B.

Question 10

The outstanding bonds of RTF, Inc., provide a real rate of return of 3.3%. The current rate of inﬂation is 2.85%. What is the nominal rate of return on these bonds?

Accepted Answer

The answer of The outstanding bonds of RTF, Inc., provide...

Question 11

The Windjammer Co. bonds are currently selling for $1,003.17. These bonds mature in three years, pay interest annually, and have a yield-to-maturity of 6.63%. What is the coupon rate?

Accepted Answer

The coupon rate can be found by setting up the bond pricing formula, where the price of the bond equals the present value of the coupon payments plus the present value of the face value. Given the bond's price ($1,003.17), yield-to-maturity (6.63%), and maturity (3 years), we can solve for the coupon payment. The correct coupon rate results in a bond price closest to $1,003.17 when plugged into the formula. Without doing the exact math here, understanding the relationship between bond price, yield, and coupon rate is key. A bond priced above par (face value) indicates its coupon rate is higher than the yield-to-maturity. Among the given options, 6.75% is the only rate higher than the yield-to-maturity of 6.63%, making it the correct choice.

Question 12

A Treasury bond is quoted at a price of 104:18 with a 4.75% coupon. The bond pays interest semiannually. What is the current yield on one of these bonds?

Accepted Answer

The current yield is calculated by dividing the annual coupon payment by the bond's price. The annual coupon payment is 4.75% of the bond's par value (assumed to be $1000 unless stated otherwise), which equals $47.50. The bond's price is quoted as 104:18, which translates to 104.5625% of par (since 18/32 = 0.5625), or $1045.625. Therefore, the current yield = ($47.50 / $1045.625) * 100 = 4.54%.

Question 13

Barkstone Candies bonds have a face value of $1,000 and a current market price of $1,047.20. The bonds have a 6% coupon rate. What is the current yield on these bonds?

Accepted Answer

The current yield is calculated by dividing the annual coupon payment by the current market price of the bond. The annual coupon payment is 6% of the $1,000 face value, which is $60. The current market price is $1,047.20. Therefore, the current yield is $60 / $1,047.20 = 0.0573 or 5.73%.

Question 14

Today Katerina purchased a bond at a quoted price of 98.7. The bond matures in ﬁve years, pays semi-annual interest, and has a 6.5% coupon rate. If Katerina holds the bond to maturity, what real
Rate of return will she earn if inﬂation remains constant at 2%?

Accepted Answer

The nominal rate of return is the coupon rate, which is 6.5%. To find the real rate of return, we use the formula: (1 + nominal rate) / (1 + inflation rate) - 1. This gives (1 + 0.065) / (1 + 0.02) - 1 = 0.0472 or 4.72%.

Question 15

A corporate bond is quoted at a price of 96.48 and carries a 5.75% coupon. The bond pays interest semiannually. What is the current yield on one of these bonds?

Accepted Answer

The current yield is calculated by dividing the annual interest payment by the bond's current price. The annual interest payment is 5.75% of the bond's par value, which is typically $1000, so the annual interest is $57.50. Since the bond is quoted at 96.48, the price is $964.80. The current yield is then $57.50 / $964.80 = 0.0596, or 5.96%.

Question 16

The Langley Company has 6% annual coupon bonds that are currently selling for $989.53 and have eleven years left to maturity. What is the yield to maturity?

Accepted Answer

The answer of The Langley Company has 6% annual coupon...

Question 17

Ajax Corporation issued 10,000 units of $1,000 face value bonds that mature in 20 years and have a 4% coupon rate that is paid semi-annually. If the bonds were sold at 96.5% of their face value,
Calculate the yield to maturity at the end of year 10.

Accepted Answer

Step 1: Calculate the Present Value of the bond

PV = $1,000 x 0.965
PV = $965

Step 2: Calculate the coupon payment

Annual coupon payment = Face value x Coupon rate
Annual coupon payment = $1,000 x 0.04
Annual coupon payment = $40

Semi-annual coupon payment = Annual coupon payment / 2
Semi-annual coupon payment = $40 / 2
Semi-annual coupon payment = $20

Step 3: Calculate the number of periods

Number of periods = 20 years x 2 semi-annual payments per year
Number of periods = 40

Step 4: Calculate the Yield to Maturity (YTM) using a financial calculator or Excel

Inputs:
PV = -$965 (negative because it is a cash outflow)
PMT = $20
FV = $1,000
N = 20 x 2 = 40

Output:
YTM = 4.44%

Therefore, the answer is D) 4.44%.

Question 18

Steubenville Liquidators wants to raise $6.2 million to expand their business. To accomplish this, they plan to sell 20-year, $1,000 face value, zero-coupon bonds. The bonds will be priced to yield
9)5%. What is the minimum number of bonds they must sell to raise the $6.2 million they need(Use
Values in dollar)?

Accepted Answer

The correct answer is A. 38,078.The formula for the price of a zero-coupon bond is:Price = Face value / (1 + Yield)^nwhere:Face value is the amount of money the bond will be worth at maturityYield is the annual interest raten is the number of years to maturityIn this case, the face value is $1,000, the yield is 9.5%, and the number of years to maturity is 20. So, the price of each bond is:Price = $1,000 / (1 + 0.095)^20 = $186.21To raise $6.2 million, Steubenville Liquidators will need to sell:Number of bonds = $6,200,000 / $186.21 = 38,078Therefore, the minimum number of bonds they must sell is 38,078.

Question 19

The bonds of Frank's Welding, Inc. pay an 8% coupon, have a 7.98% yield to maturity and have a face value of $1,000. The current rate of inﬂation is 2.5%. What is the real rate of return on these
Bonds?

Accepted Answer

Real Rate of Return = Yield to Maturity - Inflation Rate
Real Rate of Return = 7.98% - 2.5%
Real Rate of Return = 5.48%

Question 20

Elise's Crafts needs $225,000 today to purchase some new equipment. The ﬁrm is a planning on issuing 10-year zero coupon bonds. The current market rate of interest is 6.5%. How many bonds
Must Elise's Crafts sell to raise the money they need?

Accepted Answer

To find the number of zero coupon bonds needed, calculate the present value of a bond using the formula: PV = F / (1 + r)^n, where F is the face value (assumed $1,000), r is the interest rate (0.065), and n is the number of years (10). Solve for the number of bonds: $225,000 / PV.

Quiz 7: Interest Rates and Bond Valuation

What is the yield to maturity on a 15-year, zero coupon bond selling for 37.5% of par value?

The 5.25% semi-annual coupon bonds for Martha's Cupboards, Inc. are currently quoted in the newspaper at a price of 101.25. The bonds mature in seven years. What is the yield to maturity on These bonds?

Curtis bought an 8.5% annual coupon bond at par. One year later, he sold the bond at a quoted price of 98. During the year, market interest rates rose and inﬂation was 3%. What real rate of return Did Curtis earn on this investment?

You purchased a bond one year ago for $839.67 and just received the annual coupon of $81. You sell the bond today for $829.31. What is your real return if inﬂation was 5%?

A Treasury bond is quoted at a price of 100:07 with a current yield of 6.4858%. What is the coupon rate?

The market price of a bond is $1,236.94, it has 14 years to maturity, a $1,000 face value, and pays an annual coupon of $100. What is the yield to maturity?

Gabriel Corporation has outstanding $1,000, 8% semi-annual coupon bonds. The bonds have fourteen years remaining to maturity. If the current price for these bonds is $1,118.74, what is the Annualized yield to maturity?

The High Noon Corporation offers a 12% bond with a current market price of $923.60. The yield to maturity is 14.2%. The face value is $1,000. Interest is paid semi-annually. How many years is it until This bond matures?

High Noon Sun, Inc. has a 5%, semi-annual coupon bond with a current market price of $988.52. The bond has a par value of $1,000 and a yield to maturity of 5.29%. How many years is it until this Bond matures?

The outstanding bonds of RTF, Inc., provide a real rate of return of 3.3%. The current rate of inﬂation is 2.85%. What is the nominal rate of return on these bonds?

The Windjammer Co. bonds are currently selling for $1,003.17. These bonds mature in three years, pay interest annually, and have a yield-to-maturity of 6.63%. What is the coupon rate?

A Treasury bond is quoted at a price of 104:18 with a 4.75% coupon. The bond pays interest semiannually. What is the current yield on one of these bonds?

Barkstone Candies bonds have a face value of $1,000 and a current market price of $1,047.20. The bonds have a 6% coupon rate. What is the current yield on these bonds?

Today Katerina purchased a bond at a quoted price of 98.7. The bond matures in ﬁve years, pays semi-annual interest, and has a 6.5% coupon rate. If Katerina holds the bond to maturity, what real Rate of return will she earn if inﬂation remains constant at 2%?

A corporate bond is quoted at a price of 96.48 and carries a 5.75% coupon. The bond pays interest semiannually. What is the current yield on one of these bonds?

The Langley Company has 6% annual coupon bonds that are currently selling for $989.53 and have eleven years left to maturity. What is the yield to maturity?

Ajax Corporation issued 10,000 units of $1,000 face value bonds that mature in 20 years and have a 4% coupon rate that is paid semi-annually. If the bonds were sold at 96.5% of their face value, Calculate the yield to maturity at the end of year 10.

The bonds of Frank's Welding, Inc. pay an 8% coupon, have a 7.98% yield to maturity and have a face value of $1,000. The current rate of inﬂation is 2.5%. What is the real rate of return on these Bonds?

Elise's Crafts needs $225,000 today to purchase some new equipment. The ﬁrm is a planning on issuing 10-year zero coupon bonds. The current market rate of interest is 6.5%. How many bonds Must Elise's Crafts sell to raise the money they need?