1. A bond with a face value of $1,000 matures in 12 years and has a 9% semiannual coupon. The bond has a current yield of 12%. Based on the information, you would expect the bond price to in one year. (Hint: Find capital gain/loss yield)
a. Decrease by 1.32%.
b. Increase by 7.00%.
c. Decrease by 5.68%.
d. Increase by 1.21%.
e. Increase by 8.46%.
2. A bond has an 8 percent annual coupon and a yield to maturity equal to 7.5 percent. Which of the following statements is most correct?
a. The bond sells at a price below par.
b. If the bond is callable, the YTM is a better estimate of this bond’s expected return.
c. If the yield to maturity remains constant, the price of the bond is expected to increase over time.
d. The bond price will decrease when there is an increase in the required discount rate.
e. The bond has a current yield greater than 8 percent.
3. Assume that all interest rates in the economy declined from 10 percent to 9 percent. Which of the following bonds will have the largest percentage increase in price? Select one: a. A 10-year bond with a 10% coupon.
b. A 10-year zero-coupon bond.
c. An 8-year bond with a 9% coupon.
d. A 13-year zero-coupon bond.
e. A 1-year bond with a 15% coupon.
4. Which of the following statements regarding “Sinking Fund Provision” is most correct?
a. In general, sinking fund bonds are issued with a lower coupon rate than otherwise similar bonds without sinking funds.
b. A firm will choose to buy the required bonds on the open market if the bonds are traded at a premium.
c. A firm will choose to call back bonds for redemption at par value if the bonds are traded at a discount.
d. On balance, bonds that have a sinking fund are regarded as being riskier than those without such a provision.
e. A sinking fund provision gives the issuer the right to sell bonds under specified terms prior to the normal maturity date. Get Finance Help