FINANCE

64. Yields of a Bond A 4.5 percent coupon municipal bond has 10 years left to maturity and has a price quote of 97.75. The bond can be called in 4 years. The call premium is one year of coupon payments. What is the bond’s taxable equivalent yield for an investor in the 33 percent marginal tax bracket? (Assume interest payments are paid semi-annually and a par value of $5,000.)
A. 4.5%
B. 4.78%
C. 7.13%
D. 14.48%

 

65. Bond Ratings and Prices A corporate bond with a 5.75 percent coupon has 15 years left to maturity. It has had a credit rating of BB and a yield to maturity of 6.25 percent. The firm has recently gotten more financially stable and the rating agency is upgrading the bonds to BBB. The new appropriate discount rate will be 6.00 percent. What will be the change in the bond’s price in dollars? (Assume interest payments are paid semi-annually and a par value of $1,000.)
A. decrease $22.25
B. increase $22.25
C. decrease $23.72
D. increase $23.72

 

66. Which of the following was the catalyst for the recent financial crisis?
A. Corruption in the investment banking industry.
B. Widespread layoffs due to illegal alien hiring.
C. Defaults on subprime mortgages.
D. All of these.

 

67. Which of the following is not true about EE savings bonds?
A. Interest payments are received annually but are tax deductible.
B. About 1 in 6 Americans own a savings bond
C. These are tax deferred investments
D. Patriot bonds sell for one-half of their face value.

 

68. If Zeus Energy bonds are upgraded from BBB- to BBB+, which of the following statements is true?
A. The current bond price will increase.
B. Interest rates required on new bond issues will increase.
C. The current bond price will decrease.
D. The current bond price will increase and interest rates on new bonds issues will decrease.

 

69. A 6.5% coupon bond with 12 years left to maturity can be called in 4 years. The call premium is one year of coupon payments. It is offered for sale at $1,190.25. What is the yield to call of the bond? (Assume interest payments are paid semi-annually and par value is $1,000.)
A. 1.48%
B. 2.96%
C. 6.5%
D. 7.23%

 

70. A 7.5% coupon bond with 16 years left to maturity is offered for sale at $834.92. What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually and par value is $1,000.)
A. 4.77%
B. 7.5%
C. 9.54%
D. 10.34%

 

71. An 8% coupon bond with 15 years to maturity is priced to offer a 9% yield to maturity. You believe that in one year, the yield to maturity will be 6.5%. What is the change in price the bond will experience in dollars? (Assume annual interest payments and par value is $1,000.)
A. $163.92
B. $176.15
C. $198.45
D. $215.82

 

72. Calculate the price of a 6.5% coupon bond with 27 years left to maturity and a market interest rate of 5%. (Assume interest payments are semiannual and par value is $1,000.) Is this a discount or premium bond?
A. $982.03; discount
B. $1,010.59; discount
C. $1,220.93; premium
D. $1,315.62; premium

 

73. Calculate the price of a 6.5% coupon bond with 17 years left to maturity and a market interest rate of 10.5%. (Assume interest rates are semiannual and par value is $1,000.) Is this a discount or premium bond?
A. $685.93; discount
B. $791.03; discount
C. $1,051.83; premium
D. $1,176.31; premium

 

74. Calculate the price of a zero coupon bond that matures in 20 years if the market interest rate is 8.5%. (Assume annual compounding and a par value of $1,000.)
A. $90.29
B. $195.62
C. $1,195.62
D. $995.62

 

75. What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4% for an investor in the 28% tax bracket?
A. 2.88%
B. 3.87%
C. 4.51%
D. 5.56%

 

76. Rank from lowest credit risk to highest credit risk the following bonds, with the same time to maturity, by their yield to maturity: Treasury bond with yield of 5.55%, IBM bond with yield of 7.95%, Trump Casino bond with a yield of 9.15%, and Banc Ono bond with a yield of 6.12%.
A. Treasury, Trump Casino, Banc Ono, IBM
B. Trump Casino, IBM, Banc Ono, Treasury
C. Treasury, Banc Ono, IBM, Trump Casino
D. Trump Casino, Banc Ono, IBM, Treasury

 

77. Consider a 4.5% TIPS with an issue CPI reference of 187.2. At the beginning of this year, the CPI was 199.5 and was 213.7 at the end of the year. What was the capital gain of the TIPS in dollars?
A. $32.73
B. $46.92
C. $62.49
D. $75.85

 

78. Rank from highest credit risk to lowest credit risk the following bonds, with the same time to maturity, by their yield to maturity: Treasury bond with yield of 6.55%, IBM bond with yield of 10.95%, Trump Casino bond with a yield of 9.15%, and Banc Ono bond with a yield of 9.46%.
A. Treasury, Trump Casino, Banc Ono, IBM
B. Banc Ono, Trump Casino, IBM, Treasury
C. Trump Casino, Treasury, Banc Ono, IBM
D. IBM, Banc Ono, Trump Casino, Treasury

 

79. Consider the following bond quote: a municipal bond quoted at 101.25. If the municipal bond has a par value of $5,000, what is the price of the bond in dollars?
A. $5,089.06
B. $5,050.19
C. $5,062.50
D. $5,109.75

 

80. A 3.75% TIPS has an original reference CPI of 183.9. If the current CPI is 214.7, what is the current interest payment? (Assume semi-annual interest payments and a par value of $1,000.)
A. $43.78
B. $37.50
C. $21.89
D. $18.75

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