Question : 51.You find that the yield a 4-year bond 9% while : 1325669

 

 

51.You find that the yield on a 4-year bond is 9% while the yield on a 2-year bond beginning four years from now is 10%. What should be the yield on a 6-yr bond as predicted by the expectations’ theory?

a.1.00%

b.9.33%

c.14.32%

d.70.80%

 

 

 

52.If you were trying to describe the effect on the yield curve that certain investors have a definite preference for the maturity of the bonds that they invest in, then you would be referring to

a.the expectations theory.

b.the liquidity preference theory.

c.the preferred habitat theory.

d.none of the above.

 

 

 

53.Fence Place Diary Company (FPD) has a 15-year maturity bond outstanding that is currently convertible into 50 shares of FPD common stock. FPD common stock currently sells for $25 a share and the coupon rate (semi-annual coupons) for the bond is 5%. If the yield on a similarly rated convertible bond (on The New York Calendar Corp.) is 5%, then what should be the correct price of the FPD convertible bond?

a.$750.00

b.$1,000

c.$1,250

d.either a or b

 

 

 

 

54.You own a bond that pays a 12% annualized semi-annual coupon rate. The bond has 10 years to maturity. If the discount rate suddenly moves from 14% to 16%, then what is the dollar increase (decrease) in value for the bond?

a.($90.42)

b.($89.01)

c.$89.01

d.$90.42

 

 

 

 

 

 

55.You own a bond that pays a 12% annualized semi-annual coupon rate and has 10 years to maturity. If the discount rate increases from 14% to 16% during the next two years of the bonds life, then what is the dollar increase (decrease) in value for the bond during the two year period?

a.($69.42)

b.($71.09)

c.$69.42

d.$71.09

 

 

 

 

 

 

56.Oogle Corp. has decided to do things differently with respect to their corporate bond issue. They have a bond outstanding that makes quarterly coupon payments instead of semi-annually. The stated coupon rate on the bond is 10% and the yield to maturity on the 5-year bond is 12%. What is the price of the bond?

a.$927.90

b.$926.40

c.$925.61

d.none of the above

 

 

 

 

57.Suppose investment A and investment B have identical cash flows. Why would an investor pay more for investment A than investment B?

a.This is incorrect. You would always pay the same amount for two investments with equal future cash flows.

b.The risk in the cash flows for investment A is greater than the risk of the cash flows of investment B.

c.The risk in the cash flows for investment B is greater than the risk of the cash flows of investment A.

d.The return required for investment B is lower than the return required for investment A.

 

 

 

58.A bond pays an annual coupon rate of 7% with a face value of $1,000. The bond is scheduled to mature in two years and currently trades at $920.00. What is the coupon yield of the bond currently?

a.7.00%

b.7.61%

c.14.00%

d.15.22%

 

 

 

 

59.Consider the following details for a bond issued by Bravo Incorporated.

 

Issue Date8/5/2000

Maturity Date8/5/2030

Coupon Rate (annual coupons)9%

Face Value$1,000

 

Suppose that today’s date is 8/5/2004, what should the current trading price be for this bond if investors want a 12% annual return?

a.$658.09

b.$763.13

c.$908.88

d.$1,000.00

 

 

 

60.Consider the following details for a bond issued by Bravo Incorporated.

 

Issue Date8/5/2000

Maturity Date8/5/2030

Annual Coupon Rate (semi-annual coupons)9%

Face Value$1,000

 

Suppose that today’s date is 8/5/2004, what should the current trading price by for this bond if investors want a 12% annual return?

a.$762.08

b.$763.13

c.$906.85

d.$1,000.00