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Exam 3 Finance 3320 Spring 2011 Third Examination Finance 3320 Spring 2011 (Moore) R-Number: ____________________ Printed Name: ____________________ Ethical conduct is an important component of any profession. The Texas Tech University Code of Student Conduct is in force during this exam. Students providing or accepting unauthorized assistance will be assigned a score of zero (0) for this piece of assessment. Using unauthorized materials during the exam will result in the same penalty. Ours should be a self-monitoring profession. It is the obligation of all students to report violations of the honor code in this course. By signing below, you are acknowledging that you have read the above statement and agree to abide by the stipulated terms. Students Signature: ______________________________ Clearly Fill in the appropriate bubble on the Scantron form for each of the following questions. Choose the BEST response. There is only one answer per question. 1. A 15-year bond with a face value of $1,000 currently sells for $850. Which of the following statements is CORRECT? a. The bonds coupon rate exceeds its current yield. b. The bonds current yield exceeds its yield to maturity. c. The bonds yield to maturity is greater than its coupon rate. d. The bonds current yield is equal to its coupon rate. e. If the yield to maturity stays constant until the bond matures, the bonds price will remain at $850. 2. Bond A has a 9% annual coupon, while Bond B has a 7% annual coupon. Both bonds have the same maturity, a face value of $1,000, an 8% yield to maturity, and are noncallable. Which of the following statements is CORRECT? a. Bond As capital gains yield is greater than Bond Bs capital gains yield. b. Bond A trades at a discount, whereas Bond B trades at a premium. c. If the yield to maturity for both bonds remains at 8%, Bond As price one year from now will be higher than it is today, but Bond Bs price one year from now will be lower than it is today. d. If the yield to maturity for both bonds immediately decreases to 6%, Bond As bond will have a larger percentage increase in value. e. Bond As current yield is greater than that of Bond B. 3. A 12-year bond has an annual coupon of 9%. The coupon rate will remain fixed until the bond matures. The bond has a yield to maturity of 7%. Which of the following statements is CORRECT? a. If market interest rates decline, the price of the bond will also decline.... View Full Document

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