exam 2 - Exam 2 Key SECTION 1 SECTION 2 3PM VERSION 2...

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Exam 2 Key SECTION 1 3PM VERSION 2 SECTION 2 4:30PM VERSION 3 1. The 7 percent semiannual coupon bonds of the Garden Supplies Co. are selling for $976, have a face value of $1,000, and have a yield to maturity of 8.079 percent. How many years will it be until these bonds mature? A . 2.50 years b. 3.15 years c. 5.00 years d. 7.85 years e. 10.00 years N = ? = 5/2=2.5; I=8.079;PV=-976;PMT=70/2=35;FV=1000 BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 006 #83 SECTION: 6.1 TOPIC: TIME TO MATURITY TYPE: PROBLEMS
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2. You own two bonds. Both bonds pay annual interest, have 8 percent coupons, $1,000 face values, and currently have 8 percent yields to maturity. Bond 1 has 9 years to maturity and Bond 2 has 6 years to maturity. If the market rate of interest rises unexpectedly to 9 percent, Bond _____ will be the most volatile with a price decrease of _____ percent. a. 1; 7.26 B . 1; 6.00 c. 1; 4.49 d. 2; 1.61 e. 2; 3.57 Both bonds have a starting price of $1,000 since their coupon rates are equal to their yields to maturity. All else equal, with longer maturity bond will have the most interest rate risk (Bond 1). Price after interest rate change for Bond 1: N=9;I=9;PV=?=940.05;PMT=80;FV=1000. Percent change in price = (940.05 - 1000)/1000 = -.05995 = -6% BLOOMS TAXONOMY QUESTION TYPE: ANALYSIS LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: INTERMEDIATE Ross - Chapter 006 #98 SECTION: 6.1 TOPIC: INTEREST RATE RISK TYPE: PROBLEMS 3. The 6.5 percent, $1,000 face value bonds of The Theta Co. are currently selling at $1,035.80. These bonds have 13 years left until maturity. What is the current yield? a. 6.09 percent B . 6.28 percent c. 6.50 percent d. 6.71 percent e. 6.95 percent Current yield = (.065 $1,000) / $1,035.80 = .06275 = 6.28 percent BLOOMS TAXONOMY QUESTION TYPE: APPLICATION LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: BASIC Ross - Chapter 006 #90 SECTION: 6.1 TOPIC: CURRENT YIELD TYPE: PROBLEMS
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4. A premium bond has a: I. market price equal to the face value. II. market price that exceeds the face value. III. yield to maturity that exceeds the coupon rate. IV. yield to maturity that is less than the coupon rate. a. I only b. I and III only c. II and III only d. I and IV only E . II and IV only BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION LEARNING OBJECTIVE NUMBER: 2 LEVEL OF DIFFICULTY: INTERMEDIATE Ross - Chapter 006 #34 SECTION: 6.1 TOPIC: PREMIUM BOND TYPE: CONCEPTS 5. An unexpected increase in market interest rates will cause: I. bond prices to increase. II. bond prices to decrease. III. yields to maturity to increase. IV. yields to maturity to decrease.
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exam 2 - Exam 2 Key SECTION 1 SECTION 2 3PM VERSION 2...

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