Quiz for Lecture 5
1.
Which of the following events would make it more likely that a company would
choose to call its outstanding callable bonds?
a.
A reduction in market interest rates.
b.
An increase in market interest rates.
c.
The company's bonds are downgraded.
d.
An increase in the call premium.
2.
The interest rate risk of a 20year original maturity bond with 1 year left to maturity
______ the interest rate risk of a 20year original maturity bond with 2 year left to
maturity, and _______ the interest rate risk of a 10year original maturity bond with 1
year left to maturity.
(Assume that the bonds have equal default risk and equal
coupon rates.)
3.
You intend to purchase a 10year, $1,000 face value bond that pays interest of $60
every 6 months.
If your nominal annual required rate of return is 10 percent with
semiannual compounding, how much should you be willing to pay for this bond?
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 Spring '10
 RAYMOND
 Interest, Interest Rate, 20year original maturity, original maturity bond

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