ch5_steps_solutions - Quiz for Lecture 5 1. Which of the...

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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 20-year original maturity bond with 1 year left to maturity ______ the interest rate risk of a 20-year original maturity bond with 2 year left to maturity, and _______ the interest rate risk of a 10-year original maturity bond with 1 year left to maturity. (Assume that the bonds have equal default risk and equal coupon rates.) a. <, < b. <, = c. >, < d. =, < 3. You intend to purchase a 10-year, $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? a.
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This note was uploaded on 10/03/2010 for the course FINANCE 08FB40447 taught by Professor Raymond during the Spring '10 term at University of Manchester.

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ch5_steps_solutions - Quiz for Lecture 5 1. Which of the...

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