Quiz3Solution - Quiz #3 Solutions: Module 2, Chapters 6-7...

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Quiz #3 Solutions: Module 2, Chapters 6-7 FIN 5405 J. Houston 1. Corporate vs. Treasury bond yields Answer: a r* 3.50% IP 2.25% MRP, 5-year T-bond Per year: 0.08% Years: 5 0.40% MRP, 10-year corporate Per year: 0.08% Years: 10 0.80% LP 0.50% DRP 0.85% T-bond yield 6.15% A bond yield 7.90% Difference 1.75% 2. Interest rate risk and default risk Answer: d 3. Yield to maturity (YTM) Answer: b 4. Real risk-free rate, r* Answer: e Maturity 5 r Keys' Yield 6.50% r T-bond Yield 4.40% DRP Included in Keys only 0.40% LP Included in Keys only 1.70% IP Included in both bonds 1.50% MRP Included in both bonds 0.40% r* 2.50% 5. Interest rates Answer: e N 9 I/YR 7.61% PV $1,025.00 PMT $80 FV $1,000.00
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6. Bond valuation - semiannual coupons Answer: d Par value $1,000.00 Coupon rate 7.00% Periods/year 2 Yrs to Mat. 15 N=periods 30 Annual rate 6.00% Periodic rate 3.00% PV $1,098.00 PMT/period $35 FV $1,000.00 7. Yields to maturity and call Answer: b Coupon rate 9% YTM 7.00% Maturity 12 Yrs to call 3 Par value
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This note was uploaded on 12/30/2010 for the course FIN 5405 taught by Professor Tapley during the Spring '08 term at University of Florida.

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Quiz3Solution - Quiz #3 Solutions: Module 2, Chapters 6-7...

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