Answer key to homework 2

Answer key to homework 2 - FINA3313-031 Business Finance...

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FINA3313-031 Business Finance Homework 2 Instructor: Bing Y. Du This homework only consists of multiple choice questions. Please mark your answers on the SCANTRON (form 882) correspondingly and only submit the scantron. Please write your name, last 4 digits of SSN, and “Homework2” on your scantorn. Late submission will not be accepted. There are total 57 questions which cover CH5-CH7. CH5 Valuing Bond (1-15) 1. Periodic receipts of interest by the bondholder are known as: A) the coupon rate. B) a zero-coupon. C) coupon payments. D) the default premium. 2. A bond's par value can also be called its: A) coupon payment. B) present value. C) default value. D) face value 3. The discount rate that makes the present value of a bond's payments equal to its price is termed the: A) rate of return. B) yield to maturity. C) current yield. D) coupon rate. 4. When the market interest rate exceeds the coupon rate, bonds sell for less than face value to provide enough compensation to investors. (T=A , F=B) 5. If you purchase a three-year, 9% coupon bond for $950, how much could it be sold for two years later if interest rates have remained stable? A) $964.95 B) $981.54 C) $983.33 D) $1,000.00 5. First, get interest rate PV=-950, PMT=90, FV=1000, N=3, CPT I/Y=11.05 1
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After two year, FV=1000, PMT=90, N=1, I/Y=11.05, CPT PV= 981.54 6. What is the yield to maturity for a bond paying $100 annually that has six years until maturity and sells for $1,000? A) 6.0% B) 8.5% C) 10.0% D) 12.5% 6. N=6, PMT=100, FV=1000, PV=-1000, CPT I/Y=10 7. Which of the following identifies the distinction between a U.S. Treasury bond and a Treasury note? A) Bonds make coupon payments; notes do not. B) Bills have default risk; bonds do not. C) Bonds are priced in 32s; notes are not. D) Bonds initially have more than 10 years until maturity; notes have fewer less than 10 years initially. 8. When the yield curve is upward-sloping, then: A) short-maturity bonds offer high coupon rates. B) long-maturity bonds are priced above par value. C) short-maturity bonds yield less than long-maturity bonds. D) long-maturity bonds increase in price when interest rates increase. 9. The yield curve depicts the current relationship between: A) bond yields and default risk. B) bond maturity and bond ratings. C) bond yields and maturity. D) promised yields and default premiums. 10. Which of the following presents the correct relationship? As the coupon rate of a bond increases, the bond's: A) face value increases. B) current price decreases. C) interest payments increase. D) maturity date is extended. ( Skip question 11) 2
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12. What is the current yield of a bond with a 6% coupon, four years until maturity, and a price of $750? A) 6.0%
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This note was uploaded on 01/21/2011 for the course MBA 345 taught by Professor Feiwang during the Spring '08 term at Ill. Chicago.

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Answer key to homework 2 - FINA3313-031 Business Finance...

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