Homework5

# Homework5 - Econ 102 Section 1 Homework#5 Due July 7...

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Econ 102 Section 1 Homework #5 Due July 7, Tuesday in class Multiple Choice Questions (1-10: 10x1=10 points; 11-55: 45 x 2=90 points) 1.The principal amount of a bond is the amount: A) originally lent. B) of interest agreed upon when the bond was originally issued. C) paid to the bondholders on a regular basis. D) of interest the bondholder is entitled to when the bond matures. E) the bondholder receives even if the borrower defaults on the loan. 2.The coupon rate is the: 3.If the principal amount of a bond is \$2,000,000, the coupon rate is 6%, and the inflation rate is 4%, then the annual coupon payment made to the holder of the bond is _____. 4..James pays \$10,000 for a newly issued two-year government bond with a \$10,000 face value and a 6 percent coupon rate. One year later, after receiving the first coupon payment, James sells the bond. If the current one-year interest rate on government bonds is 7 percent, then the price he receives is: 5.A three-year bond with a principal amount of \$5,000, a 4% coupon rate paid annually, one year from maturity will sell for what price (rounded to the nearest dollar) in the bond market if interest rates are 5%? A) \$4,762 B) \$4,952 C) \$5,000 D) \$5,200 E) \$5,460 6.One year before maturity the price of a bond with a principal amount of \$1,000 and a coupon rate of 5% paid annually rose to \$1,019. The one year interest rate: 7.A dividend is a(n): 8.You originally required a risk premium of 6 percent in addition to the rate of return on safe assets before you would purchase shares of Techno Company stock. If you and other investors increase the risk premium you require to 8 percent, the price of Techno Company stock will:

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