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Fin Midterm 3

Fin Midterm 3 - FIN3716 Fall 2010 MIDTERM 3 SOLUTION Name...

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FIN3716- Fall 2010 MIDTERM 3 SOLUTION Name ________________________________________________ Section____________ Time: 75 Min Total Point: 60 Work on this exam is to be yours alone. Any discussion of either the questions or your answers with anyone other than your instructor will be considered as cheating and, thus, as a violation of the LSU honor code. For Multiple Choice questions, circle the letter/s of the correct multiple-choice answer. You have to show your work to receive partial credit ( if applicable and when possible ) for the answer. Your answers must be COMPREHENSIBLE and your work “ CLEAN ”. Multiple Choice Questions (Each question 4 points) 1. A 14-year annual coupon bond was issued nine years ago at par. Since then the bond’s yield to maturity (YTM) has increased from 8% to 11%. Which of the following statements is true about the current market price of the bond? a. Insufficient information b. The bond is selling at a premium c. The bond is selling at a discount d. The bond is selling at par 2. What is the price of a 15 year maturity bond with a 13 percent coupon rate and quarterly payments? (Assume that the stated yield to maturity of similar bonds is 8 percent) FV = 1000, PMT = 130/4, 1/Y= 8%/4 = 2%, N = 15×4 = 60, PV =? 1434.51 3. You are considering the purchase of a 15-year bond. The par value is $10,000, the stated required rate of return on this bond is currently 8.5% and coupon payments are paid semi- annually. The current market value of the bond is $10,830.46. What is the bon d’s coupon rate? FV = 10,000, PV = -10,830.46, 1/Y= 8.5%/2 = 4.25%, N = 15×2 = 30, PMT =? 474.49, semiannually. Annual coupon payment = 474.49×2 = 948.99 Coupon rate = 948.99/10,000 = 0.0948 = 9.48%
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