Ch.5 -Extra Bond problems

Ch.5 -Extra Bond problems - a) $964.95 b) $981.54 c)...

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Extra Bond Review Questions – Lecture 5 1. If you purchase a five-year, zero-coupon bond ($1,000 maturity value) for $500, how much could it be sold for three years later if interest rates have remained stable? a) $757.86 b) $888.43 c) $925.46 d) $800.00 2. Investors who own bonds having lower credit ratings should expect: a) lower yields to maturity. b) higher default possibilities. c) lower coupon payments. d) higher present value of cash flows. 3. If you purchase a three-year, 9 percent coupon bond (paying semi-annually) for $950, how much could it be sold for two years later if interest rates have remained stable?
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Unformatted text preview: a) $964.95 b) $981.54 c) $983.33 d) $1,000.00 4. What is the annual rate of return to an investor who buys a bond for $1,100 when the bond has a 9 percent coupon rate and five years remaining until maturity, then sells the bond after two years for $1,085? a) 7.24 percent b) 8.91 percent c) 9.64 percent d) 15.00 percent 5. What is the coupon rate on a 6-year bond, paying semi-annual coupons, with a $1,000 face value and selling at $1075 if the yield to maturity is 4%? A) 2.71%% B) 2.95% C) 3.00% D) 4.65% E) 5.42%...
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