financequiz5

# financequiz5 - 1 Question The Carter Company's bonds mature...

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1. Question: The Carter Company's bonds mature in 10 years have a par value of \$1,000 and an annual coupon payment of \$80. The market interest rate for the bonds is 9%. What is the price of these bonds?

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Your Answer: \$935 .82 C ORR ECT \$941 .51 \$958 .15 \$964 .41 \$979 .53
Instructor Explanation: On a financial calculator, enter: N 10; I/YR 9; PMT 80; FV 1,000; PV PV = \$935.82 Alternatively, using the bond formula: VB = COUPON [{1 – 1 / (1 + iN}} / i] + FV / (1 + i)N VB = \$80 [{1 – (1 / (1 + .09)10) }/ .09 ] + \$1,000 / (1 + .09)10 VB = \$80 * 6.4177 + \$422.41 VB = \$513.34 + \$422.41 = \$935.83 Points Received: 4 of 4 Comments: 2. Question: Ken Williams Ventures' recently issued bonds that mature in 15 years. They have a par value of \$1,000 and an annual coupon of 6%. If the current market interest rate is 8%, at what price should the bonds sell?

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Your Answer: \$801 .80 \$814 .74 \$828 .81 C ORR ECT \$830 .53 \$847 .86
Explanation: Coupon Rate 6% PMT \$60 calculated N 15 I/YR 8% PV \$828.81 FV \$1000.00 Points Received: 4 of 4 Comments: 3. Question: Rollincoast Incorporated issued BBB bonds two years ago that provided a yield to maturity of 11.5%. Long-term risk-free government bonds were yielding 8.7% at that time. The current risk premium on BBB bonds versus government bonds is half of what it was two years ago. If the risk-free long- term government bonds are currently yielding 7.8%, then at what rate should

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## This note was uploaded on 08/06/2011 for the course MT 217 taught by Professor Finance during the Spring '11 term at Kaplan University.

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financequiz5 - 1 Question The Carter Company's bonds mature...

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