Exam 3 – Finance 3320
Third Examination – Finance 3320
Spring 2011 (Moore)
Ethical conduct is an important component of any profession. The Texas Tech University Code of
Student Conduct is in force during this exam. Students providing or accepting unauthorized
assistance will be assigned a score of zero (0) for this piece of assessment. Using unauthorized
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signing below, you are acknowledging that you have read the above statement and agree to abide by
the stipulated terms.
Clearly Fill in the appropriate bubble on the Scantron form for each of the following questions.
response. There is only one answer per question.
A 15-year bond with a face value of $1,000 currently sells for $850.
Which of the following statements
The bond’s coupon rate exceeds its current yield.
The bond’s current yield exceeds its yield to maturity.
The bond’s yield to maturity is greater than its coupon rate.
The bond’s current yield is equal to its coupon rate.
If the yield to maturity stays constant until the bond matures, the bond’s price will remain at $850.
Bond A has a 9% annual coupon, while Bond B has a 7% annual coupon.
Both bonds have the same
maturity, a face value of $1,000, an 8% yield to maturity, and are noncallable.
Which of the following
statements is CORRECT?
Bond A’s capital gains yield is greater than Bond B’s capital gains yield.
Bond A trades at a discount, whereas Bond B trades at a premium.
If the yield to maturity for both bonds remains at 8%, Bond A’s price one year from now will be
higher than it is today, but Bond B’s price one year from now will be lower than it is today.
If the yield to maturity for both bonds immediately decreases to 6%, Bond A’s bond will have a
larger percentage increase in value.
Bond A’s current yield is greater than that of Bond B.
A 12-year bond has an annual coupon of 9%.
The coupon rate will remain fixed until the bond matures.
The bond has a yield to maturity of 7%.
Which of the following statements is CORRECT?
If market interest rates decline, the price of the bond will also decline.
The bond is currently selling at a price below its par value.
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Exam 3 – Finance 3320
If market interest rates remain unchanged, the bond’s price one year from now will be lower than it
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