Exam3-spring2011

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Exam 3 – Finance 3320 Spring 2011                      Third Examination – Finance 3320 Spring 2011 (Moore) R-Number: ____________________ Printed Name: ____________________ 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  materials   during   the   exam   will   result  in  the  same  penalty.     Ours’   should  be  a  self-monitoring  profession.  It is the obligation of all students to report violations of the honor code in this course.  By  signing below, you are acknowledging that you have read the above statement and agree to abide by  the stipulated terms. Student’s Signature: ______________________________ Clearly Fill in the appropriate bubble on the Scantron form for each of the following questions.  Choose the  BEST  response.  There is only one answer per question. 1. A 15-year bond with a face value of $1,000 currently sells for $850. Which of the following statements is CORRECT? a. The bond’s coupon rate exceeds its current yield. b. The bond’s current yield exceeds its yield to maturity. c. The bond’s yield to maturity is greater than its coupon rate. d. The bond’s current yield is equal to its coupon rate. e. If the yield to maturity stays constant until the bond matures, the bond’s price will remain at $850. 2. 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? a. Bond A’s capital gains yield is greater than Bond B’s capital gains yield. b. Bond A trades at a discount, whereas Bond B trades at a premium. c. 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. d. If the yield to maturity for both bonds immediately decreases to 6%, Bond A’s bond will have a larger percentage increase in value. e. Bond A’s current yield is greater than that of Bond B. 3. 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? a. If market interest rates decline, the price of the bond will also decline. b. The bond is currently selling at a price below its par value. V1 - 1 -
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Exam 3 – Finance 3320 Spring 2011 c. If market interest rates remain unchanged, the bond’s price one year from now will be lower than it is today.
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