2010_test_1_an

# 2010_test_1_an - Suggested answers to Test 1 TOTAL MARKS 30...

This preview shows pages 1–3. Sign up to view the full content.

Suggested answers to Test 1 TOTAL MARKS: 30 This is version 111. Questions in Version 222 are in a diﬀerent order. Questions 1-10 : 1 mark for each question, 10 marks in total. 1. Which of the following presents the correct relationship? As the coupon rate of a bond increases, the bond’s: A) face value increases. B) current price decreases. C) interest payments increase. D) maturity date is extended. 2. If an investor purchases a bond when its current yield is less than the coupon rate, then the bond’s price will be expected to: A) decline over time, reaching par value at maturity. B) increase over time, reaching par value at maturity. C) be less than the face value at maturity. D) exceed the face value at maturity. 3. What is the yield to maturity for a bond paying \$100 annually that has six years until maturity and sells for \$1,000? A) 6.0 percent B) 8.5 percent C) 10.0 percent D) 12.5 percent 4. How much more is a perpetuity of \$1,000 worth than an annuity of the same amount for 20 years? Assume a 10 percent interest rate and cash ﬂows at end of period. A) \$297.29 B) \$1,486.44 C) \$1,635.08 D) \$2,000.00 5. What happens when a bond’s expected cash ﬂows are discounted at a rate lower than the bond’s coupon rate? A) The price of the bond increases. 1

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
B) The coupon rate of the bond increases. C) The par value of the bond decreases.
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 10/26/2011 for the course ECON 371 taught by Professor Usmanalihannan during the Fall '11 term at Waterloo.

### Page1 / 5

2010_test_1_an - Suggested answers to Test 1 TOTAL MARKS 30...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online