Consider a one year discount bond that pays 1000 one year from now If the rate

Consider a one year discount bond that pays 1000 one

This preview shows page 4 - 6 out of 12 pages.

21.Consider a one-year discount bond that pays $1,000 one year from now. If the rate of discount is 7 percent, the present value of the bond is a. $930.00. b. $934.58. c. $993.00. d. $993.46. 22.The amount repaid by a coupon bond at maturity is the ________ value. 23.Interest-rate risk is the risk of a change in the price of a security in the secondary market because of a change in the
Background image
5 24.You are considering buying a discount bond that costs $1,000 today and pays you $1,200 in one year. However, there is a 10 percent chance that the company issuing the bond will go bankrupt and not pay you your interest or return your principal. What is the expected return on the bond? 25.Present value is a. the cost of a bond today, minus the future value of interest payments. b. the future value of interest payments times the rate of discount. c. the future value of interest payments times the discount factor. d. the amount of money you would need to invest today to yield a given future amount. 26.The present value of a series of payments is 27.The process of turning assets such as mortgages into securities sold to investors is 28.Securitization is 29.Put the following securities in order according to their likely yields to maturity, from highest to lowest: A: A corporate bond rated Aaa (low risk) B: A corporate bond identical in every way to bond A, but rated Baa (medium risk) C: A corporate bond identical in every way to bond A, but rated C (high risk) a. A, B, C b. B, A, C c. C, B, A d. C, A, B 30.A basis point equals
Background image
Image of page 6

You've reached the end of your free preview.

Want to read all 12 pages?

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture