Chapter 4Valuing Bonds
MULTIPLE CHOICE
1. A 15 year, 8%, $1000 face value bond is currently trading at $958. The yield to maturity of
this bond
must be
a. less than 8%.
b. equal to 8%.
c. greater than 8%.
d. unknown.
ANS: C DIF: E REF: 4.2 Bond Prices and

Time Value of Money Problems
Practice Problems I
A 20-year ordinary annuity pays an annual payment of 12,000. What is this annuitys
present value for a 9 percent interest rate?
PV=12000(PVIFA(9%,20 years) = 109,543
In the previous question, each annual pa

Time Value of Money Problems
Practice Problems II
Inflation questions:
At age 20 you save $100 and invest it at a nominal interest
rate of 8%. At age 65, you will have $3,192. Given the
expected inflation is 5% per year over these years, what is
the real

FINANCE PRACTICE PROBLEMS (SET II)
4-5: PRICE/EARNING RATIO A company has an EPS of $2.00, a cash flow per share of $3.00,
and a price/cash flow ratio of 8.0x. What is its P/E ratio?
4-8: BASIC EARNING POWER Duval manufacturing recently reported the follo

26. McLaughlin Enterprises has an outstanding $1,000 par value bond with a 11% coupon that
pays at the
end of each year. The bond matures in nine years. Bonds of similar risk have a required return of
10%.
What is the market value of the McLaughlin bond?

56. Oogle Corp. has decided to do things differently with respect to their corporate bond issue.
They
have a bond outstanding that makes quarterly coupon payments instead of semi-annually. The
stated
coupon rate on the bond is 10% and the yield to maturit