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Question;106. The outstanding bonds of Winter Time Products;provide a real rate of return of 3.03 percent. The current rate of inflation is;4.68 percent. What is the actual nominal rate of return on these bonds?;A. 7.58 percent;B. 7.33 percent;C. 7.71 percent;D. 7.76 percent;E. 7.85 percent;107. The yield to maturity on a bond is currently 8.46;percent. The real rate of return is 3.22 percent. What is the rate of;inflation?;A. 5.08 percent;B. 5.64 percent;C. 6.24 percent;D. 6.53 percent;E. 6.71 percent;108. A zero coupon bond with a face value of $1,000 is;issued with an initial price of $212.56. The bond matures in 25 years. What is;the implicit interest, in dollars, for the first year of the bond's life?;A. $12.72;B. $13.58;C. $13.90;D. $15.63;E. $15.89;109. Northern Warehouses wants to raise $11.4 million;to expand its business. To accomplish this, it plans to sell 40-year, $1,000;face value, zero-coupon bonds. The bonds will be priced to yield 8.75 percent.;What is the minimum number of bonds it must sell to raise the $11.4 million it;needs?;A. 210,411;B. 239,800;C. 254,907;D. 326,029;E. 350,448;110. You have won a contest and will receive $2,500 a;year in real terms for the next 3 years. Each payment will be received at the;end of the period with the first payment occurring one year from today. The;relevant nominal discount rate is 6.3 percent and the inflation rate is 4.5;percent. What are your winnings worth today?;A. $7,249;B. $7,367;C. $7,401;D. $7,500;E. $7,838;111. You purchased an investment which will pay you;$8,000, in real dollars, a year for the next three years. Each payment will be;received at the end of the period with the first payment occurring one year;from today. The nominal discount rate is 7.5 percent and the inflation rate is;2.9 percent. What is the present value of these payments?;A. $21,720;B. $22,004;C. $22,511;D. $23,406;E. $23,529;Essay Questions;112. Define liquidity risk, default risk, and;taxability risk and explain how these risks relate to bonds and bond yields.;113. Inflation has remained low for the past three;years but you have come to the conclusion that trend is ending and inflation;will increase significantly over the next 18 months. Assume you have reached;this conclusion prior to other investors reaching the same conclusion. What;adjustments should you make to your bond portfolio in light of your;conclusions?;114. Explain the conditions that would need to exist;for the Treasury yield curve to be downward sloping.;115. Describe the relationships that exist between the;coupon rate, the yield to maturity, and the current yield for both a discount;bond and a premium bond.;Multiple Choice Questions;116. Sylvan Trees has a 7 percent coupon bond on the;market with ten years left to maturity. The bond makes annual payments and;currently sells for $861.20. What is the yield-to-maturity?;A. 8.50 percent;B. 8.68 percent;C. 8.92 percent;D. 9.18 percent;E. 9.27 percent;117. Kaiser Industries has bonds on the market making;annual payments, with 14 years to maturity, and selling for $1,382.01. At this;price, the bonds yield 7.5 percent. What is the coupon rate?;A. 8.00 percent;B. 8.50 percent;C. 9.00 percent;D. 10.50 percent;E. 12.00 percent;118. Dexter Mills issued 20-year bonds a year ago at a;coupon rate of 11.4 percent. The bonds make semiannual payments. The;yield-to-maturity on these bonds is 9.2 percent. What is the current bond;price?;A. $985.55;B. $991.90;C. $1,192.16;D. $1,195.84;E. $1,198.00;119. Soo Lee Imports issued 17-year bonds 2 years ago;at a coupon rate of 10.3 percent. The bonds make semiannual payments. These;bonds currently sell for 102 percent of par value. What is the yield-to-maturity?;A. 9.98 percent;B. 10.04 percent;C. 10.13 percent;D. 10.27 percent;E. 10.42 percent;120. Bryceton, Inc. has bonds on the market with 13;years to maturity, a yield-to-maturity of 9.2 percent, and a current price of;$895.09. The bonds make semiannual payments. What is the coupon rate?;A. 7.80 percent;B. 8.00 percent;C. 8.25 percent;D. 8.40 percent;E. 8.65 percent;121. Suppose the real rate is 9.5 percent and the;inflation rate is 1.8 percent. What rate would you expect to see on a Treasury;bill?;A. 9.50 percent;B. 11.30 percent;C. 11.47 percent;D. 11.56 percent;E. 11.60 percent;122. An investment offers a 10.5 percent total return;over the coming year. Sam Bernanke thinks the total real return on this;investment will be only 4.5 percent. What does Sam believe the inflation rate;will be for the next year?;A. 5.60 percent;B. 5.67 percent;C. 5.74 percent;D. 6.00 percent;E. 6.21 percent;123. Bond S is a 4 percent coupon bond. Bond T is a 10;percent coupon bond. Both bonds have 11 years to maturity, make semiannual;payments, and have a yield-to-maturity of 7 percent. If interest rates suddenly;rise by 2 percent, what will the percentage change in the price of Bond T;be?;A. -15.16 percent;B. -14.87 percent;C. -13.56 percent;D. -12.92 percent;E. -12.67 percent;124. Technical Sales, Inc. has 6.6 percent coupon;bonds on the market with 9 years left to maturity. The bonds make semiannual;payments and currently sell for 88.79 percent of par. What is the effective;annual yield?;A. 8.34 percent;B. 8.40 percent;C. 8.52 percent;D. 8.58 percent;E. 8.60 percent;125. Bonner Metals wants to issue new 18-year bonds;for some much-needed expansion projects. The company currently has 11 percent;bonds on the market that sell for $1,459.51, make semiannual payments, and;mature in 18 years. What should the coupon rate be on the new bonds if the firm;wants to sell them at par?;A. 5.75 percent;B. 6.23 percent;C. 6.41 percent;D. 6.60 percent;E. 6.79 percent;This cannot be solved directly, so it's easiest to just use the calculator;method to get an answer. You can then use the calculator answer as the rate in;the formula just to verify that your answer is correct..;126. You purchase a bond with an invoice price of;$1,460. The bond has a coupon rate of 9.4 percent, and there are 3 months to;the next semiannual coupon date. What is the clean price of this bond?;A. $1,436.50;B. $1,452.17;C. $1,460.00;D. $1,467.83;E. $1,483.50;127. Suppose the following bond quote for the Beta;Company appears in the financial page of today's newspaper. Assume the bond has;a face value of $1,000 and the current date is April 15, 2009. What is the;yield to maturity on this bond?;A. 6.64 percent;B. 8.96 percent;C. 10.23 percent;D. 12.47 percent;E. 13.27 percent;128. You want to have $1.04 million in real dollars in;an account when you retire in 46 years. The nominal return on your investment;is 8 percent and the inflation rate is 3.5 percent. What is the real amount you;must deposit each year to achieve your goal?;A. $6,667.67;B. $6,878.49;C. $7,433.02;D. $7,515.09;E. $7,744.12;129. The yield-to-maturity on a bond is the interest;rate you earn on your investment if interest rates do not change. If you;actually sell the bond before it matures, your realized return is known as the;holding period yield. Suppose that today, you buy a 12 percent annual coupon;bond for $1,000. The bond has 13 years to maturity. Two years from now, the;yield-to-maturity has declined to 11 percent and you decide to sell. What is;your holding period yield?;A. 8.84 percent;B. 9.49 percent;C. 12.00 percent;D. 13.01 percent;E. 14.89 percent;25. Your grandmother is gifting you $100 a month for;four years while you attend college to earn your bachelor's degree. At a 5.5 percent;discount rate, what are these payments worth to you on the day you enter;college?;A. $4,201.16;B. $4,299.88;C. $4,509.19;D. $4,608.87;E. $4,800.00;26. You just won the grand prize in a national writing;contest! As your prize, you will receive $2,000 a month for ten years. If you;can earn 7 percent on your money, what is this prize worth to you today?;A. $172,252.71;B. $178,411.06;C. $181,338.40;D. $185,333.33;E. $190,450.25;27. Phil can afford $180 a month for 5 years for a car;loan. If the interest rate is 8.6 percent, how much can he afford to borrow to;purchase a car?;A. $7,750.00;B. $8,348.03;C. $8,752.84;D. $9,266.67;E. $9,400.00;28. You are the beneficiary of a life insurance;policy. The insurance company informs you that you have two options for;receiving the insurance proceeds. You can receive a lump sum of $200,000 today;or receive payments of $1,400 a month for 20 years. You can earn 6 percent on;your money. Which option should you take and why?;A. You should accept the payments because they are worth $209,414 to you;today.;B. You should accept the payments because they are worth $247,800 to you;today.;C. You should accept the payments because they are worth $336,000 to you;today.;D. You should accept the $200,000 because the payments are only worth;$189,311 to you today.;E. You should accept the $200,000 because the payments are only worth;$195,413 to you today.;29. Your employer contributes $75 a week to your;retirement plan. Assume that you work for your employer for another 20 years;and that the applicable discount rate is 7.5 percent. Given these assumptions;what is this employee benefit worth to you today?;A. $40,384.69;B. $42,618.46;C. $44,211.11;D. $44,306.16;E. $44,987.74;30. The Design Team just decided to save $1,500 a;month for the next 5 years as a safety net for recessionary periods. The money;will be set aside in a separate savings account which pays 4.5 percent interest;compounded monthly. The first deposit will be made today. What would today's deposit;amount have to be if the firm opted for one lump sum deposit today that would;yield the same amount of savings as the monthly deposits after 5 years?;A. $80,459.07;B. $80,760.79;C. $81,068.18;D. $81,333.33;E. $81,548.20;31. You need some money today and the only friend you;have that has any is your miserly friend. He agrees to loan you the money you;need, if you make payments of $25 a month for the next six months. In keeping;with his reputation, he requires that the first payment be paid today. He also;charges you 1.5 percent interest per month. How much money are you;borrowing?;A. $134.09;B. $138.22;C. $139.50;D. $142.68;E. $144.57


Paper#51092 | Written in 18-Jul-2015

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