Question;e. 1.00%;21. Assume that interest rates on 20-year;Treasury and corporate bonds are as follows;T-bond;= 7.72% AAA = 8.72% A = 9.64% BBB = 10.18%;The differences in these rates;were probably caused primarily by;a. Tax effects;b. Default risk differences;c. Maturity risk differences;d. Inflation differences;e. Real risk-free rate differences;22. If 0R1=5%;E(1R2)=4%, what is 0R2 according to;the Expectations Hypothesis?;a.;3%;b.;3.5%;c.;4%;d.;4.5%;e.;5%;23. David Cone is concerned about the;interest rate changes for his fixed income investment. He looked at the;treasury yield curve on Wall Street Journal and observed a normal yield curve.;Based on this observation, which of the following statements is correct?;a.;Companies;must have more investment opportunities now than they expected to have in the;future;b.;Future;short-term interest rates are expected to be higher than current short-term;interest rates assuming the pure expectation theory holds.;c.;Maturity;risk premium is positive;d.;Inflation;must be expected to increase in the future;e.;Expectation;theory must be correct;24. A bond trader observes the following;information;?;The;Treasury yield curve is downward sloping.;?;Empirical;data indicate that a positive maturity risk premium applies to both Treasury;and corporate bonds.;?;Empirical;data also indicate that there is no liquidity premium for Treasury securities;but that a positive liquidity premium is built into corporate bond yields.;On the basis of this;information, which of the following statements is most CORRECT?;a.;A;10-year corporate bond must have a higher yield than a 5-year Treasury bond.;b.;A;10-year Treasury bond must have a higher yield than a 10-year corporate bond.;c.;5-year corporate bond must have a higher yield;than a 10-year Treasury bond.;d.;The;corporate yield curve must be flat.;e.;Since;the Treasury yield curve is downward sloping, the corporate yield curve must;also be downward sloping.;25. If the current one year CD rate is 5% and the best estimate;of one year CD which will be available one year from today is 7%, what is the;current two year CD rate with 1% liquidity premium?;a. 5.0%;b. 5.5%;c. 6.0%;d. 6.5%;e. 7.0%;26. In;July 2009, Hungary successfully issued 1 billion euros in bonds. The;transaction was managed by Citigroup. Who is the issuer and what is the;category of bonds issued?;a.;Citigroup, Corporate;bonds;b.;The bank of Budapest, Municipal bonds;c.;The Hungarian government, Foreign government bonds;d.;The New York Citibank, Sinking bonds;e.;The Hungarian government, T-bonds;27. Roen;is planning to invest in five-year 15% annual coupon bonds with a face value of;$1,000 each. Calculate number to fill the blanks in the table and identify;which one is the premium bond if the market is at equilibrium.;Bond;Discount Rate;Bond Value;Current Yield;Bond A;(1);$1,189.54;12.61%;Bond B;15.00%;(2);15.00%;Bond C;16.40%;$954.58;(3);a.;9.00%, $988.76, 14.47%;bond A;b.;10.00%;$1,000.00, 15.71%, bond A;c.;11.00%;$1,100.00, 15.92%, bond B;d.;12.24%, $1,000.00, 16.00%;bond B;e.;10.00%, $1,250.00, 16.12%;bond C;28. Assume;that a $1 million par value, semiannual coupon U.S. Treasury note with five;years to maturity has a coupon rate of 6%. The YTM of the bond is 11.00%. What;is the value of the T-note?;a.;$511,282.39;b.;$689,825.45;c.;$973,871.22;d.;$811,559.35;e.;$987,654.32;29. Duff Brewing Co. has 9% annual coupon;bonds that are callable and have 18 years left until maturity. The bonds have a;par value of $1,000 and their current market price is $1,190.35. However, Duff;Brewing Co. may call the bonds in 8 years at a call price of $1,060. What are;the YTM and YTC, respectively? Also, if Duff Brewing Co. issues new bonds;today, what coupon rate must the bonds to be issued at par?;YTM YTC Coupon Rate;a.;6.09%, 5.47%, 6.09%;b.;7.09%, 6.47%, 7.09%;c.;8.09%, 7.47%, 7.47%;d.;8.92%, 8.82%, 8.82%;e.;9.23%, 9.32%, 9.32%.;30. The following bond list is from the;business section of a newspaper on January 1, 2005 (all are semi-annual bonds).;Prices are stated relative to the par value of $100. Calculate what number;should be in the blank and indicate which bond is not trading at discount.;Company;Coupon;Maturity;Last Price;Last Yield;EST;Spread;UST;(Years);EST;Volume;(1000s);Schubert, Inc.;8.125%;01-01-2015;$82.25;11.11%;6.20;10;72,070;Chapman, Inc.;9.625%;01-01-2035;$80.48;12.05%;7.15;30;65,275;Rust, Inc.;4.500%;01-01-2010;5.62%;1.37;5;59,277;Murphy & Co.;5.375%;01-01-2010;$101.02;5.14%;0.89;5;57,465;Pickman, Inc.;7.750%;01-01-;2015;$93.11;8.80%;3.89;10;56,305;Last Price & Last Yield;bond?s price and YTM at the end of trading.;EST Spread: bond?s spread above;the relevant U.S. Treasury benchmark (percentage).;UST: relevant maturity of U.S.;Treasury benchmark for each bond.;EST Volume: # of bonds traded;during the day.;a.;$88.27, Rust, Inc.;b.;$95.23, Murhpy & Co.;c.;$95.18, Murhpy & Co.;d.;$100.40, Pickman, Inc.;e.;$102.80, Schubert, Inc.
Paper#51173 | Written in 18-Jul-2015Price : $22