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Question;Use the table for the question(s);below.;Consider the following zero-coupon yields on default free securities;Maturity (years);1;2;3;4;5;Zero-Coupon YTM;5.80%;5.50%;5.20%;5.00%;4.80%;16);The price today of a 3 year default free;security with a face value of $1000 and an annual coupon rate of 6% is closest;to;A);$1000;B);$1021;C);$1013;D);$1005;17);The YTM of a 3 year default free security;with a face value of $1000 and an annual coupon rate of 6% is closest to;A);5.5%;B);5.8%;C);5.5%;D);5.2%;18);A 4 year default free security with a face;value of $1000 and an annual coupon rate of 5.25% will trade;A);at a premium.;B);at par.;C);at a discount.;D);There is insufficient information to;provided to answer this question.;8.4 Corporate Bonds;19);A corporate bond which receives a BBB;rating from Standard and Poor's is considered;A);a junk bond.;B);an investment grade bond.;C);a defaulted bond.;D);a high-yield bond.;20);Which of the following statements is;false?;A);Because the cash flows promised by the bond;are the most that bondholders can hope to receive, the cash flows that a;purchaser of a bond with credit risk expects to receive may be less than that;amount.;B);By consulting bond ratings, investors can;assess the credit-worthiness of a particular bond issue.;C);Because the yield to maturity for a bond;is calculated using the promised cash flows, the yield of bond?s with credit;risk will be lower than that of otherwise identical default-free bonds.;D);A higher yield to maturity does not necessarily;imply that a bond's expected return is higher.;Use the table for the question(s);below.;Consider the following yields to maturity;on various one-year zero-coupon securities;Security;Yield (%);Treasury;4.6;AAA corporate;4.8;BBB corporate;5.6;B Corporate;6.2;WS3);The credit spread of the BBB corporate;bond is closest to;A);1.0%;B);5.6%;C);1.6%;D);0.8%;21);The credit spread of the B corporate bond;is closest to;A);1.6%;B);0.8%;C);1.0%;D);1.4%;Use the information for the question(s);below.;Luther Industries needs to raise $25;million to fund a new office complex.;The company plans on issuing ten-year bonds with a face value of $1000 and a coupon rate of 7.0%;(annual payments). The following table;summarizes the YTM for similar ten-year corporate;bonds of various credit ratings;Rating;AAA;AA;A;BBB;BB;YTM;6.70%;6.80%;7.00%;7.40%;8.00%;22);What rating must Luther receive on these;bonds if they want the bonds to be issued at par?;A);A;B);B;C);BBB;D);AA;23);Suppose that when these bonds were issued;Luther received a price of $972.42 for each bond. What is the likely rating that Luther's bonds;received?;A);AA;B);BBB;C);B;D);A


Paper#51196 | Written in 18-Jul-2015

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