|
LOS a: Explain the steps in the bond valuation process.
Q1. Answering an essay question on a midterm examination, a finance student writes these two statements:
Statement 1: The value of a fixed income security is the sum of the present values of all its expected future coupon payments.
Statement 2: The steps in the bond valuation process are to estimate the bond’s cash flows, determine the appropriate discount rate, and calculate the present value of the expected cash flows.
With respect to the student's statements:
A) both are correct.
B) both are incorrect.
C) only one is correct.
Q2. By purchasing a noncallable, nonputable, U.S. Government 30-year bond, an investor is entitled to:
A) full recovery of face value at maturity or when the bond is retired.
B) annuity of coupon payments.
C) annuity of coupon payments plus recovery of principal at maturity.
Q3. It is easier to value bonds than to value equities because:
A) the future cash flows of bonds are more stable.
B) Both of these choices are correct.
C) there is no maturity value for common stock.
Q4. A bond is issued with the following data:
- $10 million face value.
- 9% coupon rate.
- 8% market rate.
- 3-year bond with semiannual payments.
What is the present value of the bond?
A) $10,138,754.
B) $10,262,107.
C) $10,000,000.
Q5. A corporate bond with the following data is issued:
- $1,000 par value.
- 8% coupon payments.
- 5 years to maturity with semiannual coupon payments.
- Market interest rates are 10%.
What is the total interest expense?
A) 923.
B) 545.
C) 477.
Q6. Assume a city issues a $5 million bond to build a new arena. The bond pays 8% semiannual interest and will mature in 10 years. Current interest rates are 9%. What is the present value of this bond and what will the bond's value be in seven years from today?
Present Value Value in 7 Years from Today
A) 4,674,802 4,871,053
B) 4,674,802 4,931,276
C) 5,339,758 4,871,053
| 
发表于 2009-3-2 17:36
| 
