Reading 64:Introduction to the Valuation of Debt Securiti

investor, should, following

Q14. An investor gathered the following information on three zero-coupon bonds:

1-year, $600 par, zero-coupon bond valued at $571
2-year, $600 par, zero-coupon bond valued at $544
3-year, $10,600 par, zero-coupon bond valued at $8,901

Given the above information, how much should an investor pay for a $10,000 par, 3-year, 6%, annual-pay coupon bond?

A) $10,016.

B) $10,000.

C) Cannot be determined by the information provided.

Q15. An investor gathered the following information on two zero-coupon bonds:

1-year, $800 par, zero-coupon bond valued at $762
2-year, $10,800 par, zero-coupon bond valued at $9,796

Given the above information, how much should an investor pay for a $10,000 par, 2-year, 8%, annual-pay coupon bond?

A) $9,796.

B) $10,558.

C) $10,000.

Q16. What is the present value of a 7% semiannual-pay bond with a $1,000 face value and 20 years to maturity if similar bonds are now yielding 8.25%?

A) $879.52.

B) $878.56.

C) $1,000.00.

Q17. Given a required yield to maturity of 6%, what is the intrinsic value of a semi-annual pay coupon bond with an 8% coupon and 15 years remaining until maturity?

A) $1,095.

B) $1,196.

Q18. Assuming the risk-free rate is 5% and the appropriate risk premium for an A-rated issuer is 4%, the appropriate discount rate for an A-rated corporate bond is:

A) 1%.

B) 9%.

C) 5%.

Q19. Which of the following statements about a bond’s cash flows is most accurate? The appropriate discount rate is a function of:

A) only the return on the market.

B) the risk-free rate plus the risk premium.

C) the risk-free rate plus the return on the market.

Q20. Consider a 10%, 10-year bond sold to yield 8%. One year passes and interest rates remained unchanged (8%). What will have happened to the bond's price during this period?

A) It will have increased.

B) It will have decreased.

C) It will have remained constant.