honeycfa

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 10%. What is the value of the bond today if the coupon rate is 8%?

A) $922.78.

B) $1,221.17.

C) $1,144.31.

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FV = 1,000; N = 10; PMT = 40; I = 5; CPT → PV = 922.78.

honeycfa

A coupon bond that pays interest annually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 10%. What is the value of the bond today if the coupon rate is 12%?

A) $927.90.

B) $1,075.82.

C) $1,077.22

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FV = 1,000
N = 5
I = 10
PMT = 120
PV = ?
PV = 1,075.82.

honeycfa

A bond with a face value of $1,000 pays a semi-annual coupon of $60. It has 15 years to maturity and a yield to maturity of 16% per year. What is the value of the bond?

A) $697.71.

B) $774.84.

C) $832.88.

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FV = 1,000; PMT = 60; N = 30; I = 8; CPT → PV = 774.84

honeycfa

What value would an investor place on a 20-year, $1,000 face value, 10% annual coupon bond, if the investor required a 9% rate of return?

A) $920.

B) $1,091.

C) $879.

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N = 20; I/Y = 9; PMT = 100 (0.10 × 1,000); FV = 1,000; CPT → PV = 1,091.

honeycfa

Today an investor purchases a $1,000 face value, 10%, 20-year, semi-annual bond at a discount for $900. He wants to sell the bond in 6 years when he estimates the yields will be 9%. What is the estimate of the future price?

A) $1,152.

B) $1,079.

C) $946.

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In 6 years, there will be 14 years (20 ? 6), or 14 × 2 = 28 semi-annual periods remaining of the bond's life So, N = (20 ? 6)(2) = 28; PMT = (1,000 × 0.10) / 2 = 50; I/Y = 9/2 = 4.5; FV = 1,000; CPT → PV = 1,079.

Note: Calculate the PV (we are interested in the PV 6 years from now), not the FV.

honeycfa

An investor purchased a 6-year annual interest coupon bond one year ago. The coupon rate of interest was 10% and par value was $1,000. At the time she purchased the bond, the yield to maturity was 8%. The amount paid for this bond one year ago was:

A) $1,092.46.

B) $1,125.53.

C) $1,198.07.

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N = 6
PMT = (0.10)(1,000) = 100
I = 8
FV = 1,000
PV = ?
PV = 1,092.46

honeycfa

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 return on the market.

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

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The return on the market would be used only when discounting the cash flows of the market. The risk premium reflects the cost of any incremental risk incurred by the investor above and beyond that of the risk-free security.

honeycfa

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 remained constant.

C) It will have decreased.

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The bond is sold at a premium, as time passes the bond’s price will move toward par. Thus it will fall.

N = 10; FV = 1,000; PMT = 100; I = 8; CPT → PV = 1,134

N = 9; FV = 1,000; PMT = 100; I = 8; CPT → PV = 1,125

honeycfa

A coupon bond that pays interest annually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 10%. What is the value of the bond today if the coupon rate is 8%?

A) $2,077.00.

B) $1,500.00.

C) $924.18.

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FV = 1,000
N = 5
I = 10
PMT = 80
Compute PV = 924.18.

honeycfa

A bond with a 12% coupon, 10 years to maturity and selling at 88 has a yield to maturity of:

A) over 14%.

B) between 13% and 14%.

C) between 10% and 12%.

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PMT = 120; N = 10; PV = -880; FV = 1,000; CPT → I = 14.3