kim226

A zero coupon bond with a face value of $1,000 has a price of $148. It matures in 20 years. Assuming annual compounding periods, the yield to maturity of the bond is:

A) 9.68%.

B) 14.80%.

C) 10.02%.

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PV = -148; N = 20; FV = 1,000; PMT = 0; CPT → I = 10.02.

kim226

Calculate the current yield and the yield-to-first call on a bond with the following characteristics:

• 5 years to maturity
• $1,000 face value
• 8.75% semi-annual coupon
• Priced to yield 9.25%
• Callable at $1,025 in two years

Current Yield

Yield-to-Call

A) 8.93% 5.51%

B) 9.83% 19.80%

C) 8.93% 11.02%

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To calculate the CY and YTC, we first need to calculate the present value of the bond: FV = 1,000; N = 5 × 2 = 10; PMT = (1000 × 0.0875) / 2 = 43.75; I/Y = (9.25 / 2) = 4.625; CPT → PV = -980.34 (negative sign because we entered the FV and payment as positive numbers). Then, CY = (Face value × Coupon) / PV of bond = (1,000 × 0.0875) / 980.34 = 8.93%.
And the YTC calculation is: FV = 1,025 (price at first call); N = (2 × 2) = 4; PMT = 43.75 (same as above); PV = –980.34 (negative sign because we entered the FV and payment as positive numbers); CPT → I/Y = 5.5117 (semi-annual rate, need to multiply by 2) = 11.02%.

kim226

When a bond's coupon rate is greater than its current yield, and its current yield is greater than its yield to maturity, the bond is a:

A) discount bond.

B) par value bond.

C) premium bond.

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For a premium bond, coupon rate > current yield > yield to maturity.
For a par bond, coupon rate = current yield = yield to maturity.
For a discount bond, coupon rate < current yield < yield to maturity.

kim226

A coupon bond pays annual interest, has a par value of $1,000, matures in 4 years, has a coupon rate of $100, and a yield to maturity of 12%. The current yield on this bond is:

A) 10.65%.

B) 11.25%.

C) 9.50%.

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FV = 1,000; N = 4; PMT = 100; I = 12; CPT → PV = 939.25.
Current yield = coupon / current price
100 / 939.25 × 100 = 10.65

kim226

An 11% coupon bond with annual payments and 10 years to maturity is callable in 3 years at a call price of $1,100. If the bond is selling today for 975, the yield to call is:

A) 9.25%.

B) 10.26%.

C) 14.97%.

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PMT = 110, N = 3, FV = 1,100, PV = 975
Compute I = 14.97

kim226

Which of the following statements concerning the current yield is CORRECT? It:

A) is of great interest to aggressive bond investors seeking capital gains.

B) is of great interest to conservative bond investors seeking current income.

C) can be deteremined by dividing coupon income by the face value of a bond.

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The current yield of a bond only considers interest income. The capital gains/losses and reinvestment income are not considered.  The formula for current yield is the annual cash coupon payment divided by the bond price.

kim226

A 15-year, 10% annual coupon bond is sold for $1,150. It can be called at the end of 5 years for $1,100. What is the bond's yield to call (YTC)?

A) 8.0%.

B) 9.2%.

C) 8.4%.

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Input into your calculator:
N = 5; FV = 1,100; PMT = 100; PV = -1,150; CPT → I/Y = 7.95%.

kim226

A 20-year, 9% semi-annual coupon bond selling for $1,000 offers a yield to maturity of:

A) 11%.

B) 9%.

C) 10%.

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N = (20 × 2) = 40
pmt = 90/2 = 45
PV = -1000
FV = 1000
cpt i = ? = 4.5×2 = 9%

kim226

A 20-year, $1,000 face value, 10% semi-annual coupon bond is selling for $875. The bond's yield to maturity is:

A) 5.81%.

B) 11.43%.

C) 11.62%.

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N = 40 (2 × 20 years); PMT = 50 (0.10 × 1,000) / 2; PV = -875; FV = 1,000; CPT → I/Y = 5.811 × 2 (for annual rate) = 11.62%.

kim226

If a $1,000 bond has a 14% coupon rate and a current market price of 950, what is the current market yield?

A) 15.36%.

B) 14.74%.

C) 14.00%.

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(0.14)(1,000) = $140 coupon
140/950 × 100 = 14.74