1 - Purdue University



A zero coupon bond matures sells for 493.63 and matures for 1000 at the end of Y years. The yield rate convertible semi-annually is 8%.

Calculate Y.

a. 9

b. 10

c. 18

d. 19

e. 20

1. A 20 year bond matures for its par value of 10,000. The coupon payable semi-annually is 400.

Calculate the price of the bond at a 6% yield rate convertible semi-annually.

a. 7,706

b. 11,488

c. 11,559

d. 12,311

e. 12,430

2. A 20 year bond matures for its par value of 10,000. The coupon payable semi-annually is 400.

Calculate the price of the bond at a 6% annual effective yield rate.

a. 7,706

b. 11,488

c. 11,559

d. 12,311

e. 12,430

3. A 10 year bond matures for its par value of 5000. The price of the bond is 4320.48 at an 8% yield convertible semi-annually.

Calculate the coupon rate convertible semi-annually.

a. 2.32%

b. 3.00%

c. 4.65%

d. 6.00%

e. 7.00%

4. A 1000 par value bond matures for 1500 at the end of 8 years. The coupon rate is 10% convertible semi-annually.

Calculate the price of the bond at a yield rate of 12% convertible semi-annually.

a. 885

b. 1048

c. 1096

d. 1330

e. 1348

5. A bond matures for its par value of 1000 in one year. The bond pays a annual coupon on 80 each year. The price of the bond is 800.

Which of the following are true?

i. The nominal yield is 8% per annum.

ii. The current yield is 10% per annum.

iii. The yield to maturity is 35% per annum.

a. All are true except for i.

b. All are true except for ii.

c. All are true except for iii.

d. All are true.

e. The correct answer is not given by a., b., c., or d.

6. A 10 year bond is redeemable at par of 100,000. The bond has with semi-annual coupons of 4000. The bond is bought to yield 6% convertible semi-annually.

Calculate the premium paid for the bond.

a. 8,377

b. 8,530

c. 12,004

d. 14,720

e. 14,877

7. A bond is redeemable in eight years at 120% of its par value. The bond pays an annual coupon rate of 6%.

Calculate the premium as a percent of the par value if the bond is purchased to yield 6% annually.

a. 6.2%

b. 7.5%

c. 10.0%

d. 12.5%

e. 20.0%

8. Erin buys a 10 year bond which is redeemable at its par value of 10,000. The bond pays annual coupons of 750 and was purchased to yield 9% annually. One year later, Erin sells the bond to Lauren at a price that will yield Lauren 8% annually.

Calculate the yield that Erin earned while she owned the bond.

a. 7.2%

b. 7.5%

c. 8.0%

d. 9.0%

e. 15.5%

9. Thomas buys a bond at a premium of 200 to yield 6% annually. The bond pays annual coupons and is redeemable for its par value of 1000.

Calculate the amount of interest in the first coupon.

a. 12

b. 24

c. 36

d. 60

e. 72

10. Megan buys a bond that is redeemable for its par value of 20,000 after 5 years. The bond pays coupons of 800 annually. The bond is bought to yield 8% annually.

Calculate the accumulation of discount in the 4th coupon.

a. 0

b. 588

c. 635

d. 686

e. 741

11. Chris buys a bond that is redeemable for its par value of 5,000 after 20 years. The bond has a coupon rate of 6% convertible semi-annually. The bond is bought to yield 5% semi-annually.

Calculate the book value of the bond at the end of 15 years immediately after the 30th coupon has been paid.

a. 5,110

b. 5,113

c. 5,116

d. 5,216

e. 5,219

12. Jenna buys a bond at a premium. The principal amortized in the first annual coupon is half that amortized in the 11th annual coupon.

Calculate the yield rate used to calculate the purchase price of the bond.

a. 5.9%

b. 6.5%

c. 7.2%

d. 8.0%

e. 9.1%

13. Which of the following are true for a bond with semi annual coupons:

i. The flat price of the bond under the theoretical method will always equal the flat price of the bond under the practical method.

ii. The flat price of the bond under the practical method will always exceed the flat price of the bond under the semi-theoretical method.

iii. For a bond purchased at par which matures at par with the yield rate equal to the coupon rate, the flat price at any point in time will equal the par value of the bond under the semi-theoretical method.

a. None of the Items are true

b. Item i. only

c. Item ii. only

d. Item iii. only

e. The correct answer is not given by a., b., c., and d.

14. A bond pays coupons of 600 on April 30 and October 31.

Calculate the Accrued Coupon under the practical method on July 1.

a. 100

b. 200

c. 300

d. 400

e. 500

15. A 10 year bond is redeemable at par of 100,000. The bond has with semi-annual coupons of 4000. The bond is bought to yield 6% convertible semi-annually.

Four months after purchase, calculate the market price based on the theoretical method less the market price based on the semi-theoretical method.

a. -13.16

b. -11.34

c. 1.82

d. 11.34

e. 13.16

16. Which of the following are true:

i. If a callable bond is called or redeemed at any date other that that used to calculate the purchase price, the buyer’s yield will be higher than that used to calculate the yield rate.

ii. If the redemption value of a callable bond is equal at all possible redemption dates and the bond sells at a premium, the price of the bond is calculated by assuming the redemption date is the last possible date.

iii. To calculate the price of a callable bond, a buyer should calculate the price at each and every possible redemption date and take the lowest price.

a. All are true except for Item i.

b. All are true except for Item ii.

c. All are true except for Item iii.

d. All Items are true.

e. The correct answer is not given by a., b., c., or d.

17. A callable 20 year bond which matures for 1000 pays annual coupons of 80. The bond is callable in years 10 through 12 at 1100 and in years 13 through 15 at 1050. The bond is bought to yield 4% annually.

Calculate the purchase price of the bond.

a. 1247

b. 1392

c. 1429

d. 1438

e. 1544

18. A preferred stock will pay a dividend of 100 today. The stock also provides that future dividends will increase at the rate of inflation. The stock is purchased to yield 8% and assuming an inflation rate of 3%.

Calculate the price of the stock today (before payment of the dividend).

a. 2000

b. 2060

c. 2100

d. 2160

e. 2200

19. Thompson Corporation currently pays a dividend of 3 on earnings of 5 per year. Thompson’s earnings are expected increase at a rate of 6% per year with 60% of earnings paid as dividends.

Calculate theoretical price of the common stock to yield 10%.

a. 30

b. 50

c. 60

d. 75

e. 100

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