FIN 300 Exam 2 || Solved Correctly.
bond correct answers a debt security issued by companies or government agencies
par value (face value) correct answers principal repaid, usually $1,000 per bond
coupon rate correct answers annual interest rate
coupon payment correct answers stated interest payment
maturity date correct answers specified date on which principal is repaid
yield/yield to maturity (YTM) correct answers market interest rate (=required return) on a bond
bond primary principal correct answers value of financial securities = PV of expected future cash
flows
the bond value is determined by... correct answers the present value of the coupon payments plus
the present value of the par value
bond price = PV of coupons + PV of face value
bonds of similar risk will be priced to yield... correct answers the same return
if you know the price of one bond, you can estimate its... correct answers YTM (yield to
maturity) and use that to find the price of another bond of similar risk
interest rates are inversely related to... correct answers present values/prices
, true or false? the price of a bond is the sum of the present values of coupon payments and the
present value of the face value. correct answers true
when the YTM (yield to maturity) is less than the coupon rate, the bond trades at... correct
answers a premium
when the YTM (yield to maturity) equals the coupon, the bond rate trades... correct answers at
par
when the YTM (yield to maturity) is greater than the coupon, the bond trades at... correct
answers a discount
bond prices and market interest rates move in... correct answers opposite directions
YTM and bond value has a ... relationship correct answers inverse relationship; downward slope;
bond price decreases as YTM increases
true or false? when market interest rates increase, bond prices would increase, too. correct
answers false
consider a bond with a coupon rate of 10% and annual coupons. the par value is $1,000, and the
bond has 5 years to maturity. the yield to maturity is 11%. what is the value of the bond? correct
answers using the calculator: N=5; I%=11; PMT=100; FV=1,000
solve for PV = -963.04 (negative because cash outflow/bond holder pays the price)
$963.04 < $1,000; discount
suppose you are reviewing a bond that has a 10% annual coupon and a face value of $1,000.
There are 20 years to maturity, and the yield to maturity is 8%. What is the price of this bond?
correct answers using the calculator: N=20; I%=8; PMT=100; FV=1,000
Solve for PV = -1,196.36
bond correct answers a debt security issued by companies or government agencies
par value (face value) correct answers principal repaid, usually $1,000 per bond
coupon rate correct answers annual interest rate
coupon payment correct answers stated interest payment
maturity date correct answers specified date on which principal is repaid
yield/yield to maturity (YTM) correct answers market interest rate (=required return) on a bond
bond primary principal correct answers value of financial securities = PV of expected future cash
flows
the bond value is determined by... correct answers the present value of the coupon payments plus
the present value of the par value
bond price = PV of coupons + PV of face value
bonds of similar risk will be priced to yield... correct answers the same return
if you know the price of one bond, you can estimate its... correct answers YTM (yield to
maturity) and use that to find the price of another bond of similar risk
interest rates are inversely related to... correct answers present values/prices
, true or false? the price of a bond is the sum of the present values of coupon payments and the
present value of the face value. correct answers true
when the YTM (yield to maturity) is less than the coupon rate, the bond trades at... correct
answers a premium
when the YTM (yield to maturity) equals the coupon, the bond rate trades... correct answers at
par
when the YTM (yield to maturity) is greater than the coupon, the bond trades at... correct
answers a discount
bond prices and market interest rates move in... correct answers opposite directions
YTM and bond value has a ... relationship correct answers inverse relationship; downward slope;
bond price decreases as YTM increases
true or false? when market interest rates increase, bond prices would increase, too. correct
answers false
consider a bond with a coupon rate of 10% and annual coupons. the par value is $1,000, and the
bond has 5 years to maturity. the yield to maturity is 11%. what is the value of the bond? correct
answers using the calculator: N=5; I%=11; PMT=100; FV=1,000
solve for PV = -963.04 (negative because cash outflow/bond holder pays the price)
$963.04 < $1,000; discount
suppose you are reviewing a bond that has a 10% annual coupon and a face value of $1,000.
There are 20 years to maturity, and the yield to maturity is 8%. What is the price of this bond?
correct answers using the calculator: N=20; I%=8; PMT=100; FV=1,000
Solve for PV = -1,196.36
