Corporate Finance Final Exam Solved And Graded A+ #14
Bonds issued for Stainless Tubs bear a 6% coupon payable semiannually, the bonds
mature in 11 years and have a $1000 future value. They currently sell for $989, what is
the yield to maturity?
A) 5.87
B) 5.92
C) 6.08
D) 6.14
E) 6.20 - correct answer 6.14
PMT = .06(1000) = 60
N = 11
PV = -989
FV = 1000
CPT I/Y = 6.14
An 8% corporate bond pays interest semiannually issued last year. Which two are the
most likely to apply to this bond?
I. Structued as an interest only loan
II. Current yield is equal to coupon rate
III. Yield to maturity is equal to the coupon rate
IV. Market price differs from the future value
A) I only
B) II only
C) II and III only
D) I and IV only
E) I, II, and IV only - correct answer d) I and IV only
Roadside markets has 6.75% coupon bond maturing in 10.5 years, the bond pays
interest semiannually. What is the market price if the future value is $1000 and yield to
maturity is 6.69%
A) $999.80
B) $999.85
C) $1003.42
D) $1004.47
E) $1007.52 - correct answer d) $1004.47
FV = 1000
PMT = (.0675)(1000) = 67.5
N = 10.5
,I/Y = 6.69
CPT PV = -1004.47
All else constant bond sells at _________ when the coupon is ________ the yield to
maturity
A) premium, less than
B) premium, equal to
C) discount , less than
D) discount, higher than
E) par, less than - correct answer c) discount , less than
6 year, $1000 future value bond pays semiannual interests on Feb. 1st and Aug. 1st if
today is Oct. 1st what will be the difference if any between clean and dirty prices
A) none
B) 1 month interest
C) 2 months interest
D) 4 moths interest
E) 5 months interest - correct answer c) 2 months interest
Which of the following bonds is the least sensitive to interest rate risk
A) 3 years, 4% coupon
B) 3 years, 6% coupon
C) 5 years, 6% coupon
D) 7 years, 6% coupon
E) 7 years, 4% coupon - correct answer b) 3 years, 6% coupon
Which of the following increase the price sensitivity of a bond to changes in interest
rates
I. Increase time to maturity
II. Decrease time to maturity
III. Increase coupon rate
IV. Decrease coupon rate
A) I only
B) I and IV only
C) II and III only
D) I, II, and IV only
E) I, II, III and IV - correct answer b) I and IV only
Bond has a future value of $1000, and is currently quoted at 98.4% The bonds they
have 5% coupon. What is the current yield.
, A) 4.67
B) 4.78
C) 5.08
D) 5.33
E) 5.54 - correct answer c) 5.08
Current yield = annual cash flow / market price
Annual cash flow = (1000)(.05) = 50
Market price = (1000)(.984) = 984
Current yield = = .0508
7% semiannual coupon bonds are callable in 2 years at $1054 what is the amount of
the call premium on $1000 par value
A) $52
B) $54
C) $72
D) $84
E) $89 - correct answer b) $54
1054 - 1000 = 54
You own a bond with 6% annual coupon and it matures in 5 years. It is a 10 year bond
that was issued at par value. Which of the following applies if the market interest rate in
5.8%
A) current yield to maturity in greater than 6%
B) current yield is 6%
C) the next interest payment is $30
D) the bond is currently valued at half of its issued price
E) you will realize a capital gain if the bond is sold today - correct answer e) you will
realize a capital gain if the bond is sold today
A computer company has 5.25% coupon bond outstanding with a current market price
of $546.19, the yield to maturity is 16.28 and the future value is $1000. If interest is paid
semiannually, how many years until the bonds mature
A) 6.64
B) 7.08
C) 12.41
D) 14.16
E) 28.32 - correct answer b) 7.08
PMT = (.0525/2)(1000) = 26.1
FV = 1000
Bonds issued for Stainless Tubs bear a 6% coupon payable semiannually, the bonds
mature in 11 years and have a $1000 future value. They currently sell for $989, what is
the yield to maturity?
A) 5.87
B) 5.92
C) 6.08
D) 6.14
E) 6.20 - correct answer 6.14
PMT = .06(1000) = 60
N = 11
PV = -989
FV = 1000
CPT I/Y = 6.14
An 8% corporate bond pays interest semiannually issued last year. Which two are the
most likely to apply to this bond?
I. Structued as an interest only loan
II. Current yield is equal to coupon rate
III. Yield to maturity is equal to the coupon rate
IV. Market price differs from the future value
A) I only
B) II only
C) II and III only
D) I and IV only
E) I, II, and IV only - correct answer d) I and IV only
Roadside markets has 6.75% coupon bond maturing in 10.5 years, the bond pays
interest semiannually. What is the market price if the future value is $1000 and yield to
maturity is 6.69%
A) $999.80
B) $999.85
C) $1003.42
D) $1004.47
E) $1007.52 - correct answer d) $1004.47
FV = 1000
PMT = (.0675)(1000) = 67.5
N = 10.5
,I/Y = 6.69
CPT PV = -1004.47
All else constant bond sells at _________ when the coupon is ________ the yield to
maturity
A) premium, less than
B) premium, equal to
C) discount , less than
D) discount, higher than
E) par, less than - correct answer c) discount , less than
6 year, $1000 future value bond pays semiannual interests on Feb. 1st and Aug. 1st if
today is Oct. 1st what will be the difference if any between clean and dirty prices
A) none
B) 1 month interest
C) 2 months interest
D) 4 moths interest
E) 5 months interest - correct answer c) 2 months interest
Which of the following bonds is the least sensitive to interest rate risk
A) 3 years, 4% coupon
B) 3 years, 6% coupon
C) 5 years, 6% coupon
D) 7 years, 6% coupon
E) 7 years, 4% coupon - correct answer b) 3 years, 6% coupon
Which of the following increase the price sensitivity of a bond to changes in interest
rates
I. Increase time to maturity
II. Decrease time to maturity
III. Increase coupon rate
IV. Decrease coupon rate
A) I only
B) I and IV only
C) II and III only
D) I, II, and IV only
E) I, II, III and IV - correct answer b) I and IV only
Bond has a future value of $1000, and is currently quoted at 98.4% The bonds they
have 5% coupon. What is the current yield.
, A) 4.67
B) 4.78
C) 5.08
D) 5.33
E) 5.54 - correct answer c) 5.08
Current yield = annual cash flow / market price
Annual cash flow = (1000)(.05) = 50
Market price = (1000)(.984) = 984
Current yield = = .0508
7% semiannual coupon bonds are callable in 2 years at $1054 what is the amount of
the call premium on $1000 par value
A) $52
B) $54
C) $72
D) $84
E) $89 - correct answer b) $54
1054 - 1000 = 54
You own a bond with 6% annual coupon and it matures in 5 years. It is a 10 year bond
that was issued at par value. Which of the following applies if the market interest rate in
5.8%
A) current yield to maturity in greater than 6%
B) current yield is 6%
C) the next interest payment is $30
D) the bond is currently valued at half of its issued price
E) you will realize a capital gain if the bond is sold today - correct answer e) you will
realize a capital gain if the bond is sold today
A computer company has 5.25% coupon bond outstanding with a current market price
of $546.19, the yield to maturity is 16.28 and the future value is $1000. If interest is paid
semiannually, how many years until the bonds mature
A) 6.64
B) 7.08
C) 12.41
D) 14.16
E) 28.32 - correct answer b) 7.08
PMT = (.0525/2)(1000) = 26.1
FV = 1000
