BA 323 SDSU EXAM 2 | ALL QUESTIONS AND
CORRECT ANSWERS (DETAILED ANSWERS) |
GRADED A+ | NEWEST VERSION | VERIFIED
ANSWERS
What are the five key features of a bond? ---------CORRECT ANSWER------
-----------Par value, coupon interest rate, maturity date, issue date, and yield
to maturity.
Par value ---------CORRECT ANSWER-----------------the amount that an
investor pays to purchase a bond and that will be repaid to the investor at
maturity.
Par value = Future value
Coupon interest rate ---------CORRECT ANSWER-----------------the
percentage of a bond's par value that will be paid annually, typically in two
equal semiannual payments, as interest.
(stated interest rate paid by the issuer. Multiply by par value to get dollar
payment of interest.)
Mature Date ---------CORRECT ANSWER-----------------years until the bond
must be repaid.
Issue date ---------CORRECT ANSWER-----------------when the bond was
issued
, Yield to maturity ---------CORRECT ANSWER-----------------the rate of return
a bondholder will receive if the bond is held to maturity. "promised yield".
Call provision ---------CORRECT ANSWER-----------------a provision in a
bond contract that gives the issuer the right to redeem the bonds under
specified terms prior to the normal maturity date.
*Companies like these incase interest rates go down! Investors don't!
Call premium ---------CORRECT ANSWER-----------------Penalty paid by the
corporation is a bond is called (amount in excess of par-value).
Bond investors require higher yields
Typically requires 5 to 10 years to call
When does the value of a bond equal its par value? ---------CORRECT
ANSWER-----------------At maturity!
Why T-bills considered to be risk-free assets? Are they risk free? If not,
which risk factor are they exposed to? ---------CORRECT ANSWER-----------
------Considered risk-free because you're promised XYZ return regardless
of economy. They are not risk free, still exposed to inflation. Risk-free in the
default sense of the word.
Sharpe ratio equation ---------CORRECT ANSWER-----------------(return -
risk-free rate) / standard deviation
(mean Rp - Rf) / std dev Rp
Sharpe ratio of zero would be a beta of zero!
CORRECT ANSWERS (DETAILED ANSWERS) |
GRADED A+ | NEWEST VERSION | VERIFIED
ANSWERS
What are the five key features of a bond? ---------CORRECT ANSWER------
-----------Par value, coupon interest rate, maturity date, issue date, and yield
to maturity.
Par value ---------CORRECT ANSWER-----------------the amount that an
investor pays to purchase a bond and that will be repaid to the investor at
maturity.
Par value = Future value
Coupon interest rate ---------CORRECT ANSWER-----------------the
percentage of a bond's par value that will be paid annually, typically in two
equal semiannual payments, as interest.
(stated interest rate paid by the issuer. Multiply by par value to get dollar
payment of interest.)
Mature Date ---------CORRECT ANSWER-----------------years until the bond
must be repaid.
Issue date ---------CORRECT ANSWER-----------------when the bond was
issued
, Yield to maturity ---------CORRECT ANSWER-----------------the rate of return
a bondholder will receive if the bond is held to maturity. "promised yield".
Call provision ---------CORRECT ANSWER-----------------a provision in a
bond contract that gives the issuer the right to redeem the bonds under
specified terms prior to the normal maturity date.
*Companies like these incase interest rates go down! Investors don't!
Call premium ---------CORRECT ANSWER-----------------Penalty paid by the
corporation is a bond is called (amount in excess of par-value).
Bond investors require higher yields
Typically requires 5 to 10 years to call
When does the value of a bond equal its par value? ---------CORRECT
ANSWER-----------------At maturity!
Why T-bills considered to be risk-free assets? Are they risk free? If not,
which risk factor are they exposed to? ---------CORRECT ANSWER-----------
------Considered risk-free because you're promised XYZ return regardless
of economy. They are not risk free, still exposed to inflation. Risk-free in the
default sense of the word.
Sharpe ratio equation ---------CORRECT ANSWER-----------------(return -
risk-free rate) / standard deviation
(mean Rp - Rf) / std dev Rp
Sharpe ratio of zero would be a beta of zero!
