1) The Morrissey Company's bonds mature in 7 years, have a par
value of $1,000, and make an annual coupon payment of $70. The
market interest rate for the bonds is 8.5%. What is the bond's
price?
a.
b.
c.
d.
e.
$923.22
$946.30
$969.96
$994.21
$1,019.06
2) D. J. Masson Inc. recently issued noncallable bonds that mature in
10 years. They have a par value of $1,000 and an annual coupon
of 5.5%. If the current market interest rate is 7.0%, at what price
should the bonds sell?
a.
b.
c.
d.
e.
$829.21
$850.47
$872.28
$894.65
$917.01
3) Ezzell Enterprises’ noncallable bonds currently sell for $1,165.
They have a 15-year maturity, an annual coupon of $95, and a par
value of $1,000. What is their yield to maturity?
a.
b.
c.
d.
e.
6.20%
6.53%
6.87%
7.24%
7.62%
4) Quigley Inc.'s bonds currently sell for $1,080 and have a par value
of $1,000. They pay a $100 annual coupon and have a 15-year
maturity, but they can be called in 5 years at $1,125. What is their
yield to maturity (YTM)?
a.
b.
c.
d.
e.
8.56%
9.01%
9.46%
9.93%
10.43%
5) Terminator Bug Company bonds have a 14% coupon rate. Interest is
paid semiannually. The bonds have a par value of $1,000 and will
mature 10 years from now. Compute the value of Terminator bonds if
investors' required rate of return is 12%.
A) $1,114.70
B) $1,149.39
C) $894.06
D) $1,000.00
6) Aurand, Inc. has outstanding bonds with an 8% annual coupon rate
paid semiannually. The bonds have a par value of $1,000, a current price
of $904, and will mature in 14 years. What is the annual yield to
maturity on the bond?
A) 15.80%
B) 10.47%
C) 9.24%
D) 7.90%
E) 4.62%
7) Sadik Inc.'s bonds currently sell for $1,280 and have a par value of
$1,000. They pay a $135 annual coupon and have a 15-year
maturity, but they can be called in 5 years at $1,050. What is their
yield to call (YTC)?
a.
b.
c.
d.
e.
6.39%
6.72%
7.08%
7.45%
7.82%
8) Garvin Enterprises’ bonds currently sell for $1,150. They have a
6-year maturity, an annual coupon of $85, and a par value of
$1,000. What is their current yield?
7.39%
7.76%
8.15%
8.56%
8.98%
9) Assume that you are considering the purchase of a 15-year bond
with an annual coupon rate of 9.5%. The bond has face value of
$1,000 and makes semiannual interest payments. If you require an
11.0% nominal yield to maturity on this investment, what is the
maximum price you should be willing to pay for the bond?
a. $891.00
b. $913.27
c. $936.10
d. $959.51
e. $983.49
10)
Wachowicz Corporation issued 15-year, noncallable, 7.5%
annual coupon bonds at their par value of $1,000 one year ago.
Today, the market interest rate on these bonds is 5.5%. What is
the current price of the bonds, given that they now have 14 years
to maturity?
a.
b.
c.
d.
e.
$1,077.01
$1,104.62
$1,132.95
$1,162.00
$1,191.79
11)
McCue Inc.'s bonds currently sell for $1,250. They pay a
$120 annual coupon, have a 15-year maturity, and a $1,000 par
value, but they can be called in 5 years at $1,050. Assume that no
costs other than the call premium would be incurred to call and
refund the bonds, and also assume that the yield curve is
horizontal, with rates expected to remain at current levels on into
the future. What is the difference between this bond's YTM and its
YTC? (Subtract the YTC from the YTM.)
a.
b.
c.
d.
e.
2.11%
2.32%
2.55%
2.80%
3.09%
12) Taussig Corp.'s bonds currently sell for
$1,150. They have a 6.75% annual coupon rate
and a 15-year maturity, but they can be called in
6 years at $1,067.50. Assume that the company
exercises the call provision, and that no costs
other than the call premium would be incurred
to call and refund the bonds, and also assume
that the yield curve is horizontal, with rates
expected to remain at current levels on into the
future. Under these conditions, what rate of
return should an investor expect to earn if he or
she purchases these bonds, the YTC or the
YTM?
a. 3.92%
b.
c.
d.
e.
4.12%
4.34%
4.57%
4.81%
13)
In order to accurately assess the capital structure of a firm, it
is necessary to convert its balance sheet figures to a market value
basis. KJM Corporation's balance sheet as of today is as follows:
Long-term debt (bonds, at par)
Preferred stock
Common stock ($10 par)
10,000000
2,000,000
10,000,00
0
Retained earnings
Total debt and equity
4,000,000
$26,000,0
00
The bonds have a 4.0% coupon rate, payable semiannually, and a par
value of $1,000. They mature exactly 10 years from today. The yield to
maturity is 12%, so the bonds now sell below par. What is the current
market value of the firm's debt?
a.
b.
c.
d.
e.
$5,276,731
$5,412,032
$5,547,332
$7,706,000
$7,898,650
14)
O'Brien Ltd.'s outstanding bonds have a $1,000 par value,
and they mature in 25 years. Their nominal yield to maturity is
9.25%, they pay interest semiannually, and they sell at a price of
$850. What is the bond's nominal (annual) coupon interest rate?
a.
b.
c.
d.
e.
6.27%
6.60%
6.95%
7.32%
7.70%
15)
A 25-year, $1,000 par value bond has an 8.5% annual
coupon. The bond currently sells for $875. If the yield to maturity
remains at its current rate, what will the price be 5 years from
now?
a.
b.
c.
d.
e.
$839.31
$860.83
$882.90
$904.97
$927.60
16)Keenan Industries has a bond outstanding with 15 years to maturity,
an 8.75% coupon paid semiannually, and a $1,000 par value. The bond
has a 6.50% nominal yield to maturity, but it can be called in 6 years at
a price of $1,050. What is the bond’s nominal yield to call?
a.
b.
c.
d.
e.
5.01%
5.27%
5.54%
5.81%
6.10%