finance data bank

[1]. Meade Corporation bonds mature in 6 years and have a yield to maturity of 8.5 percent. The par value of the bonds is $1,000. The bonds have a 10 percent coupon rate and pay interest on a semiannual basis. What are the current yield and capital gains yield on the bonds for this year? (Assume that interest rates do not change over the course of the year).

a. Current yield = 8.50%, capital gains yield = 1.50%

b. Current yield = 9.35%, capital gains yield = 0.65%

c. Current yield = 9.35%, capital gains yield = -0.85%

d. Current yield = 10.00%, capital gains yield = 0.00%

e. None of the answers above is correct.

[2]. A 6-year bond which pays 8 percent interest semiannually sells at par ($1,000). Another 6-year bond of equal risk pays 8 percent interest annually. Both bonds are non-callable and have a face value of $1,000. What is the price of the bond which pays annual interest?

a. $689.08

b. $712.05

c. $980.43

d. $986.72

e. $992.64

[3]. Assume that McDonald's and Burger King have similar $1,000 par value bond issues outstanding. The bonds are equally risky. The Burger King bond has an annual coupon rate of 8 percent and matures 20 years from today. The McDonald's bond has a coupon rate of 8 percent, with interest paid semiannually, and it also matures in 20 years. If the nominal required rate of return, r_d, is 12 percent, semiannual basis, for both bonds, what is the difference in current market prices of the two bonds?

a. No difference.

b. $ 2.20

c. $ 3.77

d. $17.53

e. $ 6.28

[4]. You are considering investing in a security that matures in 10 years with a par value of $1,000. During the first five years, the security has an 8 percent coupon with quarterly payments (i.e., you receive $20 a quarter for the first 20 quarters). During the remaining five years the security has a 10 percent coupon with quarterly payments (i.e., you receive $25 a quarter for the second 20 quarters). After 10 years (40 quarters) you receive the par value.

Another 10-year bond has an 8 percent semiannual coupon (i.e., the coupon payment is $40 every six months). This bond is selling at its par value, $1,000. This bond has the same risk as the security you are thinking of purchasing. Given this information, what should be the price of the security you are considering purchasing?

a. $ 898.65

b. $1,060.72

c. $1,037.61

d. $ 943.22

e. $1,145.89

[5]. Fish & Chips Inc. has two bond issues outstand­ing, and both sell for $701.22. The first issue has an annual coupon rate of 8 percent and 20 years to maturity. The second has an identical yield to maturity as the first bond, but only 5 years until maturity. Both issues pay interest annually. What is the annual interest payment on the second issue?

a. $120.00

b. $ 37.12

c. $ 56.42

d. $ 29.68

e. $ 11.16

[6]. Semiannual payment bonds with the same risk (Aaa) and maturity (20 years) as your company's bonds have a nominal (not EAR) yield of 9 percent. Your company's treasurer is thinking of issuing at par some $1,000 par value, 20-year, quarterly payment bonds. She has asked you to determine what quarterly interest payment, in dollars, the company would have to set in order to provide the same effective annual rate (EAR) as those on the 20-year, semiannual payment bonds. What would the quarterly interest payment be, in dollars?

a. $45.00

b. $25.00

c. $22.25

d. $27.50

e. $23.00

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