# finance data bank

Question # 00005273 Posted By: spqr Updated on: 12/13/2013 01:54 PM Due on: 12/15/2013
Subject Finance Topic Finance Tutorials:
Question

106. The outstanding bonds of Winter Time Products provide a real rate of return of 3.03 percent. The current rate of inflation is 4.68 percent. What is the actual nominal rate of return on these bonds?
A. 7.58 percent
B. 7.33 percent
C. 7.71 percent
D. 7.76 percent
E. 7.85 percent

107. The yield to maturity on a bond is currently 8.46 percent. The real rate of return is 3.22 percent. What is the rate of inflation?
A. 5.08 percent
B. 5.64 percent
C. 6.24 percent
D. 6.53 percent
E. 6.71 percent

108. A zero coupon bond with a face value of \$1,000 is issued with an initial price of \$212.56. The bond matures in 25 years. What is the implicit interest, in dollars, for the first year of the bond's life?
A. \$12.72
B. \$13.58
C. \$13.90
D. \$15.63
E. \$15.89

109. Northern Warehouses wants to raise \$11.4 million to expand its business. To accomplish this, it plans to sell 40-year, \$1,000 face value, zero-coupon bonds. The bonds will be priced to yield 8.75 percent. What is the minimum number of bonds it must sell to raise the \$11.4 million it needs?
A. 210,411
B. 239,800
C. 254,907
D. 326,029
E. 350,448

110. You have won a contest and will receive \$2,500 a year in real terms for the next 3 years. Each payment will be received at the end of the period with the first payment occurring one year from today. The relevant nominal discount rate is 6.3 percent and the inflation rate is 4.5 percent. What are your winnings worth today?
A. \$7,249
B. \$7,367
C. \$7,401
D. \$7,500
E. \$7,838

111. You purchased an investment which will pay you \$8,000, in real dollars, a year for the next three years. Each payment will be received at the end of the period with the first payment occurring one year from today. The nominal discount rate is 7.5 percent and the inflation rate is 2.9 percent. What is the present value of these payments?
A. \$21,720
B. \$22,004
C. \$22,511
D. \$23,406
E. \$23,529

Essay Questions

112. Define liquidity risk, default risk, and taxability risk and explain how these risks relate to bonds and bond yields.

113. Inflation has remained low for the past three years but you have come to the conclusion that trend is ending and inflation will increase significantly over the next 18 months. Assume you have reached this conclusion prior to other investors reaching the same conclusion. What adjustments should you make to your bond portfolio in light of your conclusions?

114. Explain the conditions that would need to exist for the Treasury yield curve to be downward sloping.

115. Describe the relationships that exist between the coupon rate, the yield to maturity, and the current yield for both a discount bond and a premium bond.

Multiple Choice Questions

116. Sylvan Trees has a 7 percent coupon bond on the market with ten years left to maturity. The bond makes annual payments and currently sells for \$861.20. What is the yield-to-maturity?
A. 8.50 percent
B. 8.68 percent
C. 8.92 percent
D. 9.18 percent
E. 9.27 percent

117. Kaiser Industries has bonds on the market making annual payments, with 14 years to maturity, and selling for \$1,382.01. At this price, the bonds yield 7.5 percent. What is the coupon rate?
A. 8.00 percent
B. 8.50 percent
C. 9.00 percent
D. 10.50 percent
E. 12.00 percent

118. Dexter Mills issued 20-year bonds a year ago at a coupon rate of 11.4 percent. The bonds make semiannual payments. The yield-to-maturity on these bonds is 9.2 percent. What is the current bond price?
A. \$985.55
B. \$991.90
C. \$1,192.16
D. \$1,195.84
E. \$1,198.00

119. Soo Lee Imports issued 17-year bonds 2 years ago at a coupon rate of 10.3 percent. The bonds make semiannual payments. These bonds currently sell for 102 percent of par value. What is the yield-to-maturity?
A. 9.98 percent
B. 10.04 percent
C. 10.13 percent
D. 10.27 percent
E. 10.42 percent

120. Bryceton, Inc. has bonds on the market with 13 years to maturity, a yield-to-maturity of 9.2 percent, and a current price of \$895.09. The bonds make semiannual payments. What is the coupon rate?
A. 7.80 percent
B. 8.00 percent
C. 8.25 percent
D. 8.40 percent
E. 8.65 percent

121. Suppose the real rate is 9.5 percent and the inflation rate is 1.8 percent. What rate would you expect to see on a Treasury bill?
A. 9.50 percent
B. 11.30 percent
C. 11.47 percent
D. 11.56 percent
E. 11.60 percent

122. An investment offers a 10.5 percent total return over the coming year. Sam Bernanke thinks the total real return on this investment will be only 4.5 percent. What does Sam believe the inflation rate will be for the next year?
A. 5.60 percent
B. 5.67 percent
C. 5.74 percent
D. 6.00 percent
E. 6.21 percent

123. Bond S is a 4 percent coupon bond. Bond T is a 10 percent coupon bond. Both bonds have 11 years to maturity, make semiannual payments, and have a yield-to-maturity of 7 percent. If interest rates suddenly rise by 2 percent, what will the percentage change in the price of Bond T be?
A. -15.16 percent
B. -14.87 percent
C. -13.56 percent
D. -12.92 percent
E. -12.67 percent

124. Technical Sales, Inc. has 6.6 percent coupon bonds on the market with 9 years left to maturity. The bonds make semiannual payments and currently sell for 88.79 percent of par. What is the effective annual yield?
A. 8.34 percent
B. 8.40 percent
C. 8.52 percent
D. 8.58 percent
E. 8.60 percent

125. Bonner Metals wants to issue new 18-year bonds for some much-needed expansion projects. The company currently has 11 percent bonds on the market that sell for \$1,459.51, make semiannual payments, and mature in 18 years. What should the coupon rate be on the new bonds if the firm wants to sell them at par?
A. 5.75 percent
B. 6.23 percent
C. 6.41 percent
D. 6.60 percent
E. 6.79 percent

This cannot be solved directly, so it's easiest to just use the calculator method to get an answer. You can then use the calculator answer as the rate in the formula just to verify that your answer is correct..

126. You purchase a bond with an invoice price of \$1,460. The bond has a coupon rate of 9.4 percent, and there are 3 months to the next semiannual coupon date. What is the clean price of this bond?
A. \$1,436.50
B. \$1,452.17
C. \$1,460.00
D. \$1,467.83
E. \$1,483.50

127. Suppose the following bond quote for the Beta Company appears in the financial page of today's newspaper. Assume the bond has a face value of \$1,000 and the current date is April 15, 2009. What is the yield to maturity on this bond?

A. 6.64 percent
B. 8.96 percent
C. 10.23 percent
D. 12.47 percent
E. 13.27 percent

128. You want to have \$1.04 million in real dollars in an account when you retire in 46 years. The nominal return on your investment is 8 percent and the inflation rate is 3.5 percent. What is the real amount you must deposit each year to achieve your goal?
A. \$6,667.67
B. \$6,878.49
C. \$7,433.02
D. \$7,515.09
E. \$7,744.12

129. The yield-to-maturity on a bond is the interest rate you earn on your investment if interest rates do not change. If you actually sell the bond before it matures, your realized return is known as the holding period yield. Suppose that today, you buy a 12 percent annual coupon bond for \$1,000. The bond has 13 years to maturity. Two years from now, the yield-to-maturity has declined to 11 percent and you decide to sell. What is your holding period yield?
A. 8.84 percent
B. 9.49 percent
C. 12.00 percent
D. 13.01 percent
E. 14.89 percent

25. Your grandmother is gifting you \$100 a month for four years while you attend college to earn your bachelor's degree. At a 5.5 percent discount rate, what are these payments worth to you on the day you enter college?
A. \$4,201.16
B. \$4,299.88
C. \$4,509.19
D. \$4,608.87
E. \$4,800.00

26. You just won the grand prize in a national writing contest! As your prize, you will receive \$2,000 a month for ten years. If you can earn 7 percent on your money, what is this prize worth to you today?
A. \$172,252.71
B. \$178,411.06
C. \$181,338.40
D. \$185,333.33
E. \$190,450.25

27. Phil can afford \$180 a month for 5 years for a car loan. If the interest rate is 8.6 percent, how much can he afford to borrow to purchase a car?
A. \$7,750.00
B. \$8,348.03
C. \$8,752.84
D. \$9,266.67
E. \$9,400.00

28. You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of \$200,000 today or receive payments of \$1,400 a month for 20 years. You can earn 6 percent on your money. Which option should you take and why?
A. You should accept the payments because they are worth \$209,414 to you today.
B. You should accept the payments because they are worth \$247,800 to you today.
C. You should accept the payments because they are worth \$336,000 to you today.
D. You should accept the \$200,000 because the payments are only worth \$189,311 to you today.
E. You should accept the \$200,000 because the payments are only worth \$195,413 to you today.

29. Your employer contributes \$75 a week to your retirement plan. Assume that you work for your employer for another 20 years and that the applicable discount rate is 7.5 percent. Given these assumptions, what is this employee benefit worth to you today?
A. \$40,384.69
B. \$42,618.46
C. \$44,211.11
D. \$44,306.16
E. \$44,987.74

30. The Design Team just decided to save \$1,500 a month for the next 5 years as a safety net for recessionary periods. The money will be set aside in a separate savings account which pays 4.5 percent interest compounded monthly. The first deposit will be made today. What would today's deposit amount have to be if the firm opted for one lump sum deposit today that would yield the same amount of savings as the monthly deposits after 5 years?
A. \$80,459.07
B. \$80,760.79
C. \$81,068.18
D. \$81,333.33
E. \$81,548.20

31. You need some money today and the only friend you have that has any is your miserly friend. He agrees to loan you the money you need, if you make payments of \$25 a month for the next six months. In keeping with his reputation, he requires that the first payment be paid today. He also charges you 1.5 percent interest per month. How much money are you borrowing?
A. \$134.09
B. \$138.22
C. \$139.50
D. \$142.68
E. \$144.57

Tutorials for this Question
1. ## Solution: finance data bank

Tutorial # 00005083 Posted By: spqr Posted on: 12/13/2013 02:23 PM
Puchased By: 2
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(1 + 0.018); R = 11.47 percent 122. An investment offers a 10.5 percent total return over ...
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