# Bond calculations- multiple choice and math

You may leave detailed work if you want to show the work however it it not necessary.

I just need the CORRECT answer.

The questions are a mix of multiple choice and problems on bond calculation

1

. How much will the coupon payments be of a

2

0

-year \$

5

00 bond with a

8

% coupon rate and quarterly payments?

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1

6

9

2

7

02

3

30

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MultipleChoice

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1

2. An investor holds a Ford bond with a face value of \$5000, a coupon rate of

4

%, and semiannual payments that matures on 01/

15

/

20

09. How much will the investor receive on 01/15/2009?

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16

9270

23

31

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MultipleChoice

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2

3. A university issues a bond with a face value of \$

10

,000 and a coupon rate of 5.65% that matures on 07/15/2015. The holder of such a bond receives coupon payments of \$282.50. How frequently are coupon payments made in this case? (Monthly, quarterly, semiannually or annually?

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1692702332

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MultipleChoice

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3

 4. Which of the following is true about the face value of a bond?
 It is the notional amount we use to compute coupon payments.        It is the amount that is repaid at maturity.        It is usually denominated in standard increments, such as \$1,000.        All of the above are true.

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1692702333

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MultipleChoice

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4

 5. What is the yield to maturity of a one-year, risk-free, zero-coupon bond with a \$10,000 face value and a price of \$9600 when released? (percentage)

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1692702334

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MultipleChoice

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5

 6. Why is the yield to maturity of a zero-coupon, risk-free bond that matures at the end of a given period the risk-free interest rate for that period?
 Since such a bond provides a risk-free return over that period, the Law of One Price guarantees the risk-free interest rate be equal to this yield.        Since a bond’s price will converge on its face value as the bond approaches the maturity date, the Law of One Price dictates that the risk-free interest rate will reflect this convergence.        Since interest rates will rise and fall in response to the movement in bond prices.        Since there is, by definition, no risk in investing in such bonds, the return from such bonds is the best that can be expected from any investment over the period.

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1692702335

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MultipleChoice

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6

 7. A risk-free, zero-coupon bond with a face value of \$1,000 has 15 years to maturity. If the YTM is 5.8%, which of the following would be closest to the price this bond will trade at?

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1692702336

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MultipleChoice

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7

 8. A risk-free, zero-coupon bond with a \$5000 face value has ten years to maturity. The bond currently trades at \$3650. What is the yield to maturity of this bond? (percentage)

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1692702337

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MultipleChoice

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8

 9. Which of the following statements is FALSE?
 The amount of each coupon payment is determined by the coupon rate of the bond.        Prior to its maturity date, the price of a zero-coupon bond is always greater than its face value.        The simplest type of bond is a zero-coupon bond.        Treasury bills are U.S. government bonds with a maturity of up to one year.

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MultipleChoice

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9

 10. Which of the following statements is FALSE?
 The internal rate of return (IRR) of an investment in a zero-coupon bond is the rate of return that investors will earn on their money if they buy a default free bond at its current price and hold it to maturity.        The yield to maturity of a bond is the discount rate that sets the future value (FV) of the promised bond payments equal to the current market price of the bond.        Financial professionals also use the term spot interest rates to refer to the default-free zero-coupon yields.        When we calculate a bond’s yield to maturity by solving the formula, Price of an n-period bond =  +  + … + , 1 + YTM) the yield we compute will be a rate per coupon interval.

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1692702339

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MultipleChoice

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10

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