Your grandmother currently owns bonds that will mature in 7 years. The face value of these bonds is $1,000, and their coupon rate is 8%, with interest paid annually. Currently the yield to maturity is 12%. She bought these bonds one year ago at a price of $1,000, and just received her annual coupon interest payment. What is her holding period return on the bonds? (Use annual compounding.) Please show all work, not on excel

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Nestor RutherfordLv2

27 Jun 2019

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23) A 8-year, semiannual coupon bond is priced at $927. The bond has a $1,000 face value and a yield to maturity of 4.6 percent. What is the coupon rate?

24) Oceanview, Inc. bonds have a face value of $1,000. The bonds carry a 9 percent coupon, pay interest semiannually, and mature in 15 years. What is the current price of these bonds if the yield to maturity is 7.7 percent?

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byzantiumwildebeest582

Money, Banking, and Financial Markets, 3/e- quiz, Stephen G.Cecchetti, Kermit L. Schoenholtz
Question Details
Pls solve the quiz and EXPLAIN YOUR ANSWERS, I NEED TO LEARN THECALCULATIONS. Thank you.

Multiple Choice Quiz
1
If the annual interest rate is 5% (.05), the price of a one yearTreasury bill would be:
(Hint: T-Bills have $100 face value)
A) $95.00
B) $97.50
C) $95.24
D) $96.10
2
If the annual interest rate is 5%, the price of a three-monthTreasury bill would be:
(Hint: T-Bills have $100 face value)
A) $98.79
B) $95.00
C) $98.75
D) $97.59
3
If a consol is offering an annual coupon of $50 and the annualinterest rate is 6%, the price of the consol is:
A) $47.17
B) $813.00
C) $833.33
D) None of the above
4
A $1000 face value bond purchased for $965.00, with an annualcoupon of $60, and 20 years to maturity has:
A) A current yield equal to 6.22%.
B) A current yield equal to 6.00%.
C) A coupon rate equal to 6.22%.
D) A yield to maturity and current yield equal to 6.00%.
E) A yield to maturity and coupon rate equal to 6.00%.
5
A $1000 face value bond, with an annual coupon of $40, one year tomaturity and a purchase price of $980:
A) Has a current yield that equals 4.00%.
B) Has a coupon rate that equals 4.80%.
C) Has a current yield that equals 4.08% and a yield to maturitythat equals 6.12%.
D) Has a current yield that equals 4.08% and a yield to maturitythat equals 4.0%.
6
If a one year bond has a face value of $100 and is purchased for$94, and is held to maturity:
A) The holding period return will equal the yield tomaturity.
B) The yield to maturity will exceed the holding periodreturn.
C) The yield to maturity will be 6.38%.
D) a and c.
7
A 30-year Treasury bond as a face value of $1,000, price of $1,200with a $50 coupon payment. Assume the price of this bond decreasesto $1,100 over the next year. The one-year holding period return isequal to:
A) -9.17%
B) -8.33%
C) -4.17%
D) -3.79%

8
If a one-year zero-coupon bond has a face value of $100, ispurchased for $94, and is held to maturity:
A) The holding period return will exceed the yield tomaturity.
B) The yield to maturity will exceed the holding periodreturn.
C) The yield to maturity will be 6.38%.
D) The holding period return will be 6.38%.

9
Consider a zero-coupon bond with a $1,100 payment in one year.Suppose the interest rate decreases from 10% to 8%. The price ofthis bond:
A) Increases from $1,000 to $1,018.
B) Increases from $1,000 to $1,375.
C) Decreases from $110 to $88.
D) Decreases from $1,210 to $1,188.
10
Consider a $1,000 face value bond with a $55 coupon payment and 1year to maturity. Calculate the current yield, coupon rate and theyield to maturity if the bond is purchased for $940.
A) Current yield = 5.50%, coupon rate = 5.50%, yield to maturity =12.23%.
B) Current yield = 5.85%, coupon rate = 5.50%, yield to maturity =12.23%.
C) Current yield = 5.85%, coupon rate = 5.00%, yield to maturity =6.38%.
D) Current yield = 5.50%, coupon rate = 5.00%, yield to maturity =6.38%.

11
Consider a $1,000 face value bond with a $55 coupon payment and 1year to maturity. Calculate the current yield, coupon rate and theyield to maturity if the bond is purchased for $1,130.
A) Current yield = 5.50%, coupon rate = 4.87%, yield to maturity =5.00%.
B) Current yield = 5.50%, coupon rate = 5.50%, yield to maturity =-6.64%.
C) Current yield = 4.87%, coupon rate = 5.50%, yield to maturity =-6.64%.
D) Current yield = 4.87%, coupon rate = 5.00%, yield to maturity =-5.00%.

12
If the U.S. government's borrowing needs increase, all otherfactors constant:
A) The demand for bonds will decrease.
B) The price of bonds will increase.
C) The supply of bonds will increase.
D) The yields on bonds will decrease.
13
Consider a two-year, 4.5% coupon bond with a $500 face value thatis originally purchased for $475. Calculate the holding periodreturn of this bond if it is sold after one year at a price of$485.
A) 6.84%
B) 6.50%
C) 11.58%
D) 3.05%
14
Consider a two-year, 8% coupon bond with a $1,500 face value thatis originally purchased for $1,490. Calculate the holding periodreturn of this bond if it is sold after one year at a price of$1,505.
A) 8.67%
B) 9.06%
C) 1.54%
D) 6.38%
15
If the risk on foreign government bonds increases relative to U.S.government bonds, the price of U.S. government bonds should:
A) Not change since U.S. government bonds are free of defaultrisk.
B) Decrease since people will bail out of all governmentbonds.
C) Increase as the demand for these bonds increases.
D) Not be affected because the two types of bonds are traded indifferent markets.

Bond	Coupon Rate	Maturity Year	Par Value
1	7.5%	2032	1000
2	8.25%	2029	1000
3	6.0%	2023	1000

a.) Assuming that bonds pay annual coupon, estimate the marketvalue of each bond at a discount rate of 7.4%

b.) Assuming that bonds pay annual coupon, what will happen tothe price of each bond if market rates suddenly decrease from 7.4%to 6.2%? Which of the three bonds will have the greatest percentagechange in price?

c.) Assuming that bonds pay annual coupon, what will happen tothe price of each bond if market interest rates suddenly increasefrom 7.4% to 8.6%? Which of the three bonds will have the greatestpercentage change in price?

d.) Assuming that bonds pay annual coupon. Also, the bonds arecurrently trading in the market at $973.63, $932.37, and $1,075.58respectively. What is the yield-to-maturity of each bond?

e.) Assuming that bonds pay annual coupon. Suppose Rheapurchased bond 1 today at a price of $973.63, but would like tosell the bond in 7 years at which time similar bonds yield 6.753%.At what price can Rhea expect to sell the bonds? If she sells thebond in 7 years at the price computed, what would be her realizedrate of return over her holding period?

f.) Repeat analysis in parts a)-e) assuming bonds paysemi-annual coupon.