Question Details

The bond has a yield to maturity 


1.	A 10-year bond pays an annual coupon, its YTM is 8%, and it currently trades at a premium. Which of the following statements is CORRECT?

a.	The bond- current yield is less than 8%.
b.	If the yield to maturity remains at 8%, then the bond- price will decline over the next year.
c.	The bond- coupon rate is less than 8%.
d.	If the yield to maturity increases, then the bond- price will increase.
e.	If the yield to maturity remains at 8%, then the bond- price will remain constant over the next year.
	
2.	Which of the following statements is CORRECT?

a.	If a bond is selling at a discount, the yield to call is a better measure of return than is the yield to maturity.
b.	On an expected yield basis, the expected capital gains yield will always be positive because an investor would not purchase a bond with an expected capital loss.
c.	On an expected yield basis, the expected current yield will always be positive because an investor would not purchase a bond that is not expected to pay any cash coupon interest.
d.	If a coupon bond is selling at par, its current yield equals its yield to maturity, and its expected capital gains yield is zero.
e.	The current yield on Bond A exceeds the current yield on Bond B; therefore, Bond A must have a higher yield to maturity than Bond B.
	
3.	Three $1,000 face value, 10-year, noncallable, bonds have the same amount of risk, hence their YTMs are equal.  Bond 8 has an 8% annual coupon, Bond 10 has a 10% annual coupon, and Bond 12 has a 12% annual coupon.  Bond 10 sells at par.  Assuming that interest rates remain constant for the next 10 years, which of the following statements is CORRECT?

a.	Bond 8- current yield will increase each year.
b.	Since the bonds have the same YTM, they should all have the same price, and since interest rates are not expected to change, their prices should all remain at their current levels until maturity.
c.	Bond 12 sells at a premium (its price is greater than par), and its price is expected to increase over the next year.
d.	Bond 8 sells at a discount (its price is less than par), and its price is expected to increase over the next year.
e.	Over the next year, Bond 8- price is expected to decrease, Bond 10- price is expected to stay the same, and Bond 12- price is expected to increase.
	
4.	A 12-year bond has an annual coupon of 9%.  The coupon rate will remain fixed until the bond matures.  The bond has a yield to maturity of 7%.  Which of the following statements is CORRECT?

a.	If market interest rates decline, the price of the bond will also decline.
b.	The bond is currently selling at a price below its par value.
c.	If market interest rates remain unchanged, the bond- price one year from now will be lower than it is today.
d.	The bond should currently be selling at its par value.
e.	If market interest rates remain unchanged, the bond- price one year from now will be higher than it is today.

5.	A 10-year Treasury bond has an 8% coupon, and an 8-year Treasury bond has a 10% coupon.  Neither is callable, and both have the same yield to maturity.  If the yield to maturity of both bonds increases by the same amount, which of the following statements would be CORRECT?

a.	The prices of both bonds will decrease by the same amount.
b.	Both bonds would decline in price, but the 10-year bond would have the greater percentage decline in price.
c.	The prices of both bonds would increase by the same amount.
d.	One bond's price would increase, while the other bond- price would decrease.
e.	The prices of the two bonds would remain constant.



Business Management Assignment Help, Business Management Homework help, Business Management Study Help, Business Management Course Help