Question Details

Bonds sell at a discount from par value when market rates for similar bonds are 


1.	The real risk-free rate is 3.05%, inflation is expected to be 2.75% this year, and the maturity risk premium is zero.  IBM stock has a risk premium of 0.9%. What is the equilibrium rate of return on a 1-year Treasury bond?

a.	5.51%
b.	5.80%
c.	6.09%
d.	6.39%
e.	6.71%
	
2.	Suppose the real risk-free rate is 3.25%, the average future inflation rate is 4.35%, and a maturity risk premium of 0.07% per year to maturity applies to both corporate and T-bonds, i.e., MRP = 0.07%(t), where t is the years to maturity.  Suppose also that a liquidity premium of 0.50% and a default risk premium of 0.90% apply to A-rated corporate bonds but not to T-bonds.  How much higher would the rate of return be on a 10-year A-rated corporate bond than on a 5-year Treasury bond?  

a.	1.75%
b.	1.84%
c.	1.93%
d.	2.03%
e.	2.13%
	3.	Dyl Inc.'s bonds currently sell for $1,180 and have a par value of $1,000.  They pay a $65 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,100.  What is their yield to maturity (YTM)?

a.	4.79%
b.	3.69%
c.	4.65%
d.	5.08%
e.	4.36%
	
4.	Sadik Inc.'s bonds currently sell for $1,270 and have a par value of $1,000.  They pay a $105 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,100.  What is their yield to call (YTC)?

a.	6.89%
b.	5.89%
c.	5.18%
d.	6.54%
e.	6.30%
	
5.	Bonds sell at a discount from par value when market rates for similar bonds are 

a.	Less than the bond- coupon rate.
b.	Greater than the bond- coupon rate.
c.	Equal to the bond- coupon rate.
d.	Both lower than and equal to the bond- coupon rate.
e.	Market rates are irrelevant in determining a bond- price.




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