Question

1) Value a 20-yr, non-callable bond that pays coupons of 8% assuming market interest rates are 3%.

Group of answer choices

$989

$1,748

$1,000

$1,455

$802

2)

Given the following information, calculate the present value of the following bond that pays semi-annual coupons. Par value: $1,000. Coupon Rate: 9%. Interest Rate: 2%. Maturity: 5 years.

Group of answer choices

$678

$1,000

$1,113

$1,331

$806

3)

An upward sloping yield curve means that:

Group of answer choices

Investors require lower returns for longer maturity Treasuries.

Investors require higher returns for longer maturity Treasuries.

Investors require higher returns for shorter maturity Treasuries.

Investors require the same return for both short and long-term Treasuries.

The yield curve is not related to required return on Treasuries.

4)

If you bought a stock for $250 and sold it for $300 after a year, you also received a dividend of $20 in that year. What was the RETURN you received over the year?

Group of answer choices

12.4%

28.0%

19.6%

14.0%

13.6%

Answer 1

1) cpn = 1,000 * 0.08 = 80

Option B is correct: $1,748

2) r = 2%/2 = 0.01 semi-annual rate

cpn = 1,000 * 0.09/2 = 45

n = 5 * 2 = 10

Option D is correct: $1,331

3) An upward sloping yield curve means that:

Investors require higher returns for longer maturity Treasuries.

Option B is correct.

Longer maturity bonds carry maturity risk and hence investors require higher return.

Option A is incorrect because investors require higher returns, not lower.

Option C is incorrect because it is describing downward sloping curve

Option D is incorrect because it is describing a flat curve

Option E is incorrect because yield curve is related required return on treasuries

4) If you bought a stock for $250 and sold it for $300 after a year, you also received a dividend of $20 in that year. What was the RETURN you received over the year?

Return = (Seling price - purchase price + Dividend)/Purchase price

Return = (300 - 250 + 20)/250

Return = 0.28

Return = 28.0%

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