If the risk-free rate is 6.25%, the inflation premium is 2% and the maturity pre

Question

If the risk-free rate is 6.25%, the inflation premium is 2% and the maturity premium is 0.5%, the long-term Treasury bond rate should be:

A. 6.75%

B. 7.75%

C. 8.25%

D. 8.75%

A $1,000 par value bond is currently valued at $1,033.53. The bond pays interest semi-annually, has 6 years to maturity, and has a yield to maturity of 7.3 percent. The coupon rate is _____ percent and the current yield is _____ percent.

A. 6.80; 7.21

B. 8.00; 7.74

C. 8.00; 7.81

D. 8.50; 8.22

E. 8.50; 8.30

An Aaa-rated taxable corporate bond carries a current yield to maturity of 16 percent while Aaa-rated municipal bonds have a 12 percent yield to maturity. The break-even marginal tax rate is:

A. 35%

B. 28%

C. 33%

D. 25%

If a $10,000 par T-bill has a 3.75 percent discount quote and a 90-day maturity, what is the price of the T-bill to the nearest dollar?

A. $9,625 B. $9,906 C. $9,913 D. $9,627

A 10-year annual payment corporate bond has a market price of $1058. It pays annual interest of $60 and its required rate of return is 4 percent. By how much is the bond mispriced?

A. $0.00

B. Overpriced by $7.29

C. Underpriced by $7.29

D. Overpriced by $4.22

E. Underpriced by $4.22

Which of the following statements below is correct? (Consider each statement by itself without reference to the other statements.)

A. Security A has the same maturity, default risk and tax status as Security B but is more marketable than B; thus, Security A should carry a higher yield

B. Securities A and B are new corporate bonds issued today and have comparable maturities and risk levels, but A is callable while B is not. Security A should have the lower interest rate.

C. Securities A and B are new corporate bonds issued today with comparable maturities and risk levels, but A is convertible and B is not; Security A should have a lower yield

D. Security A is an AA-rated municipal bond, while Security B, having the same maturity and AA rating, is a corporate bond; thus, Security B should have the lower yield

please explain your answer

Explanation / Answer

If the risk-free rate is 6.25%, the inflation premium is 2% and the maturity premium is 0.5%, the long-term Treasury bond rate should be:

Answer is-D. 8.75%

A $1,000 par value bond is currently valued at $1,033.53. The bond pays interest semi-annually, has 6 years to maturity, and has a yield to maturity of 7.3 percent. The coupon rate is _____ percent and the current yield is _____ percent.

Answer B. 8.00; 7.74

YTm =7.30%

semi annual YTM (rate) = 3.65%

No of semi annuall period left to maturity (nper) = 6*2 = 12

PV = 1033.53

FV = 1000

Semi Annual Coupon Amount = pmt(rate,nper,pv,fb)

Semi Annual Coupon Amount = pmt(3.65%,12,-1033.53,1000

Semi Annual Coupon Amount = $ 40

Coupon Rate = 40/1000 *2 = 8%

Current Yield = 40/1033.53 *2 = 7.74%

Answer

Current Yield = 7.74%

Coupon Rate = 8%

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