Question 1 a) If the yield to maturity (discount rate used) on a bond is 12% and

Question

Question 1a)

If the yield to maturity (discount rate used) on a bond is 12% and the coupon rate is 10%, this bond will be selling for a :

face value (selling at the par value of bond)

discount (below face value)

premium(above face value)

Question 1b)

If the coupon rate of a bond is say 19% and the yield required by investors (discount rate) is 10% this bond will sell at a :

discount

premium

face value

Question 1c)

A bond is an investment which provides cash flows in the future to the investor(buyer). What types of cash flows are they?

interest, face value

interest, dividends

none of the above

interest, profits

Question 1d)

In the "course content" item 6.5 for this week, when setting up the Excel bond pricing formula the "settlement date" is the date the bond is sold.

True

False

Question 1e)

When using Excel to determine the price of the "Northern Timber" bond assuming it is called we need to adjust two parts (arguments) of the Excel formula. What are they?

settlement date and redemption

coupon rate and yield

maturity date and redemption

maturity date and frequency

Question 1f)

In this presentation we covered a topic demonstrating how the risk of firm represented by its DEBT/ASSETratio is affected when a firm acquires a new asset. The DEBT/ASSET ratio increased in Textronic's case because it:

Financed all of the asset with stockholder's equity.

Financed half of the value of the asset with debt.

Financed all of the asset with cash.

Financed the entire amount of the new asset with debt.

Question 1g)

When we solved for the lease payment the Prudential would need to receive and discovered it to be$4,359.23that represents a return to the bank of:

8.00%

6.00%

5.00%

7.00%

face value (selling at the par value of bond)

discount (below face value)

Explanation / Answer

1.a. The correct option is B. Discount( below the face Value) If the YTM is more than the coupon rate   it is said to eb issued at discount. 1.b B, Premium If yield is less than the coupon it will be at premium 1.c. D. Interset Interest is received on the bonds

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