17. If a bond with a face value of $1,000 has a yield to maturity that is greate
ID: 2820054 • Letter: 1
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17. If a bond with a face value of $1,000 has a yield to maturity that is greater than its coupon rate, then: A. The bond would have been purchased at a premium 8. The bond would have been purchased at a discount C. YTM is unrelated to bond prices D. The bondholder will see an increase in their interest payments 18. in February of 2015, US Treasury bonds were sold with a coupon rate of 4.75%. The interest was to be paid semi-annually (two times per year) and the YTM was 2.7%. The bonds are due to mature in 2041. Given the above, what would be the bond's price? A. $981.20 B. $995.20 C. $1,105.75 D. $1,281.70 E. $1,381.20 19. A factory costs $800,000 to build. However, it is projected that it will produce positive net cash flows of S 170,000 per year for the next ten years. If the opportunity cost of capital is 14% what is the Net Present Value of that cash stream? A. $0 B. $58.923.75 C. $62,173.85 D. ($14,822.56) E. $86,739.66 20. If you were attempting to determine the Net Book Value of a corporation what financial statement would you look to? A. Statement of Cash Flows B. Income Statement C. Balance Sheet D. Corporate Budget E. Statement of changes in Retained Earnings 21. As a legal entity, a corporation can do all the following EXCEPT: A. Borrow or lend money B. Sue or be sued C. Vote D. Donate to public charities E. Pay income taxesExplanation / Answer
17. The bond would have been purchased at a discount . Option B
Explanation : When the yield to maturity of a bond is more than the coupon rate then the bond has been priced below the par or face value of $1000. Conversely, when the YTM is less than the coupon rate the the bond is supposed to be trading at a price more than the par value or is at premium.
18. Bo
nd Price = C/2* [1- (1+r/2)-2t/(r/2)] + Face Value/(1+r/2)2t
= 47.5/2 [1-(1+0.027/2)-2*26 + 1000/(1+0.027/2)2*26
= 23.27*[ 1- (1.0135)-52+ 1000/(1.0135)52
= $1381.20 Answer
19.NPV = PV of all cash inflow - Initial cash outflow
= CF* [1- (1+r)-t/(r)] - 800000
= 170000[ 1-(1+0.14)-10 / 0.14] - 800000
= 886739.66 - 800000
= 86739.66 Option e
20. Balance Sheet . Option C
Net book value of the company is calculated by netting the company's asset against accumulated depreciation on the balance sheet.
21. Vote. Option C.
As a legal entity, corporations have all the legal rights of an individual except for the right to vote.
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