Questions from Financial Management

Q: You just purchased a bond that matures in 5 years. The

You just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%. What is the bond’s yield to maturity?

Q: A bond that matures in 7 years sells for $1,

A bond that matures in 7 years sells for $1,020. The bond has a face value of $1,000 and a yield to maturity of 10.5883%. The bond pays coupons semiannually. What is the bond’s current yield?

Q: Absalom Motors’ 14% coupon rate, semiannual payment, $1

Absalom Motors’ 14% coupon rate, semiannual payment, $1,000 par value bonds that mature in 30 years are callable 5 years from now at a price of $1,050. The bonds sell at a price of $1,353.54, and the...

Q: A bond trader purchased each of the following bonds at a yield

A bond trader purchased each of the following bonds at a yield to maturity of 8%. Immediately after she purchased the bonds, interest rates fell to 7%. What is the percentage change in the price of ea...

Q: An investor has two bonds in his portfolio. Each bond matures

An investor has two bonds in his portfolio. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity equal to 9.6%. One bond, Bond C, pays an annual coupon of 10%; the oth...

Q: The real risk-free rate is 2%. Inflation is expected

The real risk-free rate is 2%. Inflation is expected to be 3% this year, 4% next year, and then 3.5% thereafter. The maturity risk premium is estimated to be 0.0005 × (t-1), where t = number of years...

Q: Assume that the real risk-free rate, r*, is

Assume that the real risk-free rate, r*, is 3% and that inflation is expected to be 8% in Year 1, 5% in Year 2, and 4% thereafter. Assume also that all Treasury securities are highly liquid and free o...

Q: Does interest rate parity imply that interest rates are the same in

Does interest rate parity imply that interest rates are the same in all countries?

Q: Because of a recession, the inflation rate expected for the coming

Because of a recession, the inflation rate expected for the coming year is only 3%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 3%. Assume that...

Q: Suppose Hillard Manufacturing sold an issue of bonds with a 10-

Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity, a $1,000 par value, a 10% coupon rate, and semiannual interest payments. a. Two years after the bonds were issued, the goi...