Question

Аавьсара Аавьсса АаВЫС Аавьссс Аав Аавьс 1 Normal 1 No Spac... Heading 1 Heading 2 Title Subtitle related; that is, as the yield to Paragraph 18. The price of a coupon bond and the yield to maturity are maturity , the price of the bond A) positively; rises, rises B) negatively, falls; falls C) positively; rises, falls D) negatively; rises; falls 19. Consider a bond with a 4% coupon rate and a face value of $1,000. What's the current price of this bond if it is 2 years until maturity and the yield to maturity is 5%? A) 5964 B) 5978 C) $1,005 D) $1,019 20. A coupon bond that has no maturity date and no repayment of principal is called a A) consol. B) cabinet C) Treasury bill. D) Treasury note 21. If a perpetuity has a price of $1000 and an annual interest payment of $25. the interest rate is A) 2.5 percent B) 5 percent C) 7.5 percent D) 25 percent. 22. The is a useful approximation for the yield to maturity on long-term coupon bonds. A) star yield B) discount yield C) future yield D) current yield 23. What is the yield to maturity on a twenty-year 10% coupon bond with a $1.000 face value that sells for $1,4002 (Hint: Use the Excel function "IRR": neither a simple calculator nor a financial calculator can do the job here.) t e

Answer 1

18) price and yield to maturity are negatively related that means if YTM  raises price of the bond falls.

Option D) is correct answer

19)

year cash flows PV factor @5% present value 40 0.952380952 38.0952381 1040 0.907029478943.3106576 Total 981.41 2

so price of bond is $978( there may be difference of $3 due to rounding). Option B) is correct answer.

20)

it is called consol bond also called perpetuity. Option A) is correct answer.

21)

value of perpetuity = interest payments / interest rates

1000 = 25 / interest rate

so interest rate = 2.5%

Option A) is correct answer

22)

the answer is current yield ( Option D )

23)

1 823 e fk =IRR(B2:B22) A B ca Year cashflows -1400 100 100 100 100 100 100 100 100 100 100 100 | 14, 100 100 100 100 100 18 19. 20 IRR 100 100 1100 6.40% 23 |

using excel irr = 6.40%