Question

1. You are interested in investing in a five-year bond that pays a 7.0 percent coupon rate with interest to be received semiannually. Your required rate of return is 9.2 percent. What is the most you would be willing to pay for this bond?

2. Which of the following statements is true?

a) The largest investors in corporate bonds are institutional investors such as life insurance companies and pension funds.

b) The market for corporate bonds is thin compared to the market for corporate stocks.

c) Prices in the corporate bond market tend to be more volatile than prices of securities sold in markets with greater trading volumes.

d) All of the above are true.

Answer 1

1)

2 6 1,000 7% 8 10 A A Par value (FV) B Coupon rate C|Number of compounding periods per year D = AxB/C Interest per period (PMT) E Number of years to maturity Number of compounding periods till F = CxE maturity (NPER) G Market rate of return/Required rate of Market rate of return/Required rate of G/creturn per period (RATE) 10 9.2% 4.6% Bond price PV(RATE,NPER,PMT,FV)*-1 Bond price $ 913.39 =PV(4.6%,10,35,1000)*-1

*Please rate thumbs up