11. Brown Enterprises’ bonds currently sell for $1,025.

11. Brown Enterprises’ bonds currently sell for $1,025. They have a 9-year maturity, an annual coupon of $80, and a par value of $1,000. What is their yield to maturity?

a. 6.87%

b. 7.03%

c. 7.21%

d. 7.45%

E.7.61%

12. Highfield Inc’s bonds currently sell for $1,275 and have a par value of $1,000. They pay a $120 annual coupon and have a 20-year maturity, but they can be called in 5 years at $1,120. What is their yield to call (YTC)?

a. 7.00%

b. 7.13%

c. 7.28%

D.7.31%

e. 7.42%

13. Moussawi Ltd’s outstanding bonds have a $1,000 par value, and they mature in 5 years. Their yield to maturity is 9%, based on semiannual compounding, and the current market price is $853.61. What is the bond’s annual coupon interest rate?

a. 5.10%

b. 5.20%

C. 5.30%

d. 5.40%

e. 5.50%

14. 14. Which of the following statements is CORRECT?

a. The shorter the time to maturity, the greater the change in the value of a bond in response to a given change in interest rates.

b. The longer the time to maturity, the smaller the change in the value of a bond in response to a given change in interest rates.

c. The time to maturity does not affect the change in the value of a bond in response to a given change in interest rates.

D.You hold a 10-year, zero coupon, bond and a 10-year bond that has a 6% annual coupon. The same market rate, 6%, applies to both bonds. If the market rate rises from the current level, the zero coupon bond will experience the larger percentage decline.

e. You hold a 10-year, zero coupon, bond and a 10-year bond that has a 6% annual coupon. The same market rate, 6%, applies to both bonds. If the market rate rises from the current level, the zero coupon bond will experience the smaller percentage decline.

15. Which of the following would be most likely to increase the coupon rate that is required to enable a bond to be issued at par?

A. Adding a call provision.

b. Adding additional restrictive covenants that limit management’s actions.

c. Adding a sinking fund.

d. The rating agencies change the bond’s rating from Baa to Aaa.

e. Making the bond a first mortgage bond rather than a debenture.

16. A 12-year bond has an annual coupon rate of 9%. The coupon rate will remain fixed until the bond matures. The bond has a yield to maturity of 7%. Which of the following statements is COR-RECT?

a. The bond is currently selling at a price below its par value.

b. If market interest rates decline, the price of the bond will also decline.

C. If market interest rates remain unchanged, the bond’s price one year from now will be lower than it is today.

d. If market interest rates remain unchanged, the bond’s price one year from now will be higher than it is today.

e. The bond should currently be selling at its par value.

17. What annual payment must you receive in order to earn a 6.5% rate of return on a perpetuity that has a cost of $1,250?

a. $77.19

B. $81.25

c. $85.31

d. $89.58

e. $94.06

1250 * .065 = $81.25

18. You sold a car and accepted a note with the following cash flow stream as your payment. What was the effective price you received for the car assuming an interest rate of 6.0%?

Years: 0 1 2 3 4

| | | | |

CFs: $0 $1,000 $2,000 $2,000 $2,000

A. $5,987

b. $6,286

c. $6,600

d. $6,930

e. $7,277