31. A 15-year bond with a face value of $1,000 currently sells for $850.

31. A 15-year bond with a face value of $1,000 currently sells for $850. Which of the following statements is CORRECT?

a. The bond’s coupon rate exceeds its current yield.

b. The bond’s current yield exceeds its yield to maturity.

c. The bond’s yield to maturity is greater than its coupon rate.

d. The bond’s current yield is equal to its coupon rate.

e. If the yield to maturity stays constant until the bond matures, the bond’s price will remain at $850.

32. McCue Inc.’s bonds currently sell for $1,250. They pay a $90 annual coupon, have a 25-year maturity, and a $1,000 par value, but they can be called in 5 years at $1,050. What is the difference between this bond’s YTM and its YTC?

a. 2.62%

b. 2.88%

c. 3.17%

d. 3.48%

e. 3.83%

33. Taussig Corp.’s bonds currently sell for $1,150. They have a 6.35% annual coupon rate and a 20-year maturity, but they can be called in 5 years at $1,067.50. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. Under these conditions, what rate of return should an investor expect to earn if he or she purchases these bonds?

a. 3.42%

b. 3.60%

c. 3.79%

d. 3.99%

e. 4.20%

34. Limitless Energy, Inc. is considering to issue 8.8% semi-annual coupon bonds with 15 years to maturity. The bonds are selling at $965.75 with a par value of $1,000. What rate of return are investors expected to earn?

a. 4.61%

b. 9.24%

c. 9.05%

d. 8.79%

e. 7.90%

35. Consider a 10 year semi-annual coupon paying bond with a face value=$1,000 and a coupon rate=8%. What is the PV of the bond at 8% discount rate? If the market price of the bond is $1,050, would you buy the bond?

a. $909.09, Buy

b. $1010.10, Buy

c. $909.09, Don’t

d. $1000, Don’t

e. $1000.00, Buy

36. A tax-free muni yields 7.5% and the before-tax equivalent yield of a corporate bond is 10%, what is your tax bracket?

a. 25%

b. 30%

c. 33%

d. 35%

e. 40%

37. Which one has the lowest priority?

a. Suppliers

b. Secured bonds

c. Junior bonds

d. Senior debenture

e. Unsecured bonds

38. You are considering two investment opportunities with $900. One is to invest in a two year CD at 10% per annum. The other is to invest in a two year annual coupon paying bond with a coupon rate=8% and FV=$1,000. What is the YTM of the bond? Are you going to invest in the CD or not?

a. 12%, Yes

b. 13%, Yes

c. 12%, No

d. 14%, No

e. 14%, Yes

39. Warren holds a small portfolio of 4 stocks as below.

Stock	Percentage of Portfolio	Expected Return	Standard Deviation
Artemis, Inc.	20%	8%	23%
Babish & Co.	30%	14%	27%
Cornell Industries	35%	12%	30%
Danforth Motors	15%	3%	32%

What is expected return of the portfolio?

a. 7.84%

b. 8.11%

c. 9.68%

d. 10.45%

e. 15.68%

40. Bill has below portfolio consists of two stocks; Blue Ocean, Inc. and Red Ocean Corp. He invested 75% in Blue Ocean, Inc. and the rest in Red Ocean Corp.

Market Condition	Probability	Blue Ocean, Inc.	Red Ocean Corp.
Strong	0.20	38%	53%
Normal	0.35	23%	30%
Weak	0.45	-30%	-38%

Based on the information, calculate expected rate of return of (1) Blue Ocean, Inc., (2) Red Ocean Corp., and (3) portfolio.

a. 1.80%, 2.78%, 1.54%

b. 2.15%, 4.00%, 2.61%

c. 3.69%, 4.19%, 3.15%

d. 4.19%, 5.16%, 3.82%