QUESTION 1

Using annual compounding, what is the present value of a $39,703 sum to be received in 16 years when a 9% rate of return can be earned on investment?

$9,406.

$10,000.

$5,000.

$157,633. 12.5 points QUESTION 2

settlement 1/17/2014 maturity 1/13/2034 rate 8% price $90 redemption $100 frequency 2 Based on the above information what is the bond’s yield to maturity?

7.78%

15.2%

8%

9.8%

12.5 points QUESTION 3

A coupon bond which pays interest annually, has a par value of $1,000, matures in 5 years and has a yield to maturity of 12%. If the coupon rate is 9%, the intrinsic value of the bond today will be __________.

$855.55

$891.45

$926.00

$1,000.00 12.5 points QUESTION 4

Base your answer on yearly data from the following series that is available from Board of Governors of the Federal Reserve Website via the DDP Program. 10-year Treasury constant maturity (H15/H15/RIFLGFCY10_N.M) Moody’s Aaa (H15/H15/RIMLPAAAR_N.M) Moody’s Baa (H15/H15/RIMLPBAAR_N.M)

In October of 2001 investors demanded a larger yield premium to hold corporate bonds rated Baa by Moody’s relative to the ten year treasury than in June of 2006.

True False 12.5 points QUESTION 5

The present value of a future sum will rise with a fall in the:

interest rate.

investment period.

future sum.

none of these. 12.5 points QUESTION 6

settlement 1/13/2014 maturity 1/13/2034 rate 8% price $120 redemption $100 frequency 2 Based on the above information what is the bond’s yield to maturity?

8.2%

5.64%

6.23%

8%

12.5 points QUESTION 7

A BB rated corporate bond with a four years left to maturity will always have a higher yield to maturity than a U.S. Treasury bond that has four years left to maturity.

True False 12.5 points QUESTION 8

Bonds with lower ratings but the same maturities have higher yields (yield to maturity). This is confirmed by FINRA data. True False