Chapter 4 Valuing Bonds Chemistry Worksheet With Answers Page 11
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21ANS: B
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60 ( (1/y) - ((1/.y)
(1+ y)
) ) + 1,000 (1 + y)
= 1,100.00
y = 4.99%
DIF: H
REF: 4.2 Bond Prices and Interest Rates
40. You recently earned a 13% return on an investment during the preceding year. If the rate of inflation
during that period is 8% what was your real return during that period?
a. 5%
b. 4.63%
c. 4.42%
none of the above.
d.
ANS: B
( (1.13/1.08) -1) = .0463
DIF: E
REF: 4.2 Bond Prices and Interest Rates
41. You are considering the purchase of a motorized scooter where the price of the scooter is based upon
the miles per gallon (mpg) of gasoline that the scooter can achieve. That is, the current price of the
scooter that you want is $1,000 because the scooter can achieve 100 miles per gallon and the cost per
mpg is $10. Right before you are about to purchase the scooter, your best friend requests that you
loan him $1,000 for one year. You make the loan in order to be able to buy a 105 mpg scooter at the
conclusion of the loan. If you anticipate that the cost per mpg will increase to $11, what rate of
interest do you charge your friend?
a. 5%
b. 10%
c. 15%
d. 15.5%
ANS: D
real rate = 5%, inflation rate = 10% ======>
((1.05)
(1.1)) - 1 = .155
DIF: H
REF: 4.2 Bond Prices and Interest Rates
42. Unsecured bonds that have legal claims inferior to other outstanding bonds are
a. debentures.
b. mortgage bonds.
c. subordinated debentures.
d. discount bonds.
ANS: C
DIF: E
REF: 4.2 Bond Prices and Interest Rates
43. With respect to the company that has issued a callable bond,
a. the value of the call increases as the stock price increases.
b. the value of the call increases as interest rates increase.
c. the value of the call increases as interest rates decrease.
d.
none of the above.
ANS: C
DIF: M
REF: 4.2 Bond Prices and Interest Rates
44. With respect to the owner of a putable bond,
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