Chapter 4 Valuing Bonds Chemistry Worksheet With Answers Page 13
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21a. 2.00%
b. 12.04%
c. 25.25%
d.
none of the above
ANS: B
4
2
2
4
2
2
(1.1)
= (1.08)
(1 + r)
====> (1.1)
/(1.08)
= (1 + r)
=====> r = .1204
DIF: M
REF: 4.5 Advanced Bond Valuation - The Term Structure of Interest Rates
50. You find that the yield on a 6-year bond is 12% while that of a 4-year bond is 9%. What should be
the yield on a 2-year bond beginning four years from now as predicted by the expectations theory?
a. 3.00%
b. 18.25%
c. 39.83%
none of the above
d.
ANS: B
6
4
2
6
4
2
(1.12)
= (1.09)
(1 + r)
====> (1.12)
/(1.09)
= (1 + r)
=====> r = .1825
DIF: H
REF: 4.5 Advanced Bond Valuation - The Term Structure of Interest Rates
51. You find that the yield on a 4-year bond is 9% while the yield on a 2-year bond beginning four years
from now is 10%. What should be the yield on a 6-yr bond as predicted by the expectations theory?
a. 1.00%
b. 9.33%
c. 14.32%
d. 70.80%
ANS: B
6
4
2
6
6
(1 + r)
= (1.09)
(1.1)
====> (1 + r)
= (1.7080137)
=====> r = .0933
DIF: M
REF: 4.5 Advanced Bond Valuation - The Term Structure of Interest Rates
52. If you were trying to describe the effect on the yield curve that certain investors have a definite
preference for the maturity of the bonds that they invest in, then you would be referring to
a. the expectations theory.
b. the liquidity preference theory.
c. the preferred habitat theory.
none of the above.
d.
ANS: C
DIF: M
REF: 4.5 Advanced Bond Valuation - The Term Structure of Interest Rates
53. Fence Place Diary Company (FPD) has a 15-year maturity bond outstanding that is currently
convertible into 50 shares of FPD common stock. FPD common stock currently sells for $25 a share
and the coupon rate (semi-annual coupons) for the bond is 5%. If the yield on a similarly rated
convertible bond (on The New York Calendar Corp.) is 5%, then what should be the correct price of
the FPD convertible bond?
a. $750.00
b. $1,000
$1,250
c.
d.
either a or b
ANS: C
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