Chapter 4 Valuing Bonds Chemistry Worksheet With Answers Page 15
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2157. Suppose investment A and investment B have identical cash flows. Why would an investor pay more
for investment A than investment B?
a. This is incorrect. You would always pay the same amount for two investments with equal
future cash flows.
b. The risk in the cash flows for investment A is greater than the risk of the cash flows of
investment B.
c. The risk in the cash flows for investment B is greater than the risk of the cash flows of
investment A.
d. The return required for investment B is lower than the return required for investment A.
ANS: C
DIF: E
REF: 4.1 Valuation Basics
58. A bond pays an annual coupon rate of 7% with a face value of $1,000. The bond is scheduled to
mature in two years and currently trades at $920.00. What is the coupon yield of the bond currently?
a. 7.00%
b. 7.61%
c. 14.00%
d. 15.22%
ANS: B
7%*$1000/$920= 7.61%
DIF: E
REF: 4.2 Bond Prices and Interest Rates
59. Consider the following details for a bond issued by Bravo Incorporated.
Issue Date
8/5/2000
Maturity Date
8/5/2030
Coupon Rate (annual coupons)
9%
Face Value
$1,000
Suppose that today’s date is 8/5/2004, what should the current trading price be for this bond if
investors want a 12% annual return?
a. $658.09
b. $763.13
c. $908.88
d. $1,000.00
ANS: B
n = 26, r = 12%, PV =? , PMT = 9%*1000, FV = $1000
PV = $763.13
DIF: M
REF: 4.2 Bond Prices and Interest Rates
60. Consider the following details for a bond issued by Bravo Incorporated.
Issue Date
8/5/2000
Maturity Date
8/5/2030
Annual Coupon Rate (semi-annual coupons)
9%
Face Value
$1,000
Suppose that today’s date is 8/5/2004, what should the current trading price by for this bond if
investors want a 12% annual return?
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