Chapter 4 Valuing Bonds Chemistry Worksheet With Answers Page 16
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21a. $762.08
b. $763.13
c. $906.85
d. $1,000.00
ANS: A
n’ = 52, r’ = 6%, PV =? , PMT = 9%*1000/2, FV = $1000
PV = $762.08
DIF: M
REF: 4.2 Bond Prices and Interest Rates
61. Which answer is FALSE regarding bond prices and interest rates?
a. Bond prices and interest rates move in opposite directions.
b. The price of a bond is the present value of the coupon payments and the face value.
c. The prices of short-term bonds display greater price sensitivity to interest rate changes
than do the prices of long-term bonds.
d. Interest rate risk can be described as the risk that changes in market interest rates will
cause fluctuations in the bond’s price.
ANS: C
DIF: M
REF: 4.2 Bond Prices and Interest Rates
62. A bond is priced such that it has a 9% yield to maturity. However, inflation is expected to be 2% per
year over the remaining life of the bond. What is the real return for this investment?
a. 4.50%
b. 6.86%
c. 7.00%
d. 9.00%
ANS: B
1 + real return = (1.09)/(1.02)
DIF: M
REF: 4.2 Bond Prices and Interest Rates
63. A bond issued by the Federal Home Loan Bank or the Federal Home Loan Mortgage Corporation are
examples of what type of bond?
a. Treasury bond
b. Corporate bond
c. Municipal bond
d. Agency bond
ANS: D
DIF: E
REF: 4.3 Types of Bonds
64. The Treasury Department sells a zero-coupon bond that will mature in two years. The bond has a face
value of $10,000, and sold at auction for $9,400. What is the annual return for an investor buying the
bond?
a. 3.00%
b. 3.14%
c. 6.38%
d. 7.00%
ANS: B
n = 2, r = YTM = ?, PV = -$9400, PMT = 0, FV = $10,000
r = 3.14%
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