Chapter 4 Valuing Bonds Chemistry Worksheet With Answers Page 6
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21ANS: B
R = (1.1)(1.045) - 1 = .1495
DIF: E
REF: 4.2 Bond Prices and Interest Rates
20. A one year bond offers a yield of 6% and a two year bond offers a yield of 7.5%. Under the
expectations theory what should be the yield on a one year bond next year?
a. 13.50%
b. 4.52%
c. 7.38%
d. 9.02%
ANS: D
(1.075)^2 = (1.06)(1+r)
r = .0902
DIF: M
REF: 4.5 Advanced Bond Valuation - The Term Structure of Interest Rates
21. A two year bond offers a yield of 6% and a three year bond offers a yield of 7.5%. Under the
expectations theory what should be the yield on a one year bond in two years?
a. 5.95%
b. 10.56%
c. 3.06%
d. 12.49%
ANS: B
(1.075)^3 = (1.06)^2(1+r)
r = .1056
DIF: H
REF: 4.5 Advanced Bond Valuation - The Term Structure of Interest Rates
22. The yield on a one year bond is 6% today and is expected to be 8.5% next year. Based on the
expectations theory, what is the yield of a two year bond today?
a. 15.01%
b. 12.68%
c. 5.67%
d. 7.24%
ANS: D
(1+r)^2 = (1.06)(1.085)
r = .0724
DIF: H
REF: 4.5 Advanced Bond Valuation - The Term Structure of Interest Rates
23. You are looking up bond prices in the newspaper and you find the following quote for a $1,000 face
value treasury bond: 103:26. What is the price of this bond?
a. $103.26
b. $1,038.13
c. $1,032.60
d. $1,000
ANS: B
103:26 = 103.8125
1000(1.038125) = 1038.13
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