Chapter 4 Valuing Bonds Chemistry Worksheet With Answers Page 7
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21DIF: M
REF: 4.4 Bond Markets
24. You have the choice between investing in a corporate bond with a yield of 8% or a municipal bond. If
your marginal tax rate is 28%, what should be the yield on the municipal bond in order to be
competitive?
a. 8.00%
b. 5.76%
c. 11.11%
d. 13.69%
ANS: B
.08(1-.28) = .0576
DIF: E
REF: 4.3 Types of Bonds
25. You have the choice between investing in a corporate bond or a municipal bond with a yield of 8%. If
your marginal tax rate is 28%, what should be the yield on the corporate bond in order to be
competitive?
a. 8.00%
b. 5.76%
c. 13.64%
d. 11.11%
ANS: D
.08 = r(1-.28)
r = .1111
DIF: M
REF: 4.3 Types of Bonds
26. McLaughlin Enterprises has an outstanding $1,000 par value bond with a 11% coupon that pays at the
end of each year. The bond matures in nine years. Bonds of similar risk have a required return of 10%.
What is the market value of the McLaughlin bond?
a. $890.00
b. $1,053.35
c. $1,000.00
d. $1,057.59
ANS: D
FV = 1,000
N = 9
I/YR = 10
PMT = 110
PV = ? = 1,057.59
DIF: E
REF: 4.2 Bond Prices and Interest Rates
27. Winburn Sports & Entertainment has an outstanding $1,000 par value bond with a 11% coupon that
pays semiannually at the end of each period. The bond matures in nine years. Bonds of similar risk
have a required return of 10%. What is the market value of the Winburn bond?
a. $1,035.54
b. $1,057.59
c. $1,058.45
d. $1,073.05
ANS: C
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