Chapter 4 Valuing Bonds Chemistry Worksheet With Answers Page 9
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21P/YR = 2
FV = 1,000
N = 8
I/YR = 9
PMT = 37.50
PV = ? = 950.53
(950.53 - 1,000)/1000 = -4.95%
DIF: M
REF: 4.2 Bond Prices and Interest Rates
31. A new one-year bond pays interest of 1.04%. A new two-year bond pays interest of 1.46%. Using
expectations theory of term structure and assuming the market is in equilibrium, what interest rate does
the market expect a new one year bond to have one year from now?
a. 0.42%
b. 1.18%
c. 1.25%
d. 1.88%
ANS: D
2
1.0146
/1.0104 - 1 = .0188
DIF: E
REF: 4.5 Advanced Bond Valuation
32. The value of any asset
a. is based upon the benefits provided by the asset in prior years.
b. is based upon the benefits that the asset will provide the owner of the asset this year.
c. equals the present value of future benefits accruing to the asset’s owner.
d.
is not described by any of the above.
ANS: C
DIF: E
REF: Learning Objectives
33. The greater the uncertainty about an asset’s future benefits,
a. the lower the discount rate investors will apply when discounting those benefits to the
present.
b. the higher the discount rate investors will apply when discounting those benefits to the
present.
c. the greater is the present value of those benefits.
d.
none of the above.
ANS: B
DIF: M
REF: 4.1 Valuation Basics
34. You will be recieving $204,000.00 at the end of each year for the next 20 years. If the correct
discount rate for such a stream of cash flows is 10% then what is the present value of the cash flows?
a. $1,736,767.00
b. $4,080,000.00
c. $185,454.55
none of the above
d.
ANS: A
20
204,000 * (1/.1) - ((1/.1) (1.1)
= 1,736,767.00
DIF: E
REF: 4.1 Valuation Basics, The Fundamental Valuation Model
35. A bond’s coupon rate
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