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A 20-year, $1,000 par value bond has a 9% annual coupon. The bond currently sells for $925.  If the yield to maturity remains at its current rate, what will the price be 10 years from now?

a)      $965.84

b)      $978.40

c)       $951.87

d)      $933.09

e)      $946.04


Which of the following types of bonds generally treats investors most favorable in terms of taxes?

a)      Municipal bonds

b)      Foreign bonds

c)       Treasury bonds

d)      Corporate bonds

Brown Enterprises’ bond has YTM of 8.5%.  They have a 9-year maturity, an annual coupon of 8%, and a par value of $1,000.  What is their current yield?

a)      8.75%

b)      8.50%

c)       8.25%

d)      8.00%

e)      9.00%


Adams Enterprises’ noncallable bonds currently sell for $1,120.  They have a 15-year maturity, an annual coupon of $85, and a par value of $1,000.  What is their yield to maturity?

a)      7.17%

b)      5.84%

c)       6.81%

d)      6.47%

e)      6.15%



Moerdyk Corporation's bonds have a 15-year maturity, a 7.25% semiannual coupon, and a par value of $1,000.  The going interest rate (rd) is 6.20%, based on semiannual compounding.  What is the bond’s price?

a)      $1,047.19

b)      $1,157.35

c)       $1,129.12

d)      $1,074.05

e)      $1,101.58



Which of the following bonds will have the greatest percentage increase in value if all interest rates decrease by 1%?

a)      20-year, zero coupon bonds.

b)      10-year, zero coupon bonds.

c)       20-year, 10% coupon bond.

d)      10-year, 10% coupon bond.

e)      1-year, 10% coupon bond.

Assume that interest rates on 20-year Treasury and corporate bonds with different ratings, all of which are noncallable, are as follows:     T-bond = 7.72%      A = 9.64%        AAA = 8.72%     BBB = 10.18%

a)      Default risk differences.

b)      Inflation differences.

c)       Tax effects.

d)      Real risk-free rate differences

e)      Maturity risk differences.

Sell Inc.'s stock has a 25 percent chance of producing a 30% return, a 50 percent chance of producing a12% return, and a 25 percent chance of producing a 5% return.  What is the firm's expected rate of return?

a)      14.75%

b)      10.50%

c)       7.72%

d)      12.25%

e)      9.62%


Bae Inc. is considering an investment that has an expected return of 15% and a standard deviation of 10%.  What is the investment's coefficient of variation?

a)      0.73

b)      0.89

c)       0.67

d)      0.81

e)      0.98

The appropriate measure for risk according to the capital asset pricing model (CAPM) is

a)      the standard deviation of a firm’s cash flows

b)      alpha

c)       probability of correlation

d)      beta

e)      coefficient of variation

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