Fundamentals of Corporate Finance 3e Test Bank
45.
Kevin Oh is planning to sell a bond that he owns. This bond has four years to maturity and pays
a coupon of 10 percent on a semiannual basis. Similar bonds in the current market will yield 12
percent. What will be the price that he will get for his bond? (Do not round intermediate
computations. Round your final answer to the nearest dollar.)
A)
$1,044
B)
$938
C)
$970
D)
$1,102
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
46.
Jeremy Kohn is planning to invest in a 10-year bond that pays a 12 percent coupon. The current
market rate for similar bonds is 9 percent. Assume semiannual coupon payments. What is the
maximum price that should be paid for this bond? (Do not round intermediate computations.
Round your final answer to the nearest dollar.)
A)
$951
B)
$882
C)
$1,033
D)
$1,195
Ans:
D
Fundamentals of Corporate Finance 3e Test Bank
47.
Shana Norris wants to buy five-year zero coupon bonds with a face value of $1,000. Her
opportunity cost is 8.5 percent. Assuming annual compounding, what would be the current
market price of these bonds? (Round your answer to the nearest dollar.)
A)
$1,023
B)
$665
C)
$890
D)
$1,113
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
AICPA: Measurement
48.
The U.S. Treasury has issued 10-year zero coupon bonds with a face value of $1,000. Assume
that the bond compounds interest semiannually. What will be the current market price of these
bonds if the opportunity cost for similar investments in the market is 6.75 percent? (Round your
answer to the nearest dollar.)
A)
$684
B)
$860
C)
$515
D)
$604
Ans:
C
Fundamentals of Corporate Finance 3e Test Bank
49.
Robertsons, Inc., is planning to expand its specialty stores into five other states and finance the
expansion by issuing 15-year zero coupon bonds with a face value of $1,000. If your
opportunity cost is 8 percent and similar coupon-bearing bonds will pay semiannually, what
will be the price at which you will be willing to purchase these bonds? (Round your answer to
the nearest dollar.)
A)
$308
B)
$383
C)
$803
D)
$866
Ans:
A
Fundamentals of Corporate Finance 3e Test Bank
50.
Jarmine Corp., is planning to fund a project by issuing 10-year zero coupon bonds with a face
value of $1,000. Assuming semiannual compounding of interest, what will be the price of these
bonds if the appropriate discount rate is 14 percent? (Round your answer to the nearest dollar.)
A)
$852
B)
$258
C)
$419
D)
$841
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
51.
Which one of the following statements is true of a bond’s yield to maturity?
A)
The yield to maturity of a bond is the discount rate that makes the present value of the
coupon and principal payments equal to the price of the bond.
B)
It is the annual yield that the investor earns if the bond is held to maturity, and all the
coupon and principal payments are made as promised.
C)
A bond’s yield to maturity changes daily as interest rates increase or decrease.
D)
All of the above are true.
Ans:
D
AICPA: Measurement
52.
The yield to maturity of a bond is the discount rate that makes the present value of the coupon
and principal payments:
A)
exceed the price of the bond.
B)
equal to zero.
C)
equal to the price of the bond.
D)
less than the price of the bond.
Ans:
C
Fundamentals of Corporate Finance 3e Test Bank
53.
Which one of the following statements is NOT true of realized yield?
A)
The realized yield is the return earned on a bond given the cash flows actually received
by the investor.
B)
The realized yield is equal to the yield to maturity even if the bond is sold prior to
maturity.
C)
It is the interest rate at which the present value of the actual cash flows generated by the
investment equals the bond’s price at the time of sale of the bond.
D)
All of the above are true.
Fundamentals of Corporate Finance 3e Test Bank
54.
Jenny LePlaz is looking to invest in a five-year bond that pays annual coupons of 6.25 percent
and currently sells at $912.34. What is the current market yield on such bonds? (Round to the
closest answer.)
A)
9.5%
B)
8.5%
C)
6.5%
D)
7.5%
Ans:
B
Fundamentals of Corporate Finance 3e Test Bank
55.
Nathan Akpan is planning to invest in a seven-year bond that pays annual coupons at a rate of 7
percent. It is currently selling at $927.23. What is the current market yield on such bonds?
(Round to the closest answer.)
A)
10.4%
B)
9.5%
C)
8.4%
D)
7.5%
Ans:
C
CPT I/Y gives the interest rate as 8.42 percent.
Fundamentals of Corporate Finance 3e Test Bank
56.
Jane Almeda is interested in a 10-year bond issued by Roberts Corp. that pays a coupon of 10
percent annually. The current price of this bond is $1,174.45. What is the yield that Jane would
earn by buying it at this price and holding it to maturity? (Round to the closest answer.)
A)
7.1%
B)
7.5%
C)
8.9%
D)
8.5%
Ans:
B
CPT I/Y gives the interest rate as 7.46 percent.
Fundamentals of Corporate Finance 3e Test Bank
57.
Shawna Carter wants to invest her recent bonus in a four-year bond that pays a coupon of 11
percent semiannually. The bonds are selling at $962.13 today. If she buys this bond and holds it
to maturity, what would be her yield? (Round to the closest answer.)
A)
11.5%
B)
11.8%
C)
12.5%
D)
12.2%
Ans:
D
Fundamentals of Corporate Finance 3e Test Bank
58.
Alice Trang is planning to buy a six-year bond that pays a coupon of 10 percent semiannually.
Given the current price of $878.21, what is the yield to maturity on these bonds? (Round to the
closest answer.)
A)
11%
B)
12%
C)
13%
D)
14%
Ans:
C
Fundamentals of Corporate Finance 3e Test Bank
59.
John Wong purchased a five-year bond today at $1,034.66. The bond pays 6.5 percent
semiannually. What will be his yield to maturity? (Round to the closest answer.)
A)
6.7%
B)
6.2%
C)
3.25%
D)
5.7%
Ans:
D
CPT I/Y gives the semiannual interest rate as 2.847 percent.