I. If a 7.5% coupon bond is trading for SI,050.00, it has a current yield of A.
ID: 1145788 • Letter: I
Question
I. If a 7.5% coupon bond is trading for SI,050.00, it has a current yield of A. 70%. B. 7.4%. D. 6.9%. 2. Of the following five investments, A. Treasury bills B. corporate bonds C. commercial paper D. Treasury bonds is (are) considered the least risky 3. The invoice price of a bond that a buyer would pay is equal to A. the asked price plus accrued interest. B. the asked price less accrued interest. C. the bid price plus accrued interest. D. the bid price less accrued interest 4. Ceteris paribus, the price and yield on a bond are A. positively related. B. negatively related. C. sometimes positively and sometimes negatively related. D. not related 5. A coupon bond that pays interest semi-annually is selling at a par value of $1,000, matures in seven years, and has a coupon rate of 8.6%. The yield to maturity on this bond is A. 8.0%. B. 8.6%. C. 9.0%. D. 10.0%. 6. A bond will sell at a discount when A. the coupon rate is greater than the current yield, and the current yield is greater than yield to maturity B. the coupon rate is greater than yield to maturity. C. the coupon rate is less than the current yield, and the current yield is greater than the yield to maturity D. the coupon rate is less than the current yield, and the current yield is less than yield to maturity. 7. An inverted yield curve implies that A. long-term interest rates are lower than short-term interest rates B. long-term interest rates are higher than short-term interest rates. C. long-term interest rates are the same as short-term interest rates D. intermediate-term interest rates are higher than either short- or long-term interest ratesExplanation / Answer
Answer 1:- if a 7.5 coupon bond is trading for $1050.00 it has a current yield of
Correct Answer:- 7.1%
Reason:_ Current yield = 75/1050 =7.1%
Answer 2:- Of the following five investments.......................is considered the least risky
Correct option:- Treasury Bills
Reason:- These bonds are insured by the government.
Answer 3:- the invoice price of a bond that a buyer would pay is equal to
Correct option:-The asked price plus accrued interest
Reason:- The bond will be bought by the buyer at the asked price and it will be invoiced for any accrued interest rate due to seller.
Answer 4:- ceteris paribus the price and yield on a bond are
Correct option:- Negatively related
Reason:- there is an inverse relation between bond price and yields
Answer 5:- a coupon bond that pays interest semiannually is selling at a par value of $1000 matures in seven years and has a coupon rate of 8.6%. The yield to maturity on this bond is
Correct option:- 8.6%
Reason:- When a bond is sold at a par value, the coupon rate is equal to yield to maturity
Answer6:- a bond will sell at a discount when
Correct Option:- The coupon rate is less than the current yield and the current yield is less than yield to maturity.
Reason:- for facilitating earning more than the current yield to the investor, it is important to sell the bond at a discount rate.
Answer 7:_ an inverted yield curve implies that
Correct option:- long term interest rates are lower than the short term interest rate.
Reason:- An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality. This type of yield curve is the rarest of the three main curve types and is considered to be a predictor of economic recession.
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