Exam 8: Interest Rates and Bond Valuation

Jackson Central has a 6-year,8% annual coupon bond with a $1,000 par value. Earls Enterprises has a 12-year,8% annual coupon bond with a $1,000 par value. Both bonds currently have a yield to maturity of 6%. Which of the following statements are correct if the market yield increases to 7%?

Explain why some bond investors are subject to liquidity risk,default risk,and/or taxability risk. How does each of these risks affect the yield of a bond?

A corporate bond is quoted at a current price of 102.767. What is the market price of a bond with a $1,000 face value?

Emmett Corporation has issued a $1,000 face value zero-coupon bond. Which of the following values is closest to the correct price for the bond if the appropriate discount rate is 4% and the bond matures in 8 years?

Guggenheim,Inc. offers a 7% coupon bond with annual payments. The yield to maturity is 5.85% and the maturity date is 9 years. What is the market price of a $1,000 face value bond?

The zero coupon bonds of MarkCo,Inc. have a market price of $394.47,a face value of $1,000,and a yield to maturity of 6.87%. How many years is it until this bond matures?

A zero coupon bond:

The nominal rate of return on the bonds of Steve's Boats is 8.75%. The real rate of return is 3.4%. What is the rate of inflation?

In the early 1980s,the Treasury yield curve had a severe downward slope with short-term yields near 20% and long-term yields below 15%. Explain how such a pattern might occur.