7.5 LO5: Coupon Bond Price Properties

1) A bond sold five weeks ago for $950. The bond is worth $900 in today’s market. The face value of the bond is $1,000. Assuming no changes in risk, which of the following is mostly likely true?

A) The coupon rate increased.

B) Interest rates are lower now than they were five weeks ago.

C) The bond is within one year of maturity.

D) The issuer threatened to call the bond at 110% of par value.

E) Interest rates are higher now than they were five weeks ago.

2) You can buy a bond with a face value of $1,000 and annual coupon payments of $80. The yield to maturity on bonds of similar risk is 7%. This bond should sell

A) at a discount.

B) at a premium.

C) at par.

3) Fortunate Frames Inc. just issued 20-year, 6% coupon bonds at par. Lucky Lenses Inc. has 20-year bonds outstanding that are viewed by investors as having the same risk as Fortunate’s bonds. Lucky’s bonds are selling at a discount. What does this indicate about the coupon rates on these two bonds?

A) Lucky’s coupon rate must be lower than Fortunate’s coupon rate.

B) They must have the same coupon rate.

C) Fortunate’s coupon rate must be lower than Lucky’s coupon rate.

4) Assume that the Microsoft bonds have 5-years to maturity and pay annual coupons of $100. The next coupon is due in one year. The yield on equivalently risky corporate bonds is currently 15%. Assume the yield stays at 15% over the life of the bond. Determine the price of the bond today and after each of the first four coupon payments. Plot those prices on a graph with price on the y-axis and time on the x-axis. (The x-axis starts at time 0 and ends on the date of the fourth coupon.) What do you note about the time path (slope of the line) of the bond price?

A) It is upward sloping.

B) It is downward sloping.

C) It is a horizontal line.

5) Consider a 3-year bond maturing Sept 30, 2019. Assume that you bought the bond on Sept 30, 2016, at a price of $1,074.56 ($1,000 face value). If rates stay as they are for the rest of the year, what percentage change in price do you expect over the next year based on your estimate of the bond price after the second coupon is paid (Sept 30, 2017)? Assume that the bond pays semi-annual coupons (4.5% annual coupon rate) and has a bond equivalent yield of 1.93% per annum.

A) -2.3%

B) 0.88%

C) 0.50%

D) 0.65%

E) 0.76%

6) Assume that the Microsoft bonds have a face value of $1,000, 5-years to maturity and pay annual coupons of $100. The next coupon is due in one year. The yield on equivalently risky corporate bonds is currently 5%. Assume the yield stays at 5% over the life of the bond. Determine the price of the bond today and after each of the first four coupon payments. Plot those prices on a graph with price on the y-axis and time on the x-axis. (The x-axis starts at time 0 and ends on the date of the fourth coupon.) What do you note about the time path (slope of the line) of the bond price?

A) It is upward sloping.

B) It is downward sloping.

C) It is a horizontal line.

7) A bond with an annual coupon of $100 originally sold at par for $1,000. The current yield to maturity on this bond is 9%. Assuming no change in risk, this bond would sell at a ________ in order to compensate ________.

A) discount; the issuer for the higher cost of borrowing

B) discount; the seller for the above market coupon rate

C) premium; the seller for the above market coupon rate

D) premium; the purchaser for the above market coupon rate

E) discount; the purchaser for the above market coupon rate

8) Suppose that you are reviewing a price sheet for bonds and see the following prices (per $100 face value) reported. Without calculating the price of each bond, which bond seems to be reported incorrectly?

Bond |
Price |
Coupon Rate |
Yield |

V |
100 |
6% |
6% |

W |
110 |
8% |
6% |

X |
95 |
0% |
5% |

Y |
107 |
7% |
9% |

Z |
90 |
6% |
9% |

A) Bond V

B) Bond X

C) Bond Z

D) Bond Y

E) Bond W

9) A $1,000 face value bond has a 9% annual coupon rate. The next coupon is due in one year. The bond matures in 15 years and the yield on the bond is 10%. What is the difference in price if the yield rises to 11%?

A) -$67.76

B) -$6.77

C) $6.77

D) $9.24

E) $67.76

10) A US Government 4% coupon bond has 10 years remaining to maturity. The bond pays annual coupons and the next coupon is due in one year. The face value of the bond is $100. The bond is currently trading for $74.43 and yields 6%. Calculate your capital gain return if you buy the bond today, hold it for one year and sell it after the next coupon. (Assume that yields are expected to remain constant at the current level over the bond’s life.)

A) 0.6%

B) 1.6%

C) 2.6%

D) 4%

E) 6%

GraduateWriterHelp.com is an online academic writing platform that provides extensive assistance to graduate school students as they work through their research projects, papers and dissertations. GraduateWriterHelp.com gives students access to experienced professionals who can provide the help they need in a timely and efficient manner. The service offers a wide range of services, including editing, proofreading, formatting, researching and more that can give students the confidence they need to write the perfect paper or dissertation for their chosen subject matter.

Services Offered by GraduateWriterHelp.com

GraduateWriterHelp.com offers a wealth of different services designed to make research projects easier for graduate school students. These include editing, proofreading, formatting and researching services, all tailored specifically for graduate-level studies such as PhDs or Master’s degrees in any field from business administration to engineering or even psychology – all with the aim of helping busy students find success in their academics without having to sacrifice other important commitments like family time or work hours towards earning a living wage outside of college hours.

The Benefits of Using GraduateWriterHelp.com

Using GraduateWriterHelp.com gives you access to experts from all over the world who are highly qualified and experienced in helping graduate-level students to complete successful projects in various fields quickly and efficiently – something that would otherwise be difficult, if not impossible, given tight deadlines associated with most Ph.D./Master’s degree programs today. Moreover, using this platform makes it easier for students to keep up with multiple research tasks simultaneously since there are so many different experts available on tap at any one time – no longer will you have to put off studying one topic while focusing on another because of lack of resources! Additionally, having access to professional editors, proofreaders, but also formatters means that quality control standards aren’t sacrificed when finishing major pieces – since these individuals understand what makes up good academic writing better than anyone else and can offer guidance on how best one should go about making improvements along those lines. Finally, there is also an added cost-saving benefit associated with utilizing Graduate Writer Help compared to hiring an independent contractor (which could potentially run into thousands depending on length/complexity).

This service allows users only pay for what students need, which tends to be much lower overall because customers pay per hour rather than project basis, thus resulting to greater financial flexibility, especially for those just starting out postgraduate studies looking to conserve some pennies here there whenever possible!

The price is based on these factors:

Academic level

Number of pages

Urgency

Basic features

- Free title page and bibliography
- Unlimited revisions
- Plagiarism-free guarantee
- Money-back guarantee
- 24/7 support

On-demand options

- Writer’s samples
- Part-by-part delivery
- Overnight delivery
- Copies of used sources
- Expert Proofreading

Paper format

- 275 words per page
- 12 pt Arial/Times New Roman
- Double line spacing
- Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Delivering a high-quality product at a reasonable price is not enough anymore.

That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more