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Various Bond Questions

A 6-year, $1,000 face value bond issued by Taylor Tools pays interest semiannually on February 1 and August 1. Assume today is October 1. What will the difference, if any, be between this bond's clean and dirty prices today? Question 1 options:

1) five month's interest
2) two month's interest
3) no difference
4) one month's interest
5) four month's interest

A bond has a market price that exceeds its face value. Which of the following features currently apply to this bond?
I. discounted price
II. premium price
III. yield-to-maturity that exceeds the coupon rate
IV. yield-to-maturity that is less than the coupon rateQuestion 4 options:
1) II and III only
2) III only
3) I and III only
4) I and IV only
5) II and IV only

Which two of the following factors cause the yields on a corporate bond to differ from those on a comparable Treasury security?
I. inflation risk
II. interest rate risk
III. taxability
IV. default riskQuestion 5 options:
1) II, III, and IV only
2) I and II only
3) III and IV only
4) I, II, III, and IV
5) I, II, and IV only

Which one of the following relationships is stated correctly?Question 7 options:
1) The call price must equal the par value.
2) Increasing the coupon rate decreases the current yield, all else constant.
3) An increase in market rates increases the market price of a bond.
4) The coupon rate exceeds the current yield when a bond sells at a discount.
5) Decreasing the time to maturity increases the price of a discount bond, all else constant.

Currently, the bond market requires a return of 11.6 percent on the 10-year bonds issued by Winston Industries. The 11.6 percent is referred to as which one of the following?

1) yield to maturity
2) coupon rate
3) call rate
4) face rate
5) coupon rate

Which one of the following rates represents the change, if any, in your purchasing power as a result of owning a bond?

1) real rate
2) current rate
3) realized rate
4) risk-free rate
5) nominal rate.

Solution Preview

1. The difference between the clean and dirty price is the accrued interest. The last interest is paid on August 1, so on October 1, there will be accrued interest of 2 months (Aug and Sept)
2) two month's interest

2. 5) II and IV only ...

Solution Summary

The solution answers and briefly explains various bond questions.