1. The values of outstanding bonds change whenever the going rate of interest changes. In general, short-term interest rates are more volatile than long term bond prices. Is that statement true or false? Explain (Hint: Make up a "reasonable" example based on a 1 year and a 20 year bond to help answer the question).

2. Discuss the following statement: A bonds yeild to maturity is tbe bonds promised rate of return, which equals its expected rate of return.

3.Callaghan Motors' bonds have 10 years remaining to maturity. Interest is paid annually, they have $1000 par value, the coupon interest rate is 8%, and the yeild to maturity is 9%. What is the bond's current market price?

4. Heymann Company bonds have 4 years left to maturity. Interest is paid annually, and the bonds have a $1000 par value and a coupon rate of 9%.

a. What is the yield to maturity at a current market price of (1) $829 and (2) $1,104?

b. Would you pay $829 for each bond if you thought that a "fair' market interest rate for such bonds was 12% - that is, if rd = 12%? Explain your answer.

5. An 8% semiannual coupon bond matures in 5 years. The bond has a face value of $1000 and a current yield of 8.21%. What are the bond's price and YTM?

Subject | Business |

Due By (Pacific Time) | 09/30/2014 09:00 pm |

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