Practice Mid-Term Examination

Economics 4210

Spring 2005

Multiple Choice:

1. A coupon bond pays the owner of the bond

a. the same amount every month until maturity date.

b. the face value of the bond plus an interest payment once the maturity date has been reached.

c. a fixed‑interest payment every period and repays the face value at the maturity date.

d. the face value at the maturity date.

e. none of the above.

2. If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year is

a. $650.

b. $1,300.

c. $130.

d. $13.

e. none of the above.

3. With an interest rate of 10 percent, the present value of a security that pays $1,100 next year and $1,460 four years from now is:

a. $1,000.

b. $2,560.

c. $3,000.

d. $2,000.

4. If a security pays $110 next year and $121 the year after that what is its yield to maturity if it sells for $200?

a. 9 percent

b. 10 percent

c. 11 percent

d. 12 percent

5. Which of the following $1,000 face‑value securities has the highest yield to maturity?

a. A 5 percent coupon bond with a price of $600

bA 5 percent coupon bond with a price of $800.

c. A 5 percent coupon bond with a price of $1,000.

d. A 5 percent coupon bond with a price of $1,200.

e. A 5 percent coupon bond with a price of $1,500.