4. Pick the correct answer.

a. A discount bond, its yield to maturity must be lower than coupon rate.

b. A discount bond, its yield to maturity = coupon rate.

c. A premium bond, its yield to maturity = coupon rate.

d. Bond is selling at par. So its current yield = yield to maturity.

5. AAA firm bonds will mature in eight years, and coupon is $65. YTM is 8.2%. Bonds market value? (YTM: yield of maturity)

a. $903.04

b. $925.12

c. $1,048.43

d. $912.58

6. AAA firms semiannual bond has 12 years maturity and coupon rate of 8.75% semiannually. The firm also sells annual bonds with all the same condition except the coupon is paid annually (means ytm is the same). What is the price of this annual coupon bond?(hint: the two bonds should offer the same annual effective rate, not semi-rate * 2)

a. $ 1037.56

b. $ 981.60

c. $ 986.25

d. $1,005.91

7. Which of the following has the lowest effective annual return(EAR)?

a. 8% APR, monthly compounding.

b. 8% APR, annual compounding.

c. 7% APR, daily compounding --- 365-day.

d. 7% APR, monthly compounding.

e. 8% APR, daily compounding --- 365-days.

8. Pick the correct answer

a. When Fed increases interest rate unexpected, then bond price tends to increase.

b. Bond price is approaching par when maturity date approaches, if bonds YTM remains constant.

c. Bonds are riskier than stocks in general, because bonds are more unpredictable.

d. Bond investors never suffer any losses.