Question 1

A $1,000 face value corporate bond with a 7% coupon (paid semiannually) has 15 years left to maturity. It has an AA rating with a YTM of 7.5%. The firm has struggled recently, and the rating agency has changed the rating to BBB. The current discount rate for BBB type bonds is 9%. Because of this change in rating, what will be the change in the bonds current price in dollars and percentage terms?

Question 2

At the beginning of year 1 you paid $40 for a share of stock. The stock paid an annual dividend of $3 per share. You sold the share at the end of year 2. (Ignore compounding principle)

a) What is the % return (annual return) on your investment if you sold the stock at $45?

b) What is the % return (annual return) on your investment if you sold the stock at $38?

Question 3

Congratulations on your new job. You have decided to invest in stocks. Your stock paid a quarterly divident of $0.40 per share. You invest $100 per month, and your employer matches that contribution to your retirement fund. The market was pretty stagnant during the year. The following are the monthly price per share of your stock. As you can see, the stock finished slightly lower than when you purchased in January.

Month	Stock Price
January	$54.54
February	$54.30
March	$53.43
April	$54.07
May	$55.91
June	$53.64
July	$50.56
August	$48.07
September	$51.19
October	$51.00
November	$53.52
December	$54.20

a) How much is in your retirement fund at the end of the year?

b) What was your gain based on simply what YOU contributed to the fund?

c) What was your gain based on the you and your employers contribution to the fund?

Question 4

Andrew purchased $1 million worth of euro-denominated one-year CD's that pay 10% annually. The current spot rate of US dollars for euros is $1.10/1euro. The dollar weakens against the euro, and the spot rate at the end of the year is $1.20/1euro. What is Andrews gain in dollars and % at the end of the year?

Question 5

You purchase a $100,000 bond futures contract at 96.5.

a) Assume that the bond futures price falls to 94. What is your gain/loss?

b) Assume that the bond futures price rises to 98. What is your gain/loss?

Question 6

The three generally acknowledged theories regarding currency exchange rates suggest all of the following about high-inflation currencies EXCEPT:

a) They usually trade at large forward discounts

b) They will weaken over time

c) Their interest rates will converge over time

d) Their economies will have high interest rates