True or False (3 points each, 9 points total)

Indicate whether the statement is true or false (1 points each). And explain why it's true or false (2 points each).

1. Convertible bonds generally have higher coupon rates than non-convertible bonds of similar default risk.

2. The capital gain yield for premium bonds is always positive.

3. A discount bonds yield to maturity is greater than its coupon rate.

Short Answer Questions (11 points total)

4. Simply write out the value of the parameters to be used to solve the following two problems, no need to solve the problem for the final answer. Put a question mark at the parameter to be solved. (e.g., N = _?_, I/Y = ____, PV = ____, PMT = ____, FV = ____)

a. Morin Companys bonds mature in 6 years and offers a coupon rate at 12%. The market requires a 6.1% return on these bonds. At what price should the bonds sell? (5 points)

b. Dyl Inc.s bonds currently sell for $870. They pay a 6.5% coupon quarterly and have a 15-year maturity, but they can be called in 5 years at $1,100. What is their yield to call (YTC)? (6 points)