Question

5 Which of the following statements is most correct? a ira bonds yield to matority execeds its coupon rate, the bond's current yield must also exceed its coupon rate. b If a bond's yield to maturity exceeds its coupon rate, the bond's price must be less than its mahurity value. e. If twe bonds have the same maturity, the same yield to maturity, and the same level of nsk, the bonds should sell for the same price regardless of the bond's coupon rate. d. Answers b and e are correct e. Both a and b are correct 6. Chris refuses to retire until her retirement acceunt has a balance of at least S300,000 Chris also refuses to make any additional deposits into the account. The account currently has abalance of $100,000 and earns 4 % per year,compounded quarterly. How long does Chris have before she will retire? a) 24 years and 3 months 27 years and 7 months 29 years 119 years b)

Answer 1

5. both a and b correct.

If YTM>Coupon rate, Price of Bond < Maturity Value

And, Current Yield = Coupon/Current Bond Price

Thus, as bond price goes down, current yield goes up.

6. b) 27 years and 7 months

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

A В C DE F Н 1 Current balance in account $100,000 2 Annual interest rate Quarterly interest rate Required balance in account 4% 1% $300,000 6 27.60 27 years 7 months Time reach goal 7 8 9 10

Cell reference -

А В C D Е F G Н 1 Current balance in account 2 100000 Annual interest rate Quarterly interest rate Required balance in account 0.04 3 |-С3/4 300000 4 6 =NPER(C4,,C2,-C5,0)/4 27 Time reach goal years -C7*12-E7*12 months 7 10 11

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.