Homework Answers
1. The statement given is false because whenever we have to choose between two projects the best decision is to go with NPV rather than IRR because NPV gives the exact dollar amount of the value that our project will achieve.
False
2. The statement given is true because in case everything is same for the two bonds, the one with lower coupon rate will have less cashlows than the one with the higher coupon rate and so the price will be less for the one which has less cashflow or less coupon rate
True
3. The statement given is false because Yield to maturity should be used to discount bonds rather than the coupon rate to give a more actual scenario. Coupon rates are usually fixed at the start so they cannot properly determine the value of the bond.
False
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When in doubt about which criteria to choose to evaluate projects, always trust IRR. True False...
9.Which of the following statements is FALSE? A. Most coupon bond issuers choose a coupon rate...
9.Which of the following statements is FALSE? A. Most coupon bond issuers choose a coupon rate so that the bonds will initially trade at, or very near to, par. B. If the bond trades at a discount, and investor who buys the bond will earn a return both from receiving the coupons and from receiving a face value that exceeds the price paid for the bond. C. At any point in time, changes in market interest rates affect a bond's...
6) Which of the following statements is FALSE? A) If the bond trades at a discount,...
6) Which of the following statements is FALSE? A) If the bond trades at a discount, and investor who buys the bond will earn a return both from receiving the coupons and from receiving a face value that exceeds the price paid for the bond. B) Most coupon bond issuers choose a coupon rate so that the bonds will initially trade at, or very near to, par. C) Coupon bonds always trade for a discount. D) At any point in...
Which of the following is FALSE? 1. Because we can convert any bond price into a...
Which of the following is FALSE? 1. Because we can convert any bond price into a yield, and vice versa, bond prices and yields are often used interchangebly 2.The iRR of an investment in a bond is given a special name, the yield to maturity (YTM) 3. Unlike the case of bonds that pay coupons, for zero-coupon bonds, there is no simple formula to solve for the yield to maturity directly 4. One advantage of quoting the yield to maturity...
Which of the following statements is CORRECT? a. The market price of a bond will always...
Which of the following statements is CORRECT? a. The market price of a bond will always approach its par value as its maturity date approaches, provided the bond’s required return remains constant. b. If the Federal Reserve unexpectedly announces that it expects inflation to increase, then we would probably observe an immediate increase in bond prices. c. The total yield on a bond is derived from dividends plus changes in the price of the bond. d. Bonds are generally regarded...
Internal rate of return (IRR) can reliably be used to choose between mutually exclusive projects. O True False
Internal rate of return (IRR) can reliably be used to choose between mutually exclusive projects. O True False
4.Which one of the following statements about the approach to bond pricing is NOT true? Select...
4.Which one of the following statements about the approach to bond pricing is NOT true? Select one: A. To calculate a bond's price, one needs to calculate the present value of the bond's expected cash flows. B. The value, or price, of any asset is the future value of its cash flows. 6.Which one of the following statements is NOT true? Select one: A. The yield to maturity of a bond is the discount rate that makes the present value...
2.(40 marks) State whether each of the following statements is True/False. Justify your answer. a) (5...
2.(40 marks) State whether each of the following statements is True/False. Justify your answer. a) (5 marks) Internal rate of return is the discount rate that balances the sum of present values of cash flows associated with the bond with its face value. b) (5 marks) To find the yield to maturity you must assume that investor is able to reinvest all payoffs from the bond at this same rate. c) (5 marks) In valuing a security, we only need...
Stocks may or may not give dividends True False The formula for the value of a...
Stocks may or may not give dividends True False The formula for the value of a stock given constant growth of dividends is D1/(k-g) True False For a bond par value and maturity value are same True False A bonds coupon rate is another name for its discount rate True False If you multiply a bond's maturity value with its coupon rate, you obtain the bond's interest payment True False
Questions 1 to 10 are false statements. Please re-write each statement so that it is true. It may be as simple as one wo...
Questions 1 to 10 are false statements. Please re-write each statement so that it is true. It may be as simple as one word change or more complex. 5. The way that TIPS protect against inflation is because the coupon rate is changed every six months by the inflation rate as measured by the consumer price index (CPI). 6. All else equal, (maturity, coupon rate, face value, etc.) a bond that is callable should have a lower yield-to-maturity than a...
Which is true about the "duration" of bonds? A. The longer the term, the shorter the...
Which is true about the "duration" of bonds? A. The longer the term, the shorter the duration. B. The lower the yield, the shorter the duration. C. For zero-coupon bonds, the term is the duration. D. Duration is related to yield (or internal rate of return) of a bond. Regarding bonds in the secondary market... A. their prices are unrelated to the prevailing interest rate environment. B. prices of bonds with more time to maturity are less sensitive to the...
Internal rate of return (IRR) can reliably be used to choose between mutually exclusive projects. O True False
2.(40 marks) State whether each of the following statements is True/False. Justify your answer. a) (5 marks) Internal rate of return is the discount rate that balances the sum of present values of cash flows associated with the bond with its face value. b) (5 marks) To find the yield to maturity you must assume that investor is able to reinvest all payoffs from the bond at this same rate. c) (5 marks) In valuing a security, we only need...
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