~ECONOMICS 353 (SECTION 2) L. Tesfatsion/Spring 01 EXERCISE SET 5: 5 POINTS TOTAL DUE: Tuesday, Feb 20, 2:10 P.M. *IMPORTANT REMINDER: LATE ASSIGNMENTS CANNOT BE ACCEPTED -- NO EXCEPTIONS* *NOTE:* Please FILL IN YOUR NAME, BIRTH DATE, AND ID (SOC SEC) No. on Side 1 of a BROWN bubble (answer) sheet and write "353 SECTION 2-EXERCISE SET 5" in the top margin of Side 1. Use a #2 pencil to MARK YOUR ANSWERS on Side 1 of the bubble sheet to the following five multiple choice questions: 1-2 If a 5-year $8,000 coupon bond (i.e., a coupon bond with an $8000 face value and a 5 year maturity) has a $400 coupon payment and a purchase price of $7,000, then the coupon rate is A A. 5 percent B. 8 percent C. 10 percent D. 40 percent 2-2 If a two-year security selling for $500 pays $300 at the end of the first year and $300 at the end of the second year, then (letting * denote multiplication) its yield to maturity i is the solution to A. i = $300/$500 B. i = [$300 + $300]/$500 C C. $300*(1+i) + $300 - $500*(1+i)*(1+i) = 0 D. i = [$300 + $300 - $500]/$500 3-2 Which of the following $10,000 face-value securities has the HIGHEST yield to maturity: A A. An 8 percent coupon bond with a purchase price of $5,000 B. An 8 percent coupon bond with a purchase price of $7,000 C. An 8 percent coupon bond with a purchase price of $10,000 D. An 8 percent coupon bond with a purchase price of $12,000 4-2 Which of the following $2000 face-value securities has the LOWEST yield to maturity? A. A 15 percent coupon bond with a purchase price of $1000 B. A 10 percent coupon bond with a purchase price of $2000 C. A 12 percent coupon bond with a purchase price of $1500 D D. A 10 percent coupon bond with a purchase price of $3000 5-2 For a coupon bond with a given coupon payment C and face value F, its current yield ic is a MORE accurate measure of its yield to maturity i the _______ the maturity of the bond and the __________ the deviation of its purchase price from its face value. A. shorter; smaller B. shorter; greater C C. longer; smaller D. longer; greater
