Question 1: You wish to purchase a 20-year, $1,000 face value bond that makes semiannual interest payments of $40. If you require a 10% nominal yield to maturity, what price should you be willing to pay for the bond?
Question 2: Which of the following bonds will have the greatest percentage increase in value if all interest rates decrease by 1%?
20-year, zero coupon bond.
10-year, zero coupon bond.
20-year, 10% coupon bond.
20-year, 5% coupon bond.
1-year, 10% coupon bond.
Question 3: Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds?
Market interest rates decline sharply.
The company's bonds are downgraded.
Market interest rates rise sharply.
Inflation increases significantly.
The company's financial situation deteriorates significantly.