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.