1. Six years ago you bought a bond for $1,036. The bond has a coupon rate of 7% with semiannual payments and a face value of $1000. Today the bond is worth $976. If you sold the bond today, what rate of return would you have earned on your investment?
a) 5% b) 6% c) 7% d) 8%
2. What is the geometric average return on a stock if its returns over the past five years have been -23%, 8%, 42%, 16%, and 15%?
a) 8.3% b) 9.5% c) 10.9% d) 11.6%
3. Which of the following statements is correct?
"Everything else held constant, the market price of a discount bond will increase and approach the bond's par value as the maturity date approaches. "
"Bond prices and interest rates move in the same direction, i.e., if interest rates rise, so will bond prices"
"Everything else equal, a convertible bond should have a lower price than a non-convertible bond."
"Everything else equal, a callable bond should have a higher price than a noncallable bond."