1. The Arrow Company Ltd issued a debenture 10 years ago with a coupon rate of 6% (annual coupon) that will matures in 5 years. The current market price of the debenture is $98.5 and the par value is $100. What is the yield on Arrow Company debentures?
a. The yield on Arrow Company debentures is 6.36% per annum.
b. The yield on Arrow Company debentures is 6.46% per annum.
c. The yield on Arrow Company debentures is 6% per annum.
d. None of the other answers are true.
2. Your Aunt Terry has promised to pay you $100 in year 1, $200 in year 2, $300 in year 3, $400 in year 4 and $500 in year 5. Assume that the interest rate is 5% per annum, calculate the present value of Aunt Terry’s promised series of payments over the next 5 years.
a. The present value of Aunt Terry’s promised series of payments is $1,256.64.
b. The present value of Aunt Terry’s promised series of payments is $1,500.
c. The present value of Aunt Terry’s promised series of payments is $1,319.47.
d. None of the other answers are true.