1. Suppose you borrowed $14,000 at a rate of 10.0% and must repay it in five equal installments at the end of each of the next 5 years. How much interest would you have to pay in the first year?
A. $1,200.33
B. $1,263.50
C. $1,330.00
D. $1,400.00
E. $1,470.00
2. Which of the following statements is correct?
A. If a bond is selling at a discount, the yield to call is a better measure of return than the yield to maturity.
B. On an expected yield basis, the expected capital gains yield will always be positive, because an investor would not purchase a bond with an expected capital loss.
C. On an expected yield basis, the expected current yield will always be positive, because an investor would not purchase a bond that is not expected to pay any cash coupon interest.
D. If a coupon bond is selling at par, its current yield equals its yield to maturity.
E. The current yield on Bond A exceeds the current yield on Bond B; therefore, Bond A must have a higher yield to maturity than Bond B.
3. (TCO D) Garvin Enterprises' bonds currently sell for $1,150. They have a 6-year maturity, an annual coupon of $85, and a par value of $1,000. Which is their current yield?
A. 7.39%
B. 7.76%
C. 8.15%
D. 8.56%
E. 8.98%
4. Niendorf Corporation's 5-year bonds yield 6.75%, and 5-year T-bonds yield 4.80%. The real risk-free rate is r* = 2.75%, the inflation premium for 5-year bonds is IP = 1.65%, the default risk premium for Niendorf's bonds is DRP = 1.20% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) × 0.1%, where t = number of years to maturity. Which is the liquidity premium (LP) on Niendorf's bonds?
A. 0.49%
B. 0.55%
C. 0.61%
D. 0.68%
E. 0.75%