1. If market interest rates are currently 15% and your investment provides you this 15% return, does that imply that you are 15% more wealthy (after vs before this investment return)? Assume wealth is defined as the ability to consume (purchase) goods or services.
A Yes, because with inflation you do indeed have 15% more money
B Yes, because with inflation 15% more money does imply 15% more wealth.
C No, because with inflation 15% more money does not imply 15% more wealth.
D No, because with inflation 15% more money means your wealth increased more than 15%.
E None of the other responses are correct
2. Assume that you can buy a bond for $555 today. The bond will pay you $75 in annual coupon payments (i.e. interest payments) at the end of each of the next 12 years, plus repay the original $1000 par value of the bond at the end of the 12th year. What annual rate of return would you expect to earn on the investment (i.e., what is the bond s YTM?)? (Hint: use your basic TVM keys)
A 15.7 %
B 16.1 %
C 17.6 %
D 16.5 %
E None of the above or insufficient information