1. One year ago, Teall Inc. issued a 20-year, 6% annual coupon bond at a par value of $1,000. Suppose, that one year after Teall's bonds were issued, the going interest rate had risen to 10%. At what price would the bonds now sell?
a. $665.40
b. $719.23
c. $845.98
d. $1,000.00
e. $1,188.75
2. Foreign bonds are issued by a foreign government or a foreign corporation. An additional risk exists when bonds are denominated in a currency other than that of the investor's home currency. True or false?
a. True
b. False
3. A 30-year, zero-coupon Treasury bond has more reinvestment risk than a 30-year Treasury coupon bond, but the zero-coupon bond has less price risk. True or false?
a. True
b. False
4. Suppose someone is planning to invest in bonds and thinks that inflation and consequently interest rates are likely to decline in the near future. The investor should buy either short-term, fixed-rate bonds or else floating-rate bonds rather than long-term, fixed-rate bonds. True or false?
a. True
b. False
5. Menninger Corp's bonds currently sell for $875 and have a par value of $1,000. They pay a $65 annual coupon and have a 20-year maturity, but they can be called in 5 years at $1,050. What is their YTM?
a. 7.75%
b. 8.32%
c. 9.41%
d. 10.66%
e. 11.59%