1. 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 YTC?
a. 7.75%
b. 8.32%
c. 9.41%
d. 10.66%
2. We can be sure that the interest and principal on Treasury bonds will be paid. Therefore, an investment in 20-year T-bonds is riskless. True or false?
a. True
b. False
3. Bankston Oil's bonds have a sinking fund that requires it to retire $1 million (par value) of its bonds each year. Under the bond's indenture, Bankston can either call $1 million of the bonds at par or else purchase the required bonds on the open market. Interest rates have declined sharply since the bonds were issued. In this case, Bankston should buy bonds on the open market rather than call them. True or false?
a. True
b. False
4. Which of the following statements best describes Walker's bond?
a. This bond is a premium bond since its price is greater than its par value of $1,000.
b. This bond is a par value bond since its price is equal to its par value of $1,000.
c. This bond is a discount bond since its price is less than its par value of $1,000.
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 return would an investor in these bonds most likely earn, if interest rates remain at current levels for the foreseeable future?
a. 7.75%
b. 8.32%
c. 9.41%
d. 10.66%
e. 11.59%