111. You purchased an investment which will pay you

$8,000, in real dollars, a year for the next three years. Each payment will be

received at the end of the period with the first payment occurring one year

from today. The nominal discount rate is 7.5 percent and the inflation rate is

2.9 percent. What is the present value of these payments?

A. $21,720

B. $22,004

C. $22,511

D. $23,406

E. $23,529

**Essay Questions**

112. Define liquidity risk, default risk, and

taxability risk and explain how these risks relate to bonds and bond

yields.

113. Inflation has remained low for the past three

years but you have come to the conclusion that trend is ending and inflation

will increase significantly over the next 18 months. Assume you have reached this

conclusion prior to other investors reaching the same conclusion. What

adjustments should you make to your bond portfolio in light of your

conclusions?

114. Explain the conditions that would need to exist

for the Treasury yield curve to be downward sloping.

115. Describe the relationships that exist between the

coupon rate, the yield to maturity, and the current yield for both a discount

bond and a premium bond.

**Multiple Choice Questions**

116. Sylvan Trees has a 7 percent coupon bond on the

market with ten years left to maturity. The bond makes annual payments and

currently sells for $861.20. What is the yield-to-maturity?

A. 8.50 percent

B. 8.68 percent

C. 8.92 percent

D. 9.18 percent

E. 9.27 percent

117. Kaiser Industries has bonds on the market making

annual payments, with 14 years to maturity, and selling for $1,382.01. At this

price, the bonds yield 7.5 percent. What is the coupon rate?

A. 8.00 percent

B. 8.50 percent

C. 9.00 percent

D. 10.50 percent

E. 12.00 percent

118. Dexter Mills issued 20-year bonds a year ago at a

coupon rate of 11.4 percent. The bonds make semiannual payments. The

yield-to-maturity on these bonds is 9.2 percent. What is the current bond

price?

A. $985.55

B. $991.90

C. $1,192.16

D. $1,195.84

E. $1,198.00

119. Soo Lee Imports issued 17-year bonds 2 years ago

at a coupon rate of 10.3 percent. The bonds make semiannual payments. These

bonds currently sell for 102 percent of par value. What is the

yield-to-maturity?

A. 9.98 percent

B. 10.04 percent

C. 10.13 percent

D. 10.27 percent

E. 10.42 percent

120. Bryceton, Inc. has bonds on the market with 13

years to maturity, a yield-to-maturity of 9.2 percent, and a current price of

$895.09. The bonds make semiannual payments. What is the coupon rate?

A. 7.80 percent

B. 8.00 percent

C. 8.25 percent

D. 8.40 percent

E. 8.65 percent