Assume That a Face Value of $1,000 for Each Type

question 83

Multiple Choice

Assume that a face value of $1,000 for each type of bond. Yields are calculated to full maturity with semi-annual compounding. Yield change is the change in ask yield from the previous close.

$\begin{array}{|l|r|l|r|r|r|r|r|}\hline \text { Issuer } & \text { Coupon } & \begin{array}{l}\text { Maturity } \\\text { Date }\end{array} & \begin{array}{r}\text { Bid } \\\text { Price }\end{array} & \begin{array}{r}\text { Ask } \\\text { Price }\end{array} & \begin{array}{r}\text { Bid } \\\text { Yield }\end{array} & \begin{array}{r}\text { Ask } \\\text { Yield }\end{array} & \begin{array}{r}\text { Yield } \\\text { Change }\end{array} \\\hline \text { Pipa Co. } & 7.500 & 2012-\text { Aug-24 } & 120.92 & 121.02 & 5.41 & 5.37 & +0.011 \\\hline \text { Harolds Inc. } & 8.000 & 2025 \text {-Jan-10 } & 84.33 & 84.63 & 5.02 & 4.88 & +0.003 \\\hline \text { Willie Ltd. } & 6.250 & 2018-O c t-1 & 89.47 & 89.89 & 5.19 & 4.97 & -0.016 \\\hline \text { Kat Enterprise } & 8.250 & 2013-M a r-13 & 109.09 & 109.49 & 5.34 & 5.28 & -0.009 \\\hline\end{array}$

-What is the current yield for the Kat bond? Note: closing price here is the mid-point between final bid and ask quotation.

• A) 7.5%
• B) 6.7%
• C) 7.9%
• D) 3.8%
• E) 8.3%

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Definitions:

Purely Competitive Market

A market structure characterized by a large number of small firms selling identical products, with no single firm able to influence market prices.

Total Fixed Costs

The sum of all costs that remain constant regardless of the level of production or sales, such as rent, salaries, or loan payments.

Profit-Maximizing Output

The level of production at which a firm achieves the maximum possible profit, where marginal cost equals marginal revenue.

Marginal Revenue

The additional revenue generated from selling one more unit of a good or service.