Bond Prices and Interest Rate Changes a 7

question 12

Multiple Choice

Bond Prices and Interest Rate Changes A 7.25 percent coupon bond with 25 years left to maturity is priced to offer a 7 percent yield to maturity.You believe that in one year,the yield to maturity will be 7.15 percent.If this occurs,what would be the total return of the bond in percent? (Assume semi-annual interest payments and $1,000 par value.)

• A)3.5 percent
• B)5.3 percent
• C)7.0 percent
• D)7.15 percent

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Definitions:

Operating Angles

The specific angles at which certain mechanical parts, such as driveshafts, are designed to operate efficiently.

Propeller Shaft

The mechanical component used to transmit power from an engine or motor to the propeller in a boat or aircraft.

Universal Joints

Flexible joints used in drive shafts that allow for the transmission of power between shafts that are not aligned.