If the Yield to Maturity of All of the Following

question 28

Multiple Choice

If the yield to maturity of all of the following bonds is 6%, which will trade at the greatest premium per $100 face value?

• A) a bond with a $10,000 face value, four years to maturity and 6.2% semiannual coupon payments
• B) a bond with a $500 face value, seven years to maturity and 5.2% annual coupon payments
• C) a bond with a $5,000 face value, seven years to maturity and 5.5% annual coupon payments
• D) a bond with a $1,000 face value, five years to maturity and 6.3% annual coupon payments

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Definitions:

Cash Equivalents

Short-term, highly liquid investments such as Treasury bills, commercial paper, and money market funds, that are made solely for the purpose of generating a return on temporarily idle funds.

Cash Flows

The total amount of money being transferred into and out of a business, especially as affecting liquidity.

Indirect Method

An approach used in cash flow statements to adjust net income for changes in non-cash items to calculate cash provided by operating activities.

Operating Activities

Transactions and events that pertain to the core business functions of an organization, influencing net income.