Mix it with the CHROME

How does the value of an annuity change when the interest rate increases

Value decreases

How many payments are there in an annuity that makes annual payments with the first payment at the end of year 5 and the last payment at the end of year 22

18

Quoted price on a bond represents

Dollar price as percent of par value

Annuity due is a security that

Makes payments at the beginning of the period

Which of the following options best describes a common stock contract as discussed in class?

An ownership claim in the company, the right to residual cash flows, and a commitment (but no obligation) to pay a fixed dividend

Consider a coupon bond that has a 15.6% coupon rate, a yield to maturity of 18.3% and a face value of $1,000. Which of the following statements about the value of the bond is true?

The price of the bond is less than $1000

Suppose an investment fund is considering purchasing one of two US Treasury bonds. The first bond (bond A) has 10 years left to maturity and pays a semiannual coupon with a coupon rate of 5%. The second bond (bond B) has 26 years left to maturity and pays a semiannual coupon with a coupon rate of 5%. Which of the following statements is true?

Bond B is riskier than bond A because it has more interest rate risk

Suppose two companies have issued similar bonds both have 7 years left to maturity, pay semiannual coupons with a coupon rate of 6%, and have a face value of $1,000. Bond A has a yield-to-maturity of 5.29% and the other bond (bond B) has a yield-to-maturity of 7.88%. Which one of the following choices most likely explains the difference in yield?

Bond B has a higher risk of default than bond A