 ## (Solution document) 1. Which of the following statements is CORRECT?

1.    Which of the following statements is CORRECT?

a. If a bond's yield to maturity exceeds its coupon rate, the bond will sell at par.

b; All else equal, if a bond's yield to maturity increases, its price will increase.

c.If a bond's yield to maturity exceeds its coupon rate, the bond will sell at a premium.

d All else equal, if a bond's yield to maturity decreases, its price will increase.

2- 1.    A building is expected to require \$1,000,000 in capital improvement expenditures in five years (60 months). The building's net operating cash flow prior to that time is expected to be at least \$20,000 at the end of every month. How much of that monthly cash flow must the owners set aside each month in order to have the money available for the capital improvements, assuming monthly interest rate is 1.5%?

a. \$14,332.83

b. \$13,609.73

c.\$12,666.67

d. \$10,393.43

3-.    Sommers Co.'s bonds currently sell for \$1,080 and have a par value of \$1,000. They pay a \$100 annual coupon and have a 10-year maturity, but they can be called in 5 years at \$1,125. What is their yield to maturity (YTM)?

a. 8.77%

b. 9.01%

c. 9.40%

d. 9.94%

5- 1.    A real estate investor feels that the cash flow from a property will enable her to pay a lender \$20,000 per year, at the end of every year, for eight years. How much should the lender be willing to loan her if he requires a 7.5% annual interest rate (monthly compounded, assuming the first of the eight equal payments arrives one year from the date the loan is disbursed)?

a. \$117,146.07

b. \$115,972.58

c. \$1,440,520.49

d. \$1,426,874.54