Question 1

The current yield on a bond is equal to

Accepted Answer

A) annual interest payment divided by the current market price. 
B) the yield to maturity. 
C) annual interest divided by the par value. 
D) the internal rate of return. 
A) annual interest payment divided by the current market price. 
B) the yield to maturity. 
C) annual interest divided by the par value. 
D) the internal rate of return.

Question 2

A CDO is a

Accepted Answer

A) command duty officer. 
B) collateralized debt obligation. 
C) commercial debt originator. 
D) collateralized debenture originator. 
A) command duty officer. 
B) collateralized debt obligation. 
C) commercial debt originator. 
D) collateralized debenture originator.

Question 3

A zero-coupon bond has a yield to maturity of 12% and a par value of $1,000.If the bond matures in 18 years, the bond should sell for a price of _______ today.

Accepted Answer

A) $422.41 
B) $501.87 
C) $513.16 
D) $130.04 
A) $422.41 
B) $501.87 
C) $513.16 
D) $130.04

Question 4

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in six years, and has a yield to maturity of 9%.The intrinsic value of the bond today will be __________ if the coupon rate is 9%.

Accepted Answer

A) $922.78 
B) $924.16 
C) $1,075.80 
D) $1,000.00 
A) $922.78 
B) $924.16 
C) $1,075.80 
D) $1,000.00

Question 5

A Treasury bill with a par value of $100,000 due one month from now is selling today for $99,010.The effective annual yield is

Accepted Answer

A) 12.40%. 
B) 12.55%. 
C) 12.62%. 
D) 12.68%. 
A) 12.40%. 
B) 12.55%. 
C) 12.62%. 
D) 12.68%.

Question 6

Using semi-annual compounding, a 15-year zero-coupon bond that has a par value of $1,000 and a required return of 8% would be priced at approximately

Accepted Answer

A) $308. 
B) $315. 
C) $464. 
D) $555. 
A) $308. 
B) $315. 
C) $464. 
D) $555.

Question 7

Collateralized bonds

Accepted Answer

A) rely on the general earning power of the firm for the bond's safety. 
B) are backed by specific assets of the issuing firm. 
C) are considered the safest variety of bonds. 
D) are backed by specific assets of the issuing firm and are generally considered the safest variety of bonds. 
A) rely on the general earning power of the firm for the bond's safety. 
B) are backed by specific assets of the issuing firm. 
C) are considered the safest variety of bonds. 
D) are backed by specific assets of the issuing firm and are generally considered the safest variety of bonds.

Question 8

The compensation from a CDS can come from

Accepted Answer

A) the CDS holder delivering the defaulted bond to the CDS issuer in return for the bond's par value. 
B) the CDS issuer paying the swap holder the difference between the par value of the bond and the bond's market price. 
C) the federal government paying off on the insurance claim. 
D) the CDS holder delivering the defaulted bond to the CDS issuer in return for the bond's par value, and the CDS issuer paying the swap holder the difference between the par value of the bond and the bond's market price. 
A) the CDS holder delivering the defaulted bond to the CDS issuer in return for the bond's par value. 
B) the CDS issuer paying the swap holder the difference between the par value of the bond and the bond's market price. 
C) the federal government paying off on the insurance claim. 
D) the CDS holder delivering the defaulted bond to the CDS issuer in return for the bond's par value, and the CDS issuer paying the swap holder the difference between the par value of the bond and the bond's market price.

Question 9

Accrued interest

Accepted Answer

A) is quoted in the bond price in the financial press. 
B) must be paid by the buyer of the bond and remitted to the seller of the bond. 
C) must be paid to the broker for the inconvenience of selling bonds between maturity dates. 
D) is quoted in the bond price in the financial press and must be paid by the buyer of the bond and remitted to the seller of the bond. 
A) is quoted in the bond price in the financial press. 
B) must be paid by the buyer of the bond and remitted to the seller of the bond. 
C) must be paid to the broker for the inconvenience of selling bonds between maturity dates. 
D) is quoted in the bond price in the financial press and must be paid by the buyer of the bond and remitted to the seller of the bond.

Question 10

A coupon bond pays annual interest, has a par value of $1,000, matures in four years, has a coupon rate of 10%, and has a yield to maturity of 12%.The current yield on this bond is

Accepted Answer

A) 10.65%. 
B) 10.45%. 
C) 10.95%. 
D) 10.52%. 
A) 10.65%. 
B) 10.45%. 
C) 10.95%. 
D) 10.52%.

Question 11

A coupon bond that pays interest semi-annually is selling at a par value of $1,000, matures in seven years, and has a coupon rate of 8.6%.The yield to maturity on this bond is

Accepted Answer

A) 8.0%. 
B) 8.6%. 
C) 9.0%. 
D) 10.0%. 
A) 8.0%. 
B) 8.6%. 
C) 9.0%. 
D) 10.0%.

Question 12

Swingin' Soiree, Inc.is a firm that has its main office on the Right Bank in Paris.The firm just issued bonds with a final payment amount that depends on whether the Seine River floods.This type of bond is known as

Accepted Answer

A) a contingency bond. 
B) a catastrophe bond. 
C) an emergency bond. 
D) an incident bond. 
A) a contingency bond. 
B) a catastrophe bond. 
C) an emergency bond. 
D) an incident bond.

Question 13

Most corporate bonds are traded

Accepted Answer

A) on a formal exchange operated by the New York Stock Exchange. 
B) by the issuing corporation. 
C) over the counter by bond dealers linked by a computer quotation system. 
D) on a formal exchange operated by the American Stock Exchange. 
A) on a formal exchange operated by the New York Stock Exchange. 
B) by the issuing corporation. 
C) over the counter by bond dealers linked by a computer quotation system. 
D) on a formal exchange operated by the American Stock Exchange.

Question 14

The _________ gives the number of shares for which each convertible bond can be exchanged.

Accepted Answer

A) conversion ratio 
B) current ratio 
C) P/E ratio 
D) conversion premium 
A) conversion ratio 
B) current ratio 
C) P/E ratio 
D) conversion premium

Question 15

An increase in the bond's yield acts to reduce its price, which reduces the

Accepted Answer

A) holding period return 
B) current yield 
C) coupon yield 
D) time to maturity 
A) holding period return 
B) current yield 
C) coupon yield 
D) time to maturity

Question 16

TIPS are

Accepted Answer

A) securities formed from the coupon payments only of government bonds. 
B) securities formed from the principal payments only of government bonds. 
C) government bonds with par value linked to the general level of prices. 
D) government bonds with coupon rates linked to the general level of prices. 
A) securities formed from the coupon payments only of government bonds. 
B) securities formed from the principal payments only of government bonds. 
C) government bonds with par value linked to the general level of prices. 
D) government bonds with coupon rates linked to the general level of prices.

Question 17

A convertible bond has a par value of $1,000 and a current market value of $950.The current price of the issuing firm's stock is $22, and the conversion ratio is 40 shares.The bond's conversion premium is

Accepted Answer

A) $40. 
B) $70. 
C) $190. 
D) $200. 
A) $40. 
B) $70. 
C) $190. 
D) $200.

Question 18

One year ago, you purchased a newly-issued TIPS bond that has a 6% coupon rate, five years to maturity, and a par value of $1,000.The average inflation rate over the year was 4.2%.What is the amount of the coupon payment you will receive, and what is the current face value of the bond?

Accepted Answer

A) $60.00, $1,000 
B) $42.00, $1,042 
C) $60.00, $1,042 
D) $62.52, $1,042 
A) $60.00, $1,000 
B) $42.00, $1,042 
C) $60.00, $1,042 
D) $62.52, $1,042

Question 19

If a 7% coupon bond that pays interest every 182 days paid interest 32 days ago, the accrued interest would be

Accepted Answer

A) $5.67. 
B) $7.35. 
C) $6.35. 
D) $6.15. 
A) $5.67. 
B) $7.35. 
C) $6.35. 
D) $6.15.

Question 20

A coupon bond that pays interest of $40 semi-annually has a par value of $1,000, matures in four years, and is selling today at a $36 discount from par value.The yield to maturity on this bond is

Accepted Answer

A) 8.69%. 
B) 9.09%. 
C) 10.43%. 
D) 9.76%. 
A) 8.69%. 
B) 9.09%. 
C) 10.43%. 
D) 9.76%.

Exam 14: Bond Prices and Yields

The current yield on a bond is equal to

A CDO is a

A zero-coupon bond has a yield to maturity of 12% and a par value of $1,000.If the bond matures in 18 years, the bond should sell for a price of _______ today.

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in six years, and has a yield to maturity of 9%.The intrinsic value of the bond today will be __________ if the coupon rate is 9%.

A Treasury bill with a par value of $100,000 due one month from now is selling today for $99,010.The effective annual yield is

Using semi-annual compounding, a 15-year zero-coupon bond that has a par value of $1,000 and a required return of 8% would be priced at approximately

Collateralized bonds

The compensation from a CDS can come from

Accrued interest

A coupon bond pays annual interest, has a par value of $1,000, matures in four years, has a coupon rate of 10%, and has a yield to maturity of 12%.The current yield on this bond is

A coupon bond that pays interest semi-annually is selling at a par value of $1,000, matures in seven years, and has a coupon rate of 8.6%.The yield to maturity on this bond is

Swingin' Soiree, Inc.is a firm that has its main office on the Right Bank in Paris.The firm just issued bonds with a final payment amount that depends on whether the Seine River floods.This type of bond is known as

Most corporate bonds are traded

The _________ gives the number of shares for which each convertible bond can be exchanged.

An increase in the bond's yield acts to reduce its price, which reduces the

TIPS are

A convertible bond has a par value of $1,000 and a current market value of $950.The current price of the issuing firm's stock is $22, and the conversion ratio is 40 shares.The bond's conversion premium is

One year ago, you purchased a newly-issued TIPS bond that has a 6% coupon rate, five years to maturity, and a par value of $1,000.The average inflation rate over the year was 4.2%.What is the amount of the coupon payment you will receive, and what is the current face value of the bond?

If a 7% coupon bond that pays interest every 182 days paid interest 32 days ago, the accrued interest would be

A coupon bond that pays interest of $40 semi-annually has a par value of $1,000, matures in four years, and is selling today at a $36 discount from par value.The yield to maturity on this bond is

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