Question 1

Use the following information to answer the question(s)below.  
-The credit spread on BBB-rated corporate bonds is:

Accepted Answer

A) 1.0%. 
B) 1.5%. 
C) 2.5%. 
D) 4.1%. 
A) 1.0%. 
B) 1.5%. 
C) 2.5%. 
D) 4.1%.

Question 2

Use the table for the question(s)below.
Consider the following four bonds that pay annual coupons:  
-The amount that the price of bond "B" will change if its yield to maturity increases from 7% (Price0)to 8% (Price1)is closest to:

Accepted Answer

A) -$36. 
B) $9. 
C) $36. 
D) $39. 
A) -$36. 
B) $9. 
C) $36. 
D) $39.

Question 3

Use the table for the question(s)below.
Consider the following four bonds that pay annual coupons:  
-Which of the four bonds is the most sensitive to a one percent increase in the YTM?

Accepted Answer

A) Bond A 
B) Bond B 
C) Bond C 
D) Bond D 
A) Bond A 
B) Bond B 
C) Bond C 
D) Bond D

Question 4

Use the table for the question(s)below.
Consider the following four bonds that pay annual coupons:  
-Assume that the YTM increases by 1% for each of the four bonds listed.Rank the bonds based upon the sensitivity of their prices from least (#1)to most (#4)sensitive.

Accepted Answer

The answer of Use the table for the question(s)below.
Consider the...

Question 5

A key difference between sovereign default and corporate default is:

Accepted Answer

A) unlike a corporation,a country facing difficulty meeting its financial obligations cannot default. 
B) unlike corporate debt,sovereign debt prices are not inverse to yields. 
C) unlike a corporation,any country can turn to the EMU to pay off its debts. 
D) unlike a corporation,a country facing difficulty meeting its financial obligations typically has the option to print more currency. 
A) unlike a corporation,a country facing difficulty meeting its financial obligations cannot default. 
B) unlike corporate debt,sovereign debt prices are not inverse to yields. 
C) unlike a corporation,any country can turn to the EMU to pay off its debts. 
D) unlike a corporation,a country facing difficulty meeting its financial obligations typically has the option to print more currency.

Question 6

Which of the following statements is FALSE?

Accepted Answer

A) The forward rate for year 1 is the rate on an investment that starts today and is repaid in one year;it is equivalent to an investment in a one-year zero-coupon bond. 
B) The forward rate is only a good predictor of spot interest rates in the future when investors are risk adverse. 
C) We can use the law of one price to calculate the forward rate from the zero-coupon yield curve. 
D) An interest rate forward contract is a contract today that fixes the interest rate for a loan or investment in the future. 
A) The forward rate for year 1 is the rate on an investment that starts today and is repaid in one year;it is equivalent to an investment in a one-year zero-coupon bond. 
B) The forward rate is only a good predictor of spot interest rates in the future when investors are risk adverse. 
C) We can use the law of one price to calculate the forward rate from the zero-coupon yield curve. 
D) An interest rate forward contract is a contract today that fixes the interest rate for a loan or investment in the future.

Question 7

The likely effect of a country printing additional currency to pay its debts is:

Accepted Answer

A) high inflation. 
B) devaluation of the currency. 
C) appreciation of the currency. 
D) A and B 
A) high inflation. 
B) devaluation of the currency. 
C) appreciation of the currency. 
D) A and B

Question 8

Which of the following statements is FALSE?

Accepted Answer

A) Bonds are securities sold by governments and corporations to raise money from investors today in exchange for promised future payments. 
B) By convention the coupon rate is expressed as an effective annual rate. 
C) Bonds typically make two types of payments to their holders. 
D) The time remaining until the repayment date is known as the term of the bond. 
A) Bonds are securities sold by governments and corporations to raise money from investors today in exchange for promised future payments. 
B) By convention the coupon rate is expressed as an effective annual rate. 
C) Bonds typically make two types of payments to their holders. 
D) The time remaining until the repayment date is known as the term of the bond.

Question 9

Which of the following statements is FALSE?

Accepted Answer

A) The amount of each coupon payment is determined by the coupon rate of the bond. 
B) Prior to its maturity date,the price of a zero-coupon bond is always greater than its face value. 
C) The simplest type of bond is a zero-coupon bond. 
D) Treasury bills are U.S.government bonds with a maturity of up to one year. 
A) The amount of each coupon payment is determined by the coupon rate of the bond. 
B) Prior to its maturity date,the price of a zero-coupon bond is always greater than its face value. 
C) The simplest type of bond is a zero-coupon bond. 
D) Treasury bills are U.S.government bonds with a maturity of up to one year.

Question 10

Which of the following statements is FALSE?

Accepted Answer

A) Zero-coupon bonds are also called pure discount bonds. 
B) The IRR of an investment opportunity is the discount rate at which the NPV of the investment opportunity is equal to zero. 
C) The yield to maturity for a zero-coupon bond is the return you will earn as an investor from holding the bond to maturity and receiving the promised face value payment. 
D) When prices are quoted in the bond market,they are conventionally quoted in increments of $1000. 
A) Zero-coupon bonds are also called pure discount bonds. 
B) The IRR of an investment opportunity is the discount rate at which the NPV of the investment opportunity is equal to zero. 
C) The yield to maturity for a zero-coupon bond is the return you will earn as an investor from holding the bond to maturity and receiving the promised face value payment. 
D) When prices are quoted in the bond market,they are conventionally quoted in increments of $1000.

Question 11

Use the following information to answer the question(s)below.
Suppose the current zero-coupon yield curve for risk-free bonds is as follows:  
-The price per $100 face value of a three-year,zero-coupon,risk-free bond is closest to:

Accepted Answer

A) $93.80. 
B) $90.06. 
C) $89.16. 
D) $86.39. 
A) $93.80. 
B) $90.06. 
C) $89.16. 
D) $86.39.

Question 12

Which of the following statements is FALSE?

Accepted Answer

A) Bond traders typically quote bond prices rather than bond yields. 
B) Treasury bills are zero-coupon bonds. 
C) Zero-coupon bonds always trade at a discount. 
D) The yield to maturity is typically stated as an annual rate by multiplying the calculated YTM by the number of coupon payment per year,thereby converting it to an APR. 
A) Bond traders typically quote bond prices rather than bond yields. 
B) Treasury bills are zero-coupon bonds. 
C) Zero-coupon bonds always trade at a discount. 
D) The yield to maturity is typically stated as an annual rate by multiplying the calculated YTM by the number of coupon payment per year,thereby converting it to an APR.

Question 13

Use the table for the question(s)below.
Consider the following yields to maturity on various one-year zero-coupon securities:  
-The credit spread of the BBB corporate bond is closest to:

Accepted Answer

A) 1.0%. 
B) 5.6%. 
C) 1.6%. 
D) 0.8%. 
A) 1.0%. 
B) 5.6%. 
C) 1.6%. 
D) 0.8%.

Question 14

Which of the following statements is FALSE?

Accepted Answer

A) The bond certificate typically specifies that the coupons will be paid periodically until the maturity date of the bond. 
B) The bond certificate indicates the amounts and dates of all payments to be made. 
C) The only cash payments the investor will receive from a zero-coupon bond are the interest payments that are paid up until the maturity date. 
D) Usually the face value of a bond is repaid at maturity. 
A) The bond certificate typically specifies that the coupons will be paid periodically until the maturity date of the bond. 
B) The bond certificate indicates the amounts and dates of all payments to be made. 
C) The only cash payments the investor will receive from a zero-coupon bond are the interest payments that are paid up until the maturity date. 
D) Usually the face value of a bond is repaid at maturity.

Question 15

Use the table for the question(s)below.
Consider the following four bonds that pay annual coupons:  
-The amount that the price of bond "D" will change if its yield to maturity increases from 8% (Price0)to 9%(Price1)is closest to:

Accepted Answer

A) -$36. 
B) -$39. 
C) $36. 
D) $9. 
A) -$36. 
B) -$39. 
C) $36. 
D) $9.

Question 16

Use the following information to answer the question(s)below.Consider the following four corporate bonds that have semiannual compounding:  
-Which of these bonds sells at a discount?

Accepted Answer

A) #1 
B) #2 
C) #3 
D) #4 
A) #1 
B) #2 
C) #3 
D) #4

Question 17

Which of the following statements is FALSE?

Accepted Answer

A) When a bond is trading at a discount,the price drop when a coupon is paid will be larger than the price increase between coupons,so the bond's discount will tend to decline as time passes. 
B) When a bond trades at a price equal to its face value,it is said to trade at par. 
C) As interest rates and bond yields rise,bond prices will fall. 
D) Ultimately,the prices of all bonds approach the bond's face value when the bonds mature and their last coupon is paid. 
A) When a bond is trading at a discount,the price drop when a coupon is paid will be larger than the price increase between coupons,so the bond's discount will tend to decline as time passes. 
B) When a bond trades at a price equal to its face value,it is said to trade at par. 
C) As interest rates and bond yields rise,bond prices will fall. 
D) Ultimately,the prices of all bonds approach the bond's face value when the bonds mature and their last coupon is paid.

Question 18

Use the information for the question(s)below.
The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 15 years.The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually.
-Assuming the appropriate YTM on the Sisyphean bond is 7.5%,then the price at which this bond trades will be closest to:

Accepted Answer

A) $1045. 
B) $691. 
C) $1000. 
D) $957. 
A) $1045. 
B) $691. 
C) $1000. 
D) $957.

Question 19

Which of the following statements is FALSE?

Accepted Answer

A) The yield to maturity of a coupon bond is a weighted average of the yields on the zero-coupon bonds. 
B) If the zero-coupon yield curve is downward sloping,the yield to maturity will decrease with the coupon rate. 
C) The information in the zero-coupon yield curve is sufficient to price all other risk-free bonds. 
D) When the yield curve is flat,all zero-coupon and coupon-paying bonds will have the same yield,independent of their maturities and coupon rates. 
A) The yield to maturity of a coupon bond is a weighted average of the yields on the zero-coupon bonds. 
B) If the zero-coupon yield curve is downward sloping,the yield to maturity will decrease with the coupon rate. 
C) The information in the zero-coupon yield curve is sufficient to price all other risk-free bonds. 
D) When the yield curve is flat,all zero-coupon and coupon-paying bonds will have the same yield,independent of their maturities and coupon rates.

Question 20

Use the following information to answer the question(s)below.Consider the following four corporate bonds that have semiannual compounding:  
-If the YTM of these bonds increased to 9%,which bond's price would be most sensitive to this change in YTM?

Accepted Answer

A) #1 
B) #2 
C) #3 
D) #4 
A) #1 
B) #2 
C) #3 
D) #4

Exam 6: Valuing Bonds

Use the following information to answer the question(s)below. -The credit spread on BBB-rated corporate bonds is:

Use the table for the question(s)below. Consider the following four bonds that pay annual coupons: -The amount that the price of bond "B" will change if its yield to maturity increases from 7% (Price0)to 8% (Price1)is closest to:

Use the table for the question(s)below. Consider the following four bonds that pay annual coupons: -Which of the four bonds is the most sensitive to a one percent increase in the YTM?

Use the table for the question(s)below. Consider the following four bonds that pay annual coupons: -Assume that the YTM increases by 1% for each of the four bonds listed.Rank the bonds based upon the sensitivity of their prices from least (#1)to most (#4)sensitive.

A key difference between sovereign default and corporate default is:

Which of the following statements is FALSE?

The likely effect of a country printing additional currency to pay its debts is:

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Use the following information to answer the question(s)below. Suppose the current zero-coupon yield curve for risk-free bonds is as follows: -The price per $100 face value of a three-year,zero-coupon,risk-free bond is closest to:

Which of the following statements is FALSE?

Use the table for the question(s)below. Consider the following yields to maturity on various one-year zero-coupon securities: -The credit spread of the BBB corporate bond is closest to:

Which of the following statements is FALSE?

Use the table for the question(s)below. Consider the following four bonds that pay annual coupons: -The amount that the price of bond "D" will change if its yield to maturity increases from 8% (Price0)to 9%(Price1)is closest to:

Use the following information to answer the question(s)below.Consider the following four corporate bonds that have semiannual compounding: -Which of these bonds sells at a discount?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Use the following information to answer the question(s)below.Consider the following four corporate bonds that have semiannual compounding: -If the YTM of these bonds increased to 9%,which bond's price would be most sensitive to this change in YTM?

The Corporation

Introduction to Financial Statement Analysis

Financial Decision Making and the Law of One Price

The Time Value of Money

Interest Rates

Investment Decision Rules

Fundamentals of Capital Budgeting

Valuing Stocks

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behavior and Capital Market Efficiency

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress,managerial Incentives,and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modeling: a Case Study

Financial Options

Option Valuation

Real Options

Raising Equity Capital

Debt Financing

Leasing

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

Filters

Use the table for the question(s)below. Consider the following four bonds that pay annual coupons: -The amount that the price of bond "B" will change if its yield to maturity increases from 7% (Price₀)to 8% (Price₁)is closest to:

Use the table for the question(s)below. Consider the following four bonds that pay annual coupons: -The amount that the price of bond "D" will change if its yield to maturity increases from 8% (Price₀)to 9%(Price₁)is closest to: