Question 1

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

Accepted Answer

A) 1.0%. 
B) 1.5%. 
C) 2.6%. 
D) 4.1%. 
A) 1.0%. 
B) 1.5%. 
C) 2.6%. 
D) 4.1%.

Question 2

Consider a zero-coupon bond with 20 years to maturity.The price at which this bond will trade if the YTM is 6% is closest to:

Accepted Answer

A) $215. 
B) $312. 
C) $335. 
D) $306. 
A) $215. 
B) $312. 
C) $335. 
D) $306.

Question 3

Explain why the expected return of a corporate bond does not equal its yield to maturity?

Accepted Answer

Because we calculate the yield to maturi

Question 4

Taggart Transcontinental has issued at par a zero-coupon bond with a ten-year maturity.Investors believe there is a 10% chance that Taggart Transcontinental will default on these bonds.If they do default,investors expect to receive only 50 cents per dollar they are owed.If investors require an 8% return on their investment in these bonds,then the yield to maturity on these bonds will be closest to (assume annual compounding):

Accepted Answer

A) 6.0%. 
B) 6.5%. 
C) 7.0%. 
D) 8.56%. 
A) 6.0%. 
B) 6.5%. 
C) 7.0%. 
D) 8.56%.

Question 5

Which of the following statements is FALSE?

Accepted Answer

A) Forward rates tend not to be good predictors of future spot rates. 
B) Given the risk associated with interest rate changes,corporate managers require tools to help manage this risk. 
C) One of the most important tools to manage the risk of interest rate changes are interest rate forward contracts. 
D) A spot rate is an interest rate that we can guarantee today for a loan or investment that will occur in the future. 
A) Forward rates tend not to be good predictors of future spot rates. 
B) Given the risk associated with interest rate changes,corporate managers require tools to help manage this risk. 
C) One of the most important tools to manage the risk of interest rate changes are interest rate forward contracts. 
D) A spot rate is an interest rate that we can guarantee today for a loan or investment that will occur in the future.

Question 6

Use the table for the question(s)below.
Consider the following zero-coupon yields on default-free securities:  
-The forward rate for year 5 (the forward rate quoted today for an investment that begins in four years and matures in five years)is closest to:

Accepted Answer

A) 4.0%. 
B) 3.8%. 
C) 4.8%. 
D) 4.2%. 
A) 4.0%. 
B) 3.8%. 
C) 4.8%. 
D) 4.2%.

Question 7

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 this bond will trade at:

Accepted Answer

A) par. 
B) a discount. 
C) a premium. 
D) None of the above 
A) par. 
B) a discount. 
C) a premium. 
D) None of the above

Question 8

Which of the following statements is FALSE?

Accepted Answer

A) If a bond trades at a premium,its yield to maturity will exceed its coupon rate. 
B) A bond that trades at a premium is said to trade above par. 
C) When a coupon-paying bond is trading at a premium,an investor's return from the coupons is diminished by receiving a face value less than the price paid for the bond. 
D) Holding fixed the bond's yield to maturity,for a bond not trading at par,the present value of the bond's remaining cash flows changes as the time to maturity decreases. 
A) If a bond trades at a premium,its yield to maturity will exceed its coupon rate. 
B) A bond that trades at a premium is said to trade above par. 
C) When a coupon-paying bond is trading at a premium,an investor's return from the coupons is diminished by receiving a face value less than the price paid for the bond. 
D) Holding fixed the bond's yield to maturity,for a bond not trading at par,the present value of the bond's remaining cash flows changes as the time to maturity decreases.

Question 9

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.
-How much are each of the semiannual coupon payments? Assuming the appropriate YTM on the Sisyphean bond is 8.8%,then at what price should this bond trade for?

Accepted Answer

Coupon = (coupon rate × face v

Question 10

Which of the following statements is FALSE?

Accepted Answer

A) The principal or face value of a bond is the notional amount we use to compute the interest payments. 
B) Payments are made on bonds until a final repayment date,called the term date of the bond. 
C) The coupon rate of a bond is set by the issuer and stated on the bond certificate. 
D) The promised interest payments of a bond are called coupons. 
A) The principal or face value of a bond is the notional amount we use to compute the interest payments. 
B) Payments are made on bonds until a final repayment date,called the term date of the bond. 
C) The coupon rate of a bond is set by the issuer and stated on the bond certificate. 
D) The promised interest payments of a bond are called coupons.

Question 11

Use the table for the question(s)below.
Consider the following four bonds that pay annual coupons:  
-The percentage change in the price of the bond "C" if its yield to maturity increases from 9% (Price0)to 10% (Price1)is closest to:

Accepted Answer

A) -17%. 
B) -6%. 
C) -4%. 
D) 4%. 
A) -17%. 
B) -6%. 
C) -4%. 
D) 4%.

Question 12

The YTM of a 3-year default-free security with a face value of $1000 and an annual coupon rate of 6% is closest to:

Accepted Answer

A) 5.5%. 
B) 5.8%. 
C) 5.7%. 
D) 5.2%. 
A) 5.5%. 
B) 5.8%. 
C) 5.7%. 
D) 5.2%.

Question 13

Consider a bond that pays annually an 8% coupon with 20 years to maturity.The percentage change in the price of the bond if its yield to maturity increases from 5% to 7% is closest to:

Accepted Answer

A) 22.5%. 
B) 24.5%. 
C) -22.5%. 
D) -19.5%. 
A) 22.5%. 
B) 24.5%. 
C) -22.5%. 
D) -19.5%.

Question 14

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 9%,then this bond will trade at

Accepted Answer

A) a premium. 
B) a discount. 
C) par. 
D) None of the above 
A) a premium. 
B) a discount. 
C) par. 
D) None of the above

Question 15

Which of the following statements is FALSE?

Accepted Answer

A) Investors pay less for bonds with credit risk than they would for an otherwise identical default-free bond. 
B) The yield to maturity of a defaultable bond is equal to the expected return of investing in the bond. 
C) The risk of default,which is known as the credit risk of the bond,means that the bond's cash flows are not known with certainty. 
D) For corporate bonds,the issuer may default-that is,it might not pay back the full amount promised in the bond certificate. 
A) Investors pay less for bonds with credit risk than they would for an otherwise identical default-free bond. 
B) The yield to maturity of a defaultable bond is equal to the expected return of investing in the bond. 
C) The risk of default,which is known as the credit risk of the bond,means that the bond's cash flows are not known with certainty. 
D) For corporate bonds,the issuer may default-that is,it might not pay back the full amount promised in the bond certificate.

Exam 6: Valuing Bonds

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

Consider a zero-coupon bond with 20 years to maturity.The price at which this bond will trade if the YTM is 6% is closest to:

Explain why the expected return of a corporate bond does not equal its yield to maturity?

Which of the following statements is FALSE?

Use the table for the question(s)below. Consider the following zero-coupon yields on default-free securities: -The forward rate for year 5 (the forward rate quoted today for an investment that begins in four years and matures in five years)is closest to:

Which of the following statements is FALSE?

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 percentage change in the price of the bond "C" if its yield to maturity increases from 9% (Price0)to 10% (Price1)is closest to:

The YTM of a 3-year default-free security with a face value of $1000 and an annual coupon rate of 6% is closest to:

Consider a bond that pays annually an 8% coupon with 20 years to maturity.The percentage change in the price of the bond if its yield to maturity increases from 5% to 7% is closest to:

Which of the following statements is FALSE?

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 percentage change in the price of the bond "C" if its yield to maturity increases from 9% (Price₀)to 10% (Price₁)is closest to: