Question 1

A 12% coupon bond with semi-annual payments is callable in five years. The call price is $1,120. If the bond is selling today for $1,110, what is the yield to call?

Accepted Answer

A)  12.03% 
B)  10.86% 
C)  10.95% 
D)  9.14% 
E)  None of the options are correct. 
A)  12.03% 
B)  10.86% 
C)  10.95% 
D)  9.14% 
E)  None of the options are correct.

Question 2

A coupon bond that pays interest annually has a par value of $1,000, matures in six years, and has a yield to maturity of 11%. The intrinsic value of the bond today will be ______ if the coupon rate is 7.5%.

Accepted Answer

A)  $712.99 
B)  $851.93 
C)  $1,123.01 
D)  $886.28 
E)  $1,000.00 
A)  $712.99 
B)  $851.93 
C)  $1,123.01 
D)  $886.28 
E)  $1,000.00

Question 3

A coupon bond that pays interest annually is selling at a par value of $1,000, matures in five years, and has a coupon rate of 9%. The yield to maturity on this bond is

Accepted Answer

A)  8.0%. 
B)  8.3%. 
C)  9.0%. 
D)  10.0%. 
E)  None of the options are correct. 
A)  8.0%. 
B)  8.3%. 
C)  9.0%. 
D)  10.0%. 
E)  None of the options are correct.

Question 4

SIVs raise funds by ______ and then use the proceeds to ______.

Accepted Answer

A)  issuing short-term commercial paper; retire other forms of their debt 
B)  issuing short-term commercial paper; buy other forms of debt such as mortgages 
C)  issuing long-term bonds; retire other forms of their debt 
D)  issuing long-term bonds; buy other forms of debt such as mortgages 
A)  issuing short-term commercial paper; retire other forms of their debt 
B)  issuing short-term commercial paper; buy other forms of debt such as mortgages 
C)  issuing long-term bonds; retire other forms of their debt 
D)  issuing long-term bonds; buy other forms of debt such as mortgages

Question 5

You purchased an annual interest coupon bond one year ago that now has six years remaining until maturity. The coupon rate of interest was 10%, and par value was $1,000. At the time you purchased the bond, the yield to maturity was 8%. The amount you paid for this bond one year ago was

Accepted Answer

A)  $1,057.50. 
B)  $1,075.50. 
C)  $1,088.50. 
D)  $1.092.46. 
E)  $1,104.13. 
A)  $1,057.50. 
B)  $1,075.50. 
C)  $1,088.50. 
D)  $1.092.46. 
E)  $1,104.13.

Question 6

Convertible bonds

Accepted Answer

A)  give their holders the ability to share in price appreciation of the underlying stock. 
B)  offer lower coupon rates than similar nonconvertible bonds. 
C)  offer higher coupon rates than similar nonconvertible bonds. 
D)  give their holders the ability to share in price appreciation of the underlying stock and offer lower coupon rates than similar nonconvertible bonds. 
E)  give their holders the ability to share in price appreciation of the underlying stock and offer higher coupon rates than similar nonconvertible bonds. 
A)  give their holders the ability to share in price appreciation of the underlying stock. 
B)  offer lower coupon rates than similar nonconvertible bonds. 
C)  offer higher coupon rates than similar nonconvertible bonds. 
D)  give their holders the ability to share in price appreciation of the underlying stock and offer lower coupon rates than similar nonconvertible bonds. 
E)  give their holders the ability to share in price appreciation of the underlying stock and offer higher coupon rates than similar nonconvertible bonds.

Question 7

A coupon bond that pays interest of $100 annually has a par value of $1,000, matures in five years, and is selling today at a $72 discount from par value. The yield to maturity on this bond is

Accepted Answer

A)  6.00%. 
B)  8.33%. 
C)  12.00%. 
D)  60.00%. 
E)  None of the options are correct. 
A)  6.00%. 
B)  8.33%. 
C)  12.00%. 
D)  60.00%. 
E)  None of the options are correct.

Question 8

You have just purchased a 7-year zero-coupon bond with a yield to maturity of 11% and a par value of $1,000. What would your rate of return at the end of the year be if you sell the bond? Assume the yield to maturity on the bond is 9% at the time you sell.

Accepted Answer

A)  10.00% 
B)  24.78% 
C)  13.8% 
D)  1.4% 
A)  10.00% 
B)  24.78% 
C)  13.8% 
D)  1.4%

Question 9

You purchased an annual interest coupon bond one year ago that had nine years remaining to maturity at that time. The coupon interest rate was 10%, and the par value was $1,000. At the time you purchased the bond, the yield to maturity was 8%. If you sold the bond after receiving the first interest payment and the yield to maturity continued to be 8%, your annual total rate of return on holding the bond for that year would have been

Accepted Answer

A)  8.00%. 
B)  7.82%. 
C)  7.00%. 
D)  11.95%. 
E)  None of the options are correct. 
A)  8.00%. 
B)  7.82%. 
C)  7.00%. 
D)  11.95%. 
E)  None of the options are correct.

Question 10

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. 
E)  on a formal exchange operated by the Philadelphia 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. 
E)  on a formal exchange operated by the Philadelphia Stock Exchange.

Question 11

A coupon bond that pays interest annually has a par value of $1,000, matures in seven years, and has a yield to maturity of 9.3%. The intrinsic value of the bond today will be ______ if the coupon rate is 8.5%.

Accepted Answer

A)  $712.99 
B)  $960.14 
C)  $1,123.01 
D)  $886.28 
E)  $1,000.00 
A)  $712.99 
B)  $960.14 
C)  $1,123.01 
D)  $886.28 
E)  $1,000.00

Question 12

Consider two bonds, F and G. Both bonds presently are selling at their par value of $1,000. Each pays interest of $90 annually. Bond F will mature in 15 years while bond G will mature in 26 years. If the yields to maturity on the two bonds change from 9% to 10%,

Accepted Answer

A)  both bonds will increase in value, but bond F will increase more than bond G. 
B)  both bonds will increase in value, but bond G will increase more than bond F. 
C)  both bonds will decrease in value, but bond F will decrease more than bond G. 
D)  both bonds will decrease in value, but bond G will decrease more than bond F. 
E)  None of the options are correct. 
A)  both bonds will increase in value, but bond F will increase more than bond G. 
B)  both bonds will increase in value, but bond G will increase more than bond F. 
C)  both bonds will decrease in value, but bond F will decrease more than bond G. 
D)  both bonds will decrease in value, but bond G will decrease more than bond F. 
E)  None of the options are correct.

Question 13

Consider two bonds, A and B. Both bonds presently are selling at their par value of $1,000. Each pays interest of $120 annually. Bond A will mature in five years, while bond B will mature in six years. If the yields to maturity on the two bonds change from 12% to 10%,

Accepted Answer

A)  both bonds will increase in value, but bond A will increase more than bond B. 
B)  both bonds will increase in value, but bond B will increase more than bond A. 
C)  both bonds will decrease in value, but bond A will decrease more than bond B. 
D)  both bonds will decrease in value, but bond B will decrease more than bond A. 
E)  None of the options are correct. 
A)  both bonds will increase in value, but bond A will increase more than bond B. 
B)  both bonds will increase in value, but bond B will increase more than bond A. 
C)  both bonds will decrease in value, but bond A will decrease more than bond B. 
D)  both bonds will decrease in value, but bond B will decrease more than bond A. 
E)  None of the options are correct.

Question 14

Ceteris paribus, the price and yield on a bond are

Accepted Answer

A)  positively related. 
B)  negatively related. 
C)  sometimes positively and sometimes negatively related. 
D)  not related. 
E)  indefinitely related. 
A)  positively related. 
B)  negatively related. 
C)  sometimes positively and sometimes negatively related. 
D)  not related. 
E)  indefinitely related.

Question 15

Of the following five investments, ________ is (are) considered the safest.

Accepted Answer

A)  commercial paper 
B)  corporate bonds 
C)  U.S. agency issues 
D)  Treasury bonds 
E)  Treasury bills 
A)  commercial paper 
B)  corporate bonds 
C)  U.S. agency issues 
D)  Treasury bonds 
E)  Treasury bills

Question 16

A Treasury bond due in two year has a yield of 3.5%; a Treasury bond due in five years has a yield of 4.2%. A bond issued by Amazon due in five years has a yield of 8.6%; a bond issued by Google due in two year has a yield of 6.9%. The default risk premiums on the bonds issued by Amazon and Google, respectively, are

Accepted Answer

A)  3.3% and 2.1%. 
B)  4.4% and 3.4%. 
C)  1.2% and 1.0%. 
D)  8.6% and 6.9%. 
E)  None of the options are correct. 
A)  3.3% and 2.1%. 
B)  4.4% and 3.4%. 
C)  1.2% and 1.0%. 
D)  8.6% and 6.9%. 
E)  None of the options are correct.

Question 17

The process of retiring high-coupon debt and issuing new bonds at a lower coupon to reduce interest payments is called

Accepted Answer

A)  deferral. 
B)  reissue. 
C)  repurchase. 
D)  refunding. 
E)  None of the options are correct. 
A)  deferral. 
B)  reissue. 
C)  repurchase. 
D)  refunding. 
E)  None of the options are correct.

Question 18

A convertible bond has a par value of $1,000 and a current market price of $1,105. The current price of the issuing firm's stock is $20, and the conversion ratio is 35 shares. The bond's market conversion value is

Accepted Answer

A)  $700. 
B)  $810. 
C)  $870. 
D)  $1,000. 
A)  $700. 
B)  $810. 
C)  $870. 
D)  $1,000.

Question 19

What is the relationship between the price of a straight bond and the price of a callable bond?

Accepted Answer

A)  The straight bond's price will be higher than the callable bond's price for low interest rates. 
B)  The straight bond's price will be lower than the callable bond's price for low interest rates. 
C)  The straight bond's price will change as interest rates change, but the callable bond's price will stay the same. 
D)  The straight bond and the callable bond will have the same price. 
E)  There is no consistent relationship between the two types of bonds. 
A)  The straight bond's price will be higher than the callable bond's price for low interest rates. 
B)  The straight bond's price will be lower than the callable bond's price for low interest rates. 
C)  The straight bond's price will change as interest rates change, but the callable bond's price will stay the same. 
D)  The straight bond and the callable bond will have the same price. 
E)  There is no consistent relationship between the two types of bonds.

Question 20

One year ago, you purchased a newly-issued TIPS bond that has a 5% coupon rate, five years to maturity, and a par value of $1,000. The average inflation rate over the year was 3.2%. What is the amount of the coupon payment you will receive, and what is the current face value of the bond?

Accepted Answer

A)  $50.00, $1,000 
B)  $32.00, $1,032 
C)  $50.00, $1,032 
D)  $32.00, $1,050 
E)  $51.60, $1,032 
A)  $50.00, $1,000 
B)  $32.00, $1,032 
C)  $50.00, $1,032 
D)  $32.00, $1,050 
E)  $51.60, $1,032

Exam 14: Bond Prices and Yields

A 12% coupon bond with semi-annual payments is callable in five years. The call price is $1,120. If the bond is selling today for $1,110, what is the yield to call?

A coupon bond that pays interest annually has a par value of $1,000, matures in six years, and has a yield to maturity of 11%. The intrinsic value of the bond today will be ______ if the coupon rate is 7.5%.

A coupon bond that pays interest annually is selling at a par value of $1,000, matures in five years, and has a coupon rate of 9%. The yield to maturity on this bond is

SIVs raise funds by ______ and then use the proceeds to ______.

You purchased an annual interest coupon bond one year ago that now has six years remaining until maturity. The coupon rate of interest was 10%, and par value was $1,000. At the time you purchased the bond, the yield to maturity was 8%. The amount you paid for this bond one year ago was

Convertible bonds

A coupon bond that pays interest of $100 annually has a par value of $1,000, matures in five years, and is selling today at a $72 discount from par value. The yield to maturity on this bond is

You have just purchased a 7-year zero-coupon bond with a yield to maturity of 11% and a par value of $1,000. What would your rate of return at the end of the year be if you sell the bond? Assume the yield to maturity on the bond is 9% at the time you sell.

Most corporate bonds are traded

A coupon bond that pays interest annually has a par value of $1,000, matures in seven years, and has a yield to maturity of 9.3%. The intrinsic value of the bond today will be ______ if the coupon rate is 8.5%.

Consider two bonds, F and G. Both bonds presently are selling at their par value of $1,000. Each pays interest of $90 annually. Bond F will mature in 15 years while bond G will mature in 26 years. If the yields to maturity on the two bonds change from 9% to 10%,

Consider two bonds, A and B. Both bonds presently are selling at their par value of $1,000. Each pays interest of $120 annually. Bond A will mature in five years, while bond B will mature in six years. If the yields to maturity on the two bonds change from 12% to 10%,

Ceteris paribus, the price and yield on a bond are

Of the following five investments, ________ is (are) considered the safest.

The process of retiring high-coupon debt and issuing new bonds at a lower coupon to reduce interest payments is called

A convertible bond has a par value of $1,000 and a current market price of $1,105. The current price of the issuing firm's stock is $20, and the conversion ratio is 35 shares. The bond's market conversion value is

What is the relationship between the price of a straight bond and the price of a callable bond?

One year ago, you purchased a newly-issued TIPS bond that has a 5% coupon rate, five years to maturity, and a par value of $1,000. The average inflation rate over the year was 3.2%. What is the amount of the coupon payment you will receive, and what is the current face value of the bond?

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

SIVs raise funds by and then use the proceeds to .