Question 1

All of the following items would need to be included in the bond's indenture agreement EXCEPT

Accepted Answer

A)  the coupon rate. 
B)  the call feature. 
C)  the credit rating. 
D)  steps that the bondholder can take in the event that the issuer fails to pay the interest or principal. 
A)  the coupon rate. 
B)  the call feature. 
C)  the credit rating. 
D)  steps that the bondholder can take in the event that the issuer fails to pay the interest or principal.

Question 2

Which of the following terms is the chance that the bond issuer will not be able to make timely payments?

Accepted Answer

A)  credit quality risk 
B)  interest rate risk 
C)  liquidity of interest rate risk 
D)  term structure of interest rates 
A)  credit quality risk 
B)  interest rate risk 
C)  liquidity of interest rate risk 
D)  term structure of interest rates

Question 3

Which of these statements answers why bonds are known as fixed income securities?

Accepted Answer

A)  Many investors on fixed incomes buy them. 
B)  Investors know how much they will receive in interest payments. 
C)  Investors will not receive their principal when the bond's term is up. 
D)  All of the options. 
A)  Many investors on fixed incomes buy them. 
B)  Investors know how much they will receive in interest payments. 
C)  Investors will not receive their principal when the bond's term is up. 
D)  All of the options.

Question 4

Which of the following statements about interest rate risk is NOT true?

Accepted Answer

A)  Long-term bondholders do not experience much interest rate risk. 
B)  Interest rate risk does not affect all bonds the same. 
C)  Bondholders can experience distinct gains and losses during periods when interest rates change quickly. 
D)  None of the above. 
A)  Long-term bondholders do not experience much interest rate risk. 
B)  Interest rate risk does not affect all bonds the same. 
C)  Bondholders can experience distinct gains and losses during periods when interest rates change quickly. 
D)  None of the above.

Question 5

A bond issued by a corporation on October 1, 2007, is scheduled to mature on October 1, 3007. If today is October 2, 2009, what is this bond's time to maturity? (Assume annual interest payments.)

Accepted Answer

A)  2 years 
B)  50 years 
C)  998 years 
D)  100 years 
A)  2 years 
B)  50 years 
C)  998 years 
D)  100 years

Question 6

Which of the following issues Treasury Inflation Protected Securities (TIPS)?

Accepted Answer

A)  U.S. Treasury 
B)  corporations 
C)  municipalities 
D)  nonprofits 
A)  U.S. Treasury 
B)  corporations 
C)  municipalities 
D)  nonprofits

Question 7

Which of the following statements is correct?

Accepted Answer

A)  There is an inverse relationship between bond prices and bond yields. 
B)  There is a positive relationship between bond prices and bond yields. 
C)  There is no relationship between bond prices and bond yields. 
D)  The relationship between bond prices and bond yields is dependent on the market interest rate. 
A)  There is an inverse relationship between bond prices and bond yields. 
B)  There is a positive relationship between bond prices and bond yields. 
C)  There is no relationship between bond prices and bond yields. 
D)  The relationship between bond prices and bond yields is dependent on the market interest rate.

Question 8

Calculate the price of a 6.5 percent coupon bond with 17 years left to maturity and a market interest rate of 10.5%. (Assume interest rates are semiannual and par value is $1,000.) Is this a discount or premium bond?

Accepted Answer

A)  $685.93; discount 
B)  $791.03; discount 
C)  $1,051.83; premium 
D)  $1,176.31; premium 
A)  $685.93; discount 
B)  $791.03; discount 
C)  $1,051.83; premium 
D)  $1,176.31; premium

Question 9

A 4.5 percent corporate coupon bond is callable in five years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?

Accepted Answer

A)  $45 
B)  $225 
C)  $1,000 
D)  $1,045 
A)  $45 
B)  $225 
C)  $1,000 
D)  $1,045

Question 10

Consider the following bond quote: a municipal bond quoted at 101.25. If the municipal bond has a par value of $5,000, what is the price of the bond in dollars?

Accepted Answer

A)  $5,089.06 
B)  $5,050.19 
C)  $5,062.50 
D)  $5,109.75 
A)  $5,089.06 
B)  $5,050.19 
C)  $5,062.50 
D)  $5,109.75

Question 11

A 4.15 percent TIPS has an original reference CPI of 182.1. If the current CPI is 188.3, what is the par value of the TIPS?

Accepted Answer

A)  $1,034.05 
B)  $1,004.75 
C)  $1,000.00 
D)  $967.07 
A)  $1,034.05 
B)  $1,004.75 
C)  $1,000.00 
D)  $967.07

Question 12

A bond with 14 years to maturity is selling for $1,070 and has a yield to maturity of 10.06 percent. If this bond pays its coupon payments semiannually and par value is $1,000, what is the bond's annual coupon rate?

Accepted Answer

A)  5.50 percent 
B)  8.19 percent 
C)  9.57 percent 
D)  11.00 percent 
A)  5.50 percent 
B)  8.19 percent 
C)  9.57 percent 
D)  11.00 percent

Question 13

Which of the following is not a correct statement?

Accepted Answer

A)  Treasury inflation-protected securities have fixed coupon rates. 
B)  The federal government adjusts the par value of Treasury inflation-protected securities at the rate of inflation. 
C)  At maturity, an investor in Treasury inflation-protected securities receives an inflation-adjusted principal amount. 
D)  All of these choices are correct. 
A)  Treasury inflation-protected securities have fixed coupon rates. 
B)  The federal government adjusts the par value of Treasury inflation-protected securities at the rate of inflation. 
C)  At maturity, an investor in Treasury inflation-protected securities receives an inflation-adjusted principal amount. 
D)  All of these choices are correct.

Question 14

A 6.5 percent coupon bond with 12 years left to maturity can be called in four years. The call premium is one year of coupon payments. It is offered for sale at $1,190.25. What is the yield to call of the bond? (Assume interest payments are paid semiannually and par value is $1,000.)

Accepted Answer

A)  1.48 percent 
B)  2.96 percent 
C)  6.5 percent 
D)  7.23 percent 
A)  1.48 percent 
B)  2.96 percent 
C)  6.5 percent 
D)  7.23 percent

Question 15

What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4.5 percent for an investor in the 39 percent marginal tax bracket?

Accepted Answer

A)  1.76 percent 
B)  4.50 percent 
C)  7.38 percent 
D)  11.54 percent 
A)  1.76 percent 
B)  4.50 percent 
C)  7.38 percent 
D)  11.54 percent

Question 16

A 4.75 percent coupon bond with 12 years left to maturity can be called in two years. The call premium is one year of coupon payments. It is offered for sale at $1037.35. What is the yield to call of the bond? (Assume that interest payments are paid semiannually and par value is $1,000.)

Accepted Answer

A)  4.60 percent 
B)  4.68 percent 
C)  4.75 percent 
D)  5.05 percent 
A)  4.60 percent 
B)  4.68 percent 
C)  4.75 percent 
D)  5.05 percent

Question 17

If a bond is selling at par value, which of the following statements is correct?

Accepted Answer

A)  The current yield must equal the coupon rate. 
B)  The current yield must equal the yield to maturity. 
C)  Both of these statements are correct. 
D)  None of these choices are correct. 
A)  The current yield must equal the coupon rate. 
B)  The current yield must equal the yield to maturity. 
C)  Both of these statements are correct. 
D)  None of these choices are correct.

Question 18

Determine the semi-annual interest payment for the following three bonds: 2.5 percent coupon corporate bond, 3.15 percent coupon Treasury note, and a corporate zero-coupon bond maturing in 10 years. (Assume a $1,000 par value.)

Accepted Answer

A)  $2.50, $3.15, $0, respectively 
B)  $12.50, $15.75, $0, respectively 
C)  $12.50, $15.75, $100, respectively 
D)  $25.00, $31.50, $0, respectively 
A)  $2.50, $3.15, $0, respectively 
B)  $12.50, $15.75, $0, respectively 
C)  $12.50, $15.75, $100, respectively 
D)  $25.00, $31.50, $0, respectively

Question 19

Which of the following is a true statement?

Accepted Answer

A)  If interest rates fall, U.S. Treasury bonds will have decreasing values. 
B)  If interest rates fall, corporate bonds will have decreasing values. 
C)  If interest rates fall, no bonds will enjoy rising values. 
D)  If interest rates fall, all bonds will enjoy rising values. 
A)  If interest rates fall, U.S. Treasury bonds will have decreasing values. 
B)  If interest rates fall, corporate bonds will have decreasing values. 
C)  If interest rates fall, no bonds will enjoy rising values. 
D)  If interest rates fall, all bonds will enjoy rising values.

Question 20

Possible shapes for the yield curve include all of the following EXCEPT

Accepted Answer

A)  upward-sloping. 
B)  humped. 
C)  horizontal line. 
D)  vertical line. 
A)  upward-sloping. 
B)  humped. 
C)  horizontal line. 
D)  vertical line.

All of the following items would need to be included in the bond's indenture agreement EXCEPT

Which of the following terms is the chance that the bond issuer will not be able to make timely payments?

Which of these statements answers why bonds are known as fixed income securities?

Which of the following statements about interest rate risk is NOT true?

A bond issued by a corporation on October 1, 2007, is scheduled to mature on October 1, 3007. If today is October 2, 2009, what is this bond's time to maturity? (Assume annual interest payments.)

Which of the following issues Treasury Inflation Protected Securities (TIPS)?

Which of the following statements is correct?

Calculate the price of a 6.5 percent coupon bond with 17 years left to maturity and a market interest rate of 10.5%. (Assume interest rates are semiannual and par value is $1,000.) Is this a discount or premium bond?

A 4.5 percent corporate coupon bond is callable in five years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?

Consider the following bond quote: a municipal bond quoted at 101.25. If the municipal bond has a par value of $5,000, what is the price of the bond in dollars?

A 4.15 percent TIPS has an original reference CPI of 182.1. If the current CPI is 188.3, what is the par value of the TIPS?

A bond with 14 years to maturity is selling for $1,070 and has a yield to maturity of 10.06 percent. If this bond pays its coupon payments semiannually and par value is $1,000, what is the bond's annual coupon rate?

Which of the following is not a correct statement?

A 6.5 percent coupon bond with 12 years left to maturity can be called in four years. The call premium is one year of coupon payments. It is offered for sale at $1,190.25. What is the yield to call of the bond? (Assume interest payments are paid semiannually and par value is $1,000.)

What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4.5 percent for an investor in the 39 percent marginal tax bracket?

A 4.75 percent coupon bond with 12 years left to maturity can be called in two years. The call premium is one year of coupon payments. It is offered for sale at $1037.35. What is the yield to call of the bond? (Assume that interest payments are paid semiannually and par value is $1,000.)

If a bond is selling at par value, which of the following statements is correct?

Determine the semi-annual interest payment for the following three bonds: 2.5 percent coupon corporate bond, 3.15 percent coupon Treasury note, and a corporate zero-coupon bond maturing in 10 years. (Assume a $1,000 par value.)

Which of the following is a true statement?

Possible shapes for the yield curve include all of the following EXCEPT

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 7: Valuing Bonds

All of the following items would need to be included in the bond's indenture agreement EXCEPT

Which of the following terms is the chance that the bond issuer will not be able to make timely payments?

Which of these statements answers why bonds are known as fixed income securities?

Which of the following statements about interest rate risk is NOT true?

A bond issued by a corporation on October 1, 2007, is scheduled to mature on October 1, 3007. If today is October 2, 2009, what is this bond's time to maturity? (Assume annual interest payments.)

Which of the following issues Treasury Inflation Protected Securities (TIPS)?

Which of the following statements is correct?

Calculate the price of a 6.5 percent coupon bond with 17 years left to maturity and a market interest rate of 10.5%. (Assume interest rates are semiannual and par value is $1,000.) Is this a discount or premium bond?

A 4.5 percent corporate coupon bond is callable in five years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?

Consider the following bond quote: a municipal bond quoted at 101.25. If the municipal bond has a par value of $5,000, what is the price of the bond in dollars?

A 4.15 percent TIPS has an original reference CPI of 182.1. If the current CPI is 188.3, what is the par value of the TIPS?

A bond with 14 years to maturity is selling for $1,070 and has a yield to maturity of 10.06 percent. If this bond pays its coupon payments semiannually and par value is $1,000, what is the bond's annual coupon rate?

Which of the following is not a correct statement?

A 6.5 percent coupon bond with 12 years left to maturity can be called in four years. The call premium is one year of coupon payments. It is offered for sale at $1,190.25. What is the yield to call of the bond? (Assume interest payments are paid semiannually and par value is $1,000.)

What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4.5 percent for an investor in the 39 percent marginal tax bracket?

A 4.75 percent coupon bond with 12 years left to maturity can be called in two years. The call premium is one year of coupon payments. It is offered for sale at $1037.35. What is the yield to call of the bond? (Assume that interest payments are paid semiannually and par value is $1,000.)

If a bond is selling at par value, which of the following statements is correct?

Determine the semi-annual interest payment for the following three bonds: 2.5 percent coupon corporate bond, 3.15 percent coupon Treasury note, and a corporate zero-coupon bond maturing in 10 years. (Assume a $1,000 par value.)

Which of the following is a true statement?

Possible shapes for the yield curve include all of the following EXCEPT

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters