Question 1

The interest rate used to compute the bond's interest payment each year refers to:

Accepted Answer

A)  Coupon rate 
B)  Par value 
C)  Bond price 
D)  None of the above 
A)  Coupon rate 
B)  Par value 
C)  Bond price 
D)  None of the above

Question 2

Which of the following terms means the chance that future interest payments will have to be reinvested at a lower interest rate?

Accepted Answer

A)  credit quality risk 
B)  interest rate risk 
C)  liquidity rate risk 
D)  reinvestment rate risk 
A)  credit quality risk 
B)  interest rate risk 
C)  liquidity rate risk 
D)  reinvestment rate risk

Question 3

Which of the following statement(s) below is true regarding asset-backed securities?

Accepted Answer

A)  Investors receive interest and principle as borrowers pay off their consumer loans. 
B)  Give the investors a choice between the par value or a specified number of shares of stock. 
C)  Is one of the fastest growing areas in the financial services sector. 
D)  Both a and c are true. 
A)  Investors receive interest and principle as borrowers pay off their consumer loans. 
B)  Give the investors a choice between the par value or a specified number of shares of stock. 
C)  Is one of the fastest growing areas in the financial services sector. 
D)  Both a and c are true.

Question 4

A 5.5 percent coupon bond with 18 years left to maturity is priced to offer a 6.25 percent yield to maturity. You believe that in one year, the yield to maturity will be 5.75 percent. What is the change in price the bond will experience in dollars? (Assume semiannual interest payments and $1,000 par value.)

Accepted Answer

A)  $25.00 
B)  $26.89 
C)  $53.48 
D)  $80.37 
A)  $25.00 
B)  $26.89 
C)  $53.48 
D)  $80.37

Question 5

Which of the following is a reason municipal bonds offer lower rates of interest income for their investors?

Accepted Answer

A)  They are able to avoid interest rate risk. 
B)  They are able to avoid reinvestment rate risk. 
C)  They are able to offer reduced credit risk as they are backed by the federal government. 
D)  They are tax exempt-at least at the federal level. 
A)  They are able to avoid interest rate risk. 
B)  They are able to avoid reinvestment rate risk. 
C)  They are able to offer reduced credit risk as they are backed by the federal government. 
D)  They are tax exempt-at least at the federal level.

Question 6

A bond with 23 years to maturity is selling for $991 and has a yield to maturity of 8.12 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)  7.45 percent 
B)  8.03 percent 
C)  9.39 percent 
D)  10.82 percent 
A)  7.45 percent 
B)  8.03 percent 
C)  9.39 percent 
D)  10.82 percent

Question 7

A 3.25 percent coupon municipal bond has 12 years left to maturity and has a price quote of 98.75. The bond can be called in five years. The call premium is one year of coupon payments. What is the bond's taxable equivalent yield for an investor in the 35 percent marginal tax bracket? (Assume interest payments are paid semiannually and a par value of $5,000.)

Accepted Answer

A)  3.38 percent 
B)  5.00 percent 
C)  5.20 percent 
D)  10.12 percent 
A)  3.38 percent 
B)  5.00 percent 
C)  5.20 percent 
D)  10.12 percent

Question 8

Which of the following is another name for junk bonds?

Accepted Answer

A)  high-risk bonds 
B)  high-price bonds 
C)  high-yield bonds 
D)  None of these choices are correct. 
A)  high-risk bonds 
B)  high-price bonds 
C)  high-yield bonds 
D)  None of these choices are correct.

Question 9

A bond's current yield is defined as

Accepted Answer

A)  the bond's annual coupon rate divided by the bond's par value. 
B)  the bond's annual coupon rate divided by the market interest rate. 
C)  the bond's annual coupon rate divided by the bond's current market price. 
D)  the bond's annual coupon rate divided by the bond's original issue price. 
A)  the bond's annual coupon rate divided by the bond's par value. 
B)  the bond's annual coupon rate divided by the market interest rate. 
C)  the bond's annual coupon rate divided by the bond's current market price. 
D)  the bond's annual coupon rate divided by the bond's original issue price.

Question 10

Calculate the price of a 6.5 percent coupon bond with 27 years left to maturity and a market interest rate of 5 percent. (Assume interest payments are semiannual and par value is $1,000.) Is this a discount or premium bond?

Accepted Answer

A)  $982.03; discount 
B)  $1,010.59; discount 
C)  $1,220.93; premium 
D)  $1,315.62; premium 
A)  $982.03; discount 
B)  $1,010.59; discount 
C)  $1,220.93; premium 
D)  $1,315.62; premium

Question 11

Compute the price of a 4.75 percent coupon bond with 15 years left to maturity and a market interest rate of 6.25 percent. (Assume interest payments are semiannual and par value is $1,000.) Is this a discount or premium bond?

Accepted Answer

A)  discount 
B)  premium 
A)  discount 
B)  premium

Question 12

Consider a 3.75 percent TIPS with an issue CPI reference of 183.5. At the beginning of this year, the CPI was 190.6 and was at 199.4 at the end of the year. What was the capital gain of the TIPS in percentage terms? (Assume semiannual interest payments and $1,000 par value.)

Accepted Answer

A)  3.75 percent 
B)  4.62 percent 
C)  7.10 percent 
D)  8.80 percent 
A)  3.75 percent 
B)  4.62 percent 
C)  7.10 percent 
D)  8.80 percent

Question 13

Which of the following statements is true?

Accepted Answer

A)  Interest payments paid to U.S. Treasury bondholders are not taxed at the federal level. 
B)  Interest payments paid to corporate bondholders are not taxed at the federal level. 
C)  Interest payments paid to corporate bondholders are not taxed at the state level. 
D)  Interest payments paid to municipal bondholders are not taxed at the federal level, or by the state for which the bond is issued. 
A)  Interest payments paid to U.S. Treasury bondholders are not taxed at the federal level. 
B)  Interest payments paid to corporate bondholders are not taxed at the federal level. 
C)  Interest payments paid to corporate bondholders are not taxed at the state level. 
D)  Interest payments paid to municipal bondholders are not taxed at the federal level, or by the state for which the bond is issued.

Question 14

The bond's annual coupon rate divided by its market price is referred to as the

Accepted Answer

A)  yield to call. 
B)  yield to maturity. 
C)  current yield. 
D)  term structure of interest rates. 
A)  yield to call. 
B)  yield to maturity. 
C)  current yield. 
D)  term structure of interest rates.

Question 15

Calculate the price of a zero-coupon bond that matures in five years if the market interest rate is 7.50 percent. (Assume semiannual compounding and $1,000 par value.)

Accepted Answer

A)  $692.04 
B)  $696.57 
C)  $962.50 
D)  $1,000.00 
A)  $692.04 
B)  $696.57 
C)  $962.50 
D)  $1,000.00

Question 16

Which of the following statements is correct?

Accepted Answer

A)  Yield spreads between bonds of different quality remain static over time. 
B)  Yield spreads are set by the Securities Exchange Commission. 
C)  Yield spreads between bonds of different quality change over time. 
D)  None of these choices are correct. 
A)  Yield spreads between bonds of different quality remain static over time. 
B)  Yield spreads are set by the Securities Exchange Commission. 
C)  Yield spreads between bonds of different quality change over time. 
D)  None of these choices are correct.

Question 17

A corporate bond with an 8.5 percent coupon has 10 years left to maturity. It has had a credit rating of A and a yield to maturity of 10 percent. The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BBB. The new appropriate discount rate will be 11.5 percent. What will be the change in the bond's price in dollars? Assume interest payments are paid semiannually and par value is $1,000.

Accepted Answer

A)  −$82.13 
B)  −$95.19 
C)  −$101.37 
D)  −$69.85 
A)  −$82.13 
B)  −$95.19 
C)  −$101.37 
D)  −$69.85

Question 18

Determine the semi-annual interest payment for the following three bonds: 4 percent coupon corporate bond, 4.75 percent coupon Treasury note, and a corporate zero-coupon bond maturing in 15 years. (Assume a $1,000 par value.)

Accepted Answer

A)  $4.00, $4.75, $0, respectively 
B)  $20.00, $23.75, $0, respectively 
C)  $20.00, $23.75, $150, respectively 
D)  $40.00, $47.50, $0, respectively 
A)  $4.00, $4.75, $0, respectively 
B)  $20.00, $23.75, $0, respectively 
C)  $20.00, $23.75, $150, respectively 
D)  $40.00, $47.50, $0, respectively

Question 19

A 2.95 percent TIPS has an original reference CPI of 180.2. If the current CPI is 205.1, what is the current interest payment and par value of the TIPS? (Assume semiannual interest payments and $1,000 par value.)

Accepted Answer

A)  $16.79, $878.60, respectively 
B)  $29.50, $1,000.00, respectively 
C)  $16.79, $1,138.18, respectively 
D)  $29.50, $1,138.18, respectively 
A)  $16.79, $878.60, respectively 
B)  $29.50, $1,000.00, respectively 
C)  $16.79, $1,138.18, respectively 
D)  $29.50, $1,138.18, respectively

Question 20

Bonds are issued by which of the following?

Accepted Answer

A)  corporations 
B)  federal government or its agencies 
C)  state and local governments 
D)  All of these choices are correct. 
A)  corporations 
B)  federal government or its agencies 
C)  state and local governments 
D)  All of these choices are correct.

The interest rate used to compute the bond's interest payment each year refers to:

Which of the following terms means the chance that future interest payments will have to be reinvested at a lower interest rate?

Which of the following statement(s) below is true regarding asset-backed securities?

Which of the following is a reason municipal bonds offer lower rates of interest income for their investors?

A bond with 23 years to maturity is selling for $991 and has a yield to maturity of 8.12 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 another name for junk bonds?

A bond's current yield is defined as

Calculate the price of a 6.5 percent coupon bond with 27 years left to maturity and a market interest rate of 5 percent. (Assume interest payments are semiannual and par value is $1,000.) Is this a discount or premium bond?

Compute the price of a 4.75 percent coupon bond with 15 years left to maturity and a market interest rate of 6.25 percent. (Assume interest payments are semiannual and par value is $1,000.) Is this a discount or premium bond?

Consider a 3.75 percent TIPS with an issue CPI reference of 183.5. At the beginning of this year, the CPI was 190.6 and was at 199.4 at the end of the year. What was the capital gain of the TIPS in percentage terms? (Assume semiannual interest payments and $1,000 par value.)

Which of the following statements is true?

The bond's annual coupon rate divided by its market price is referred to as the

Calculate the price of a zero-coupon bond that matures in five years if the market interest rate is 7.50 percent. (Assume semiannual compounding and $1,000 par value.)

Which of the following statements is correct?

Determine the semi-annual interest payment for the following three bonds: 4 percent coupon corporate bond, 4.75 percent coupon Treasury note, and a corporate zero-coupon bond maturing in 15 years. (Assume a $1,000 par value.)

A 2.95 percent TIPS has an original reference CPI of 180.2. If the current CPI is 205.1, what is the current interest payment and par value of the TIPS? (Assume semiannual interest payments and $1,000 par value.)

Bonds are issued by which of the following?

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

The interest rate used to compute the bond's interest payment each year refers to:

Which of the following terms means the chance that future interest payments will have to be reinvested at a lower interest rate?

Which of the following statement(s) below is true regarding asset-backed securities?

Which of the following is a reason municipal bonds offer lower rates of interest income for their investors?

A bond with 23 years to maturity is selling for $991 and has a yield to maturity of 8.12 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 another name for junk bonds?

A bond's current yield is defined as

Calculate the price of a 6.5 percent coupon bond with 27 years left to maturity and a market interest rate of 5 percent. (Assume interest payments are semiannual and par value is $1,000.) Is this a discount or premium bond?

Compute the price of a 4.75 percent coupon bond with 15 years left to maturity and a market interest rate of 6.25 percent. (Assume interest payments are semiannual and par value is $1,000.) Is this a discount or premium bond?

Consider a 3.75 percent TIPS with an issue CPI reference of 183.5. At the beginning of this year, the CPI was 190.6 and was at 199.4 at the end of the year. What was the capital gain of the TIPS in percentage terms? (Assume semiannual interest payments and $1,000 par value.)

Which of the following statements is true?

The bond's annual coupon rate divided by its market price is referred to as the

Calculate the price of a zero-coupon bond that matures in five years if the market interest rate is 7.50 percent. (Assume semiannual compounding and $1,000 par value.)

Which of the following statements is correct?

Determine the semi-annual interest payment for the following three bonds: 4 percent coupon corporate bond, 4.75 percent coupon Treasury note, and a corporate zero-coupon bond maturing in 15 years. (Assume a $1,000 par value.)

A 2.95 percent TIPS has an original reference CPI of 180.2. If the current CPI is 205.1, what is the current interest payment and par value of the TIPS? (Assume semiannual interest payments and $1,000 par value.)

Bonds are issued by which of the following?

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