Question 1

To compensate the bondholders for getting the bond called, the issuer pays which of the following?

Accepted Answer

A)  call feature 
B)  call premium 
C)  coupon rate 
D)  original issue premium 
A)  call feature 
B)  call premium 
C)  coupon rate 
D)  original issue premium

Question 2

A 6.75 percent coupon bond with 13 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 $919.75. What is the yield to call of the bond? Assume interest payments are paid semiannually and par value is $1,000.

Accepted Answer

A)  12.14 percent 
B)  7.27 percent 
C)  14.54 percent 
D)  8.29 percent 
A)  12.14 percent 
B)  7.27 percent 
C)  14.54 percent 
D)  8.29 percent

Question 3

Consider a 4.5 percent TIPS with an issue CPI reference of 187.2. At the beginning of this year, the CPI was 199.5 and was 213.7 at the end of the year. What was the capital gain of the TIPS in dollars?

Accepted Answer

A)  $32.73 
B)  $46.92 
C)  $62.49 
D)  $75.85 
A)  $32.73 
B)  $46.92 
C)  $62.49 
D)  $75.85

Question 4

What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4 percent for an investor in the 28 percent tax bracket?

Accepted Answer

A)  2.88 percent 
B)  3.87 percent 
C)  4.51 percent 
D)  5.56 percent 
A)  2.88 percent 
B)  3.87 percent 
C)  4.51 percent 
D)  5.56 percent

Question 5

Which of the following are main issues of bonds?

Accepted Answer

A)  U.S. Treasury bonds 
B)  corporate bonds 
C)  municipal bonds 
D)  All of these choices are correct. 
A)  U.S. Treasury bonds 
B)  corporate bonds 
C)  municipal bonds 
D)  All of these choices are correct.

Question 6

Which of the following bonds carry significant risk that the issuer will not make current or future payments?

Accepted Answer

A)  credit quality risk bonds 
B)  interest rate risk bonds 
C)  liquidity rate risk bonds 
D)  junk bonds 
A)  credit quality risk bonds 
B)  interest rate risk bonds 
C)  liquidity rate risk bonds 
D)  junk bonds

Question 7

A 3.5 percent coupon municipal bond has 8 years left to maturity and has a price quote of 102.75. The bond can be called in four years. The call premium is one year of coupon payments. What is the bond's taxable equivalent yield for an investor in the 33 percent marginal tax bracket? (Assume interest payments are paid semiannually and a par value of $1,000.)

Accepted Answer

A)  2.35 percent 
B)  3.50 percent 
C)  4.64 percent 
D)  9.75 percent 
A)  2.35 percent 
B)  3.50 percent 
C)  4.64 percent 
D)  9.75 percent

Question 8

Under what conditions is a bond likely to be called?

Accepted Answer

A)  The firm is in financial duress. 
B)  The firm is planning a massive expansion and needs to raise a lot of capital. 
C)  Interest rates have significantly declined. 
D)  The firm wants to increase its debt ratio. 
A)  The firm is in financial duress. 
B)  The firm is planning a massive expansion and needs to raise a lot of capital. 
C)  Interest rates have significantly declined. 
D)  The firm wants to increase its debt ratio.

Question 9

A corporate bond with a 5.75 percent coupon has 15 years left to maturity. It has had a credit rating of BB and a yield to maturity of 6.25 percent. The firm has recently gotten more financially stable and the rating agency is upgrading the bonds to BBB. The new appropriate discount rate will be 6.00 percent. What will be the change in the bond's price in dollars? (Assume interest payments are paid semiannually and a par value of $1,000.)

Accepted Answer

A)  decrease $22.25 
B)  increase $22.25 
C)  decrease $23.72 
D)  increase $23.72 
A)  decrease $22.25 
B)  increase $22.25 
C)  decrease $23.72 
D)  increase $23.72

Question 10

An 8% coupon municipal bond has 15 years left to maturity and has a price quote of 102.0. The bond can be called in 6 years. The call premium is one year of coupon payments. Compute the bond's yield to call and determine if the bond will be called. Assume interest payments are paid semiannually and a par value of $5,000.

Accepted Answer

A)  4.31%; Yes, the bond will be called. 
B)  8.62%; Yes, the bond will be called. 
C)  8.62%; No, the bond will not be called. 
D)  11.21%; No the bond will not be called. 
A)  4.31%; Yes, the bond will be called. 
B)  8.62%; Yes, the bond will be called. 
C)  8.62%; No, the bond will not be called. 
D)  11.21%; No the bond will not be called.

Question 11

To increase the liquidity for the home mortgage market, Fannie Mae and Freddie Mac purchased home mortgages from banks and other lenders. They combined the mortgages into diversified portfolios of loans and issued

Accepted Answer

A)  trust securities. 
B)  mortgage-backed securities. 
C)  current yield securities. 
D)  treasury inflation-protected securities. 
A)  trust securities. 
B)  mortgage-backed securities. 
C)  current yield securities. 
D)  treasury inflation-protected securities.

Question 12

Rank from lowest credit risk to highest credit risk the following bonds, with the same time to maturity, by their yield to maturity: Treasury bond with yield of 5.55 percent, IBM bond with yield of 7.95 percent, Trump Casino bond with a yield of 9.15 percent and Banc Ono bond with a yield of 6.12 percent.

Accepted Answer

A)  Treasury, Trump Casino, Banc Ono, IBM 
B)  Trump Casino, IBM, Banc Ono, Treasury 
C)  Treasury, Banc Ono, IBM, Trump Casino 
D)  Trump Casino, Banc Ono, IBM, Treasury 
A)  Treasury, Trump Casino, Banc Ono, IBM 
B)  Trump Casino, IBM, Banc Ono, Treasury 
C)  Treasury, Banc Ono, IBM, Trump Casino 
D)  Trump Casino, Banc Ono, IBM, Treasury

Question 13

Which of the following statements is correct?

Accepted Answer

A)  Bonds with lower coupons have lower interest rate risk. 
B)  Long-term bonds have more interest rate risk than short-term bonds. 
C)  Short-term bonds with high coupons have high interest rate risk. 
D)  Zero-coupon bonds do not have interest rate risk. 
A)  Bonds with lower coupons have lower interest rate risk. 
B)  Long-term bonds have more interest rate risk than short-term bonds. 
C)  Short-term bonds with high coupons have high interest rate risk. 
D)  Zero-coupon bonds do not have interest rate risk.

Question 14

A 5 percent coupon bond has 10 years to maturity and could be called in two years. If the bond is called, investors will earn 6.2 percent. The call premium is one year of coupon payments. If coupon payments are made semiannually and par value is $1,000, what is the bond's yield to maturity?

Accepted Answer

A)  2.36 percent 
B)  4.72 percent 
C)  5.18 percent 
D)  6.49 percent 
A)  2.36 percent 
B)  4.72 percent 
C)  5.18 percent 
D)  6.49 percent

Question 15

A 6 percent coupon bond with 12 years left to maturity is priced to offer a 6.5 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.25 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)  $21.55 
C)  $53.48 
D)  $80.37 
A)  $25.00 
B)  $21.55 
C)  $53.48 
D)  $80.37

Question 16

What's the taxable equivalent yield on a municipal bond with a yield to maturity of 3.9 percent for an investor in the 35 percent marginal tax bracket?

Accepted Answer

A)  1.09% 
B)  3.90% 
C)  6.00% 
D)  11.14% 
A)  1.09% 
B)  3.90% 
C)  6.00% 
D)  11.14%

Question 17

Which of the following bonds will have the largest percentage increase in value if interest rates decrease by 1 percent?

Accepted Answer

A)  2-year, 5 percent coupon bond 
B)  30-year, 10 percent coupon bond 
C)  10-year, zero-coupon 
D)  30-year, zero-coupon 
A)  2-year, 5 percent coupon bond 
B)  30-year, 10 percent coupon bond 
C)  10-year, zero-coupon 
D)  30-year, zero-coupon

Question 18

A 7 percent coupon bond has 10 years to maturity and could be called in three years. If the bond is called, investors will earn 5.5 percent. The call premium is one year of coupon payments. If coupon payments are made semiannually and par value is $1,000, what is the bond's yield to maturity?

Accepted Answer

A)  2.84 percent 
B)  3.17 percent 
C)  5.38 percent 
D)  5.67 percent 
A)  2.84 percent 
B)  3.17 percent 
C)  5.38 percent 
D)  5.67 percent

Question 19

What's the current yield of a 5.75 percent coupon corporate bond quoted at a price of 103.05?

Accepted Answer

A)  5.58 percent 
B)  5.75 percent 
C)  5.93 percent 
D)  17.54 percent 
A)  5.58 percent 
B)  5.75 percent 
C)  5.93 percent 
D)  17.54 percent

Question 20

A 7.25 percent coupon bond with 25 years left to maturity is priced to offer a 7 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.15 percent. If this occurs, what would be the total return of the bond in percent? (Assume semiannual interest payments and $1,000 par value.)

Accepted Answer

A)  3.5 percent 
B)  5.3 percent 
C)  7.0 percent 
D)  7.15 percent 
A)  3.5 percent 
B)  5.3 percent 
C)  7.0 percent 
D)  7.15 percent

To compensate the bondholders for getting the bond called, the issuer pays which of the following?

A 6.75 percent coupon bond with 13 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 $919.75. What is the yield to call of the bond? Assume interest payments are paid semiannually and par value is $1,000.

Consider a 4.5 percent TIPS with an issue CPI reference of 187.2. At the beginning of this year, the CPI was 199.5 and was 213.7 at the end of the year. What was the capital gain of the TIPS in dollars?

What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4 percent for an investor in the 28 percent tax bracket?

Which of the following are main issues of bonds?

Which of the following bonds carry significant risk that the issuer will not make current or future payments?

Under what conditions is a bond likely to be called?

To increase the liquidity for the home mortgage market, Fannie Mae and Freddie Mac purchased home mortgages from banks and other lenders. They combined the mortgages into diversified portfolios of loans and issued

Which of the following statements is correct?

A 5 percent coupon bond has 10 years to maturity and could be called in two years. If the bond is called, investors will earn 6.2 percent. The call premium is one year of coupon payments. If coupon payments are made semiannually and par value is $1,000, what is the bond's yield to maturity?

What's the taxable equivalent yield on a municipal bond with a yield to maturity of 3.9 percent for an investor in the 35 percent marginal tax bracket?

Which of the following bonds will have the largest percentage increase in value if interest rates decrease by 1 percent?

A 7 percent coupon bond has 10 years to maturity and could be called in three years. If the bond is called, investors will earn 5.5 percent. The call premium is one year of coupon payments. If coupon payments are made semiannually and par value is $1,000, what is the bond's yield to maturity?

What's the current yield of a 5.75 percent coupon corporate bond quoted at a price of 103.05?

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

To compensate the bondholders for getting the bond called, the issuer pays which of the following?

A 6.75 percent coupon bond with 13 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 $919.75. What is the yield to call of the bond? Assume interest payments are paid semiannually and par value is $1,000.

Consider a 4.5 percent TIPS with an issue CPI reference of 187.2. At the beginning of this year, the CPI was 199.5 and was 213.7 at the end of the year. What was the capital gain of the TIPS in dollars?

What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4 percent for an investor in the 28 percent tax bracket?

Which of the following are main issues of bonds?

Which of the following bonds carry significant risk that the issuer will not make current or future payments?

Under what conditions is a bond likely to be called?

To increase the liquidity for the home mortgage market, Fannie Mae and Freddie Mac purchased home mortgages from banks and other lenders. They combined the mortgages into diversified portfolios of loans and issued

Which of the following statements is correct?

A 5 percent coupon bond has 10 years to maturity and could be called in two years. If the bond is called, investors will earn 6.2 percent. The call premium is one year of coupon payments. If coupon payments are made semiannually and par value is $1,000, what is the bond's yield to maturity?

What's the taxable equivalent yield on a municipal bond with a yield to maturity of 3.9 percent for an investor in the 35 percent marginal tax bracket?

Which of the following bonds will have the largest percentage increase in value if interest rates decrease by 1 percent?

A 7 percent coupon bond has 10 years to maturity and could be called in three years. If the bond is called, investors will earn 5.5 percent. The call premium is one year of coupon payments. If coupon payments are made semiannually and par value is $1,000, what is the bond's yield to maturity?

What's the current yield of a 5.75 percent coupon corporate bond quoted at a price of 103.05?

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