Question 1

Which of the following bonds makes no interest payments?

Accepted Answer

A)  a bond whose coupon rate is equal to the market interest rates 
B)  a bond whose coupon rates are greater than market interest rates 
C)  a bond whose coupon rates are less than the market interest rates 
D)  zero-coupon bond 
A)  a bond whose coupon rate is equal to the market interest rates 
B)  a bond whose coupon rates are greater than market interest rates 
C)  a bond whose coupon rates are less than the market interest rates 
D)  zero-coupon bond

Question 2

A 3.75 percent TIPS has an original reference CPI of 183.9. If the current CPI is 214.7, what is the current interest payment? (Assume semiannual interest payments and a par value of $1,000.)

Accepted Answer

A)  $43.78 
B)  $37.50 
C)  $21.89 
D)  $18.75 
A)  $43.78 
B)  $37.50 
C)  $21.89 
D)  $18.75

Question 3

Which of the following terms is a comparison of market yields on securities, assuming all characteristics except maturity are the same?

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 4

Which of the following was the catalyst for the recent financial crisis?

Accepted Answer

A)  corruption in the investment banking industry 
B)  widespread layoffs due to illegal alien hiring 
C)  defaults on subprime mortgages 
D)  All of these choices are correct. 
A)  corruption in the investment banking industry 
B)  widespread layoffs due to illegal alien hiring 
C)  defaults on subprime mortgages 
D)  All of these choices are correct.

Question 5

Consider the following three bond quotes; a Treasury note quoted at 87.25, and a corporate bond quoted at 102.42, and a municipal bond quoted at 101.45. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000, what is the price of these three bonds in dollars?

Accepted Answer

A)  $872.50, $1,000, $1,000, respectively 
B)  $1,000, $1,000, $1,000, respectively 
C)  $872.50, $1,024.20, $5,072.50, respectively 
D)  $1,000, $1,024.20, $1,001.45, respectively 
A)  $872.50, $1,000, $1,000, respectively 
B)  $1,000, $1,000, $1,000, respectively 
C)  $872.50, $1,024.20, $5,072.50, respectively 
D)  $1,000, $1,024.20, $1,001.45, respectively

Question 6

Which Standard & Poor's Bond credit rating does the following description belong to?
"Currently highly vulnerable to non-payment."

Accepted Answer

A)  Highly speculative CCC 
B)  Most speculative CC 
C)  Imminent default C 
D)  Default D 
A)  Highly speculative CCC 
B)  Most speculative CC 
C)  Imminent default C 
D)  Default D

Question 7

Which of the following is a debt security whose payments originate from other loans, such as credit card debt, auto loans, and home equity loans?

Accepted Answer

A)  asset-backed securities 
B)  credit quality securities 
C)  debentures 
D)  junk bonds 
A)  asset-backed securities 
B)  credit quality securities 
C)  debentures 
D)  junk bonds

Question 8

Calculate the price of a zero-coupon bond that matures in 10 years if the market interest rate is 6 percent. (Assume semiannual compounding and $1,000 par value.)

Accepted Answer

A)  $553.68 
B)  $558.66 
C)  $940.00 
D)  $1,000.00 
A)  $553.68 
B)  $558.66 
C)  $940.00 
D)  $1,000.00

Question 9

A 5.5 percent corporate coupon bond is callable in four 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? (Assume annual interest payments.)

Accepted Answer

A)  $55 
B)  $220 
C)  $1,000 
D)  $1,055 
A)  $55 
B)  $220 
C)  $1,000 
D)  $1,055

Question 10

Which of the following are backed only by the reputation and financial stability of the corporation?

Accepted Answer

A)  debentures 
B)  unsecured bonds 
C)  Both debentures and unsecured bonds 
D)  None of these choices are correct. 
A)  debentures 
B)  unsecured bonds 
C)  Both debentures and unsecured bonds 
D)  None of these choices are correct.

Question 11

If Zeus Energy bonds are upgraded from BBB− to BBB+, which of the following statements is true?

Accepted Answer

A)  The current bond price will decrease and interest rates on new bonds issued will increase. 
B)  Interest rates required on new bonds issued will increase. 
C)  The current bond price will decrease. 
D)  The current bond price will increase and interest rates on new bonds issued will decrease. 
A)  The current bond price will decrease and interest rates on new bonds issued will increase. 
B)  Interest rates required on new bonds issued will increase. 
C)  The current bond price will decrease. 
D)  The current bond price will increase and interest rates on new bonds issued will decrease.

Question 12

Which of these statements is false?

Accepted Answer

A)  Bonds are a more important capital sources than stocks for companies and governments. 
B)  Some bonds offer high potential for rewards and, consequently, higher risk. 
C)  The bond market is larger than the stock market. 
D)  Bonds are always less risky than stocks. 
A)  Bonds are a more important capital sources than stocks for companies and governments. 
B)  Some bonds offer high potential for rewards and, consequently, higher risk. 
C)  The bond market is larger than the stock market. 
D)  Bonds are always less risky than stocks.

Question 13

What's the current yield of an 8.15 percent coupon corporate bond quoted at a price of 94.30?

Accepted Answer

A)  4.30 percent 
B)  8.01 percent 
C)  8.15 percent 
D)  8.64 percent 
A)  4.30 percent 
B)  8.01 percent 
C)  8.15 percent 
D)  8.64 percent

Question 14

Bond prices are quoted in terms of which of the following?

Accepted Answer

A)  original issue discount 
B)  percent of par value 
C)  coupon rate in dollars 
D)  market rate in dollars 
A)  original issue discount 
B)  percent of par value 
C)  coupon rate in dollars 
D)  market rate in dollars

Question 15

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

Accepted Answer

A)  The yield to maturity must be greater than the coupon rate. 
B)  The coupon rate must be greater than the yield to maturity. 
C)  The bond must have a low bond rating. 
D)  All of these choices are correct. 
A)  The yield to maturity must be greater than the coupon rate. 
B)  The coupon rate must be greater than the yield to maturity. 
C)  The bond must have a low bond rating. 
D)  All of these choices are correct.

Question 16

A client in the 35 percent marginal tax bracket is comparing a municipal bond that offers a 4.25 percent yield to maturity and a similar-risk corporate bond that offers a 5.10 percent yield. Which bond will give the client more profit after taxes?

Accepted Answer

A)  the municipal bond. 
B)  the corporate bond. 
C)  Both give the client equal profits after taxes. 
D)  There is not enough information given to determine answer. 
A)  the municipal bond. 
B)  the corporate bond. 
C)  Both give the client equal profits after taxes. 
D)  There is not enough information given to determine answer.

Question 17

Which of the following is NOT a factor that determines the coupon rate of a company's bonds?

Accepted Answer

A)  the amount of uncertainty about whether the company will be able to make all the payments. 
B)  the term of the loan. 
C)  the level of interest rates in the overall economy at the time. 
D)  All of these choices are correct. 
A)  the amount of uncertainty about whether the company will be able to make all the payments. 
B)  the term of the loan. 
C)  the level of interest rates in the overall economy at the time. 
D)  All of these choices are correct.

Question 18

A 5.125 percent TIPS has an original reference CPI of 191.8. If the current CPI is 188.3, what is the par value of the TIPS?

Accepted Answer

A)  $981.75 
B)  $1,018.60 
C)  $992.75 
D)  $1,042.95 
A)  $981.75 
B)  $1,018.60 
C)  $992.75 
D)  $1,042.95

Question 19

Junk bonds are those bonds with a credit rating of

Accepted Answer

A)  BB and lower. 
B)  B and lower. 
C)  BBB and lower. 
D)  None of these choices are correct. 
A)  BB and lower. 
B)  B and lower. 
C)  BBB and lower. 
D)  None of these choices are correct.

Question 20

A 7.5 percent coupon bond with 16 years left to maturity is offered for sale at $834.92. What yield to maturity is the bond offering? (Assume interest payments are paid semiannually and par value is $1,000.)

Accepted Answer

A)  4.77 percent 
B)  7.5 percent 
C)  9.54 percent 
D)  10.34 percent 
A)  4.77 percent 
B)  7.5 percent 
C)  9.54 percent 
D)  10.34 percent

Which of the following bonds makes no interest payments?

A 3.75 percent TIPS has an original reference CPI of 183.9. If the current CPI is 214.7, what is the current interest payment? (Assume semiannual interest payments and a par value of $1,000.)

Which of the following terms is a comparison of market yields on securities, assuming all characteristics except maturity are the same?

Which of the following was the catalyst for the recent financial crisis?

Which Standard & Poor's Bond credit rating does the following description belong to? "Currently highly vulnerable to non-payment."

Which of the following is a debt security whose payments originate from other loans, such as credit card debt, auto loans, and home equity loans?

Calculate the price of a zero-coupon bond that matures in 10 years if the market interest rate is 6 percent. (Assume semiannual compounding and $1,000 par value.)

A 5.5 percent corporate coupon bond is callable in four 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? (Assume annual interest payments.)

Which of the following are backed only by the reputation and financial stability of the corporation?

If Zeus Energy bonds are upgraded from BBB− to BBB+, which of the following statements is true?

Which of these statements is false?

What's the current yield of an 8.15 percent coupon corporate bond quoted at a price of 94.30?

Bond prices are quoted in terms of which of the following?

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

A client in the 35 percent marginal tax bracket is comparing a municipal bond that offers a 4.25 percent yield to maturity and a similar-risk corporate bond that offers a 5.10 percent yield. Which bond will give the client more profit after taxes?

Which of the following is NOT a factor that determines the coupon rate of a company's bonds?

A 5.125 percent TIPS has an original reference CPI of 191.8. If the current CPI is 188.3, what is the par value of the TIPS?

Junk bonds are those bonds with a credit rating of

A 7.5 percent coupon bond with 16 years left to maturity is offered for sale at $834.92. What yield to maturity is the bond offering? (Assume interest payments are paid semiannually and par value is $1,000.)

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

Which of the following bonds makes no interest payments?

A 3.75 percent TIPS has an original reference CPI of 183.9. If the current CPI is 214.7, what is the current interest payment? (Assume semiannual interest payments and a par value of $1,000.)

Which of the following terms is a comparison of market yields on securities, assuming all characteristics except maturity are the same?

Which of the following was the catalyst for the recent financial crisis?

Which Standard & Poor's Bond credit rating does the following description belong to? "Currently highly vulnerable to non-payment."

Which of the following is a debt security whose payments originate from other loans, such as credit card debt, auto loans, and home equity loans?

Calculate the price of a zero-coupon bond that matures in 10 years if the market interest rate is 6 percent. (Assume semiannual compounding and $1,000 par value.)

A 5.5 percent corporate coupon bond is callable in four 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? (Assume annual interest payments.)

Which of the following are backed only by the reputation and financial stability of the corporation?

If Zeus Energy bonds are upgraded from BBB− to BBB+, which of the following statements is true?

Which of these statements is false?

What's the current yield of an 8.15 percent coupon corporate bond quoted at a price of 94.30?

Bond prices are quoted in terms of which of the following?

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

A client in the 35 percent marginal tax bracket is comparing a municipal bond that offers a 4.25 percent yield to maturity and a similar-risk corporate bond that offers a 5.10 percent yield. Which bond will give the client more profit after taxes?

Which of the following is NOT a factor that determines the coupon rate of a company's bonds?

A 5.125 percent TIPS has an original reference CPI of 191.8. If the current CPI is 188.3, what is the par value of the TIPS?

Junk bonds are those bonds with a credit rating of

A 7.5 percent coupon bond with 16 years left to maturity is offered for sale at $834.92. What yield to maturity is the bond offering? (Assume interest payments are paid semiannually and par value is $1,000.)

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