Question 1

The price at which a dealer will purchase a bond is referred to as the _____ price.

Accepted Answer

A) asked 
B) face 
C) call 
D) put 
E) bid 
A) asked 
B) face 
C) call 
D) put 
E) bid

Question 2

Smiley Industrial Goods has $1,000 face value bonds on the market with semiannual interest payments, 13.5 years to maturity, and a market price of $1,023.At this price, the bonds yield 6.4 percent.What must be the coupon rate on these bonds?

Accepted Answer

A) 3.33 percent 
B) 3.75 percent 
C) 7.33 percent 
D) 6.66 percent 
E) 7.50 percent 
A) 3.33 percent 
B) 3.75 percent 
C) 7.33 percent 
D) 6.66 percent 
E) 7.50 percent

Question 3

A company originally issued bonds that were rated investment grade.These bonds have now been downgraded to junk status.These bonds are referred to as:

Accepted Answer

A) called bonds. 
B) converted bonds. 
C) unprotected bonds. 
D) fallen angels. 
E) floaters. 
A) called bonds. 
B) converted bonds. 
C) unprotected bonds. 
D) fallen angels. 
E) floaters.

Question 4

The relationship between nominal returns, real returns, and inflation is referred to as the:

Accepted Answer

A) call premium. 
B) Fisher effect. 
C) conversion ratio. 
D) spread. 
E) current yield. 
A) call premium. 
B) Fisher effect. 
C) conversion ratio. 
D) spread. 
E) current yield.

Question 5

The purpose of a bond sinking fund is to:

Accepted Answer

A) accumulate funds needed to pay the tax liability on the bond proceeds. 
B) accumulate funds to pay the regular interest payments. 
C) hold the bond proceeds until the funds need disbursed. 
D) repay bonds early either through purchases or calls. 
E) repay bondholders from a trust fund if the issuer defaults. 
A) accumulate funds needed to pay the tax liability on the bond proceeds. 
B) accumulate funds to pay the regular interest payments. 
C) hold the bond proceeds until the funds need disbursed. 
D) repay bonds early either through purchases or calls. 
E) repay bondholders from a trust fund if the issuer defaults.

Question 6

If inflation is expected to steadily decrease in the future, the term structure of interest rates will most likely be:

Accepted Answer

A) upward sloping. 
B) flat. 
C) humped. 
D) downward sloping. 
E) double-humped. 
A) upward sloping. 
B) flat. 
C) humped. 
D) downward sloping. 
E) double-humped.

Question 7

What is the principal amount of a bond that is repaid at the end of the loan term called?

Accepted Answer

A) Coupon 
B) Market price 
C) Accrued price 
D) Dirty price 
E) Face value 
A) Coupon 
B) Market price 
C) Accrued price 
D) Dirty price 
E) Face value

Question 8

Which one of the following types of bonds should an investor purchase if he or she is primarily concerned about ensuring that bond ownership will increase his or her purchasing power?

Accepted Answer

A) OTC 
B) Death 
C) CAT 
D) PETS 
E) TIPS 
A) OTC 
B) Death 
C) CAT 
D) PETS 
E) TIPS

Question 9

Which statement is correct?

Accepted Answer

A) Bond markets have less daily trading volume than equity markets. 
B) There are fewer bond issues outstanding than there are equity issues. 
C) Municipal bond prices are highly transparent. 
D) Bond markets are dealer based. 
E) Most bond trades occur on the NYSE. 
A) Bond markets have less daily trading volume than equity markets. 
B) There are fewer bond issues outstanding than there are equity issues. 
C) Municipal bond prices are highly transparent. 
D) Bond markets are dealer based. 
E) Most bond trades occur on the NYSE.

Question 10

GN Supply wants to issue new 10-year, $1,000 face value bonds at par.The company currently has 6.35 percent coupon bonds on the market that sell for $983.20, make semiannual interest payments, and mature in 10 years.What coupon rate should the company set on its new bonds?

Accepted Answer

A) 6.38 percent 
B) 6.37 percent 
C) 6.50 percent 
D) 6.47 percent 
E) 6.58 percent 
A) 6.38 percent 
B) 6.37 percent 
C) 6.50 percent 
D) 6.47 percent 
E) 6.58 percent

Question 11

A 15-year, annual coupon bond is priced at $984.56.The bond has a $1,000 face value and a yield to maturity of 6.5 percent.What is the coupon rate?

Accepted Answer

A) 3.17 percent 
B) 2.50 percent 
C) 6.74 percent 
D) 6.38 percent 
E) 6.34 percent 
A) 3.17 percent 
B) 2.50 percent 
C) 6.74 percent 
D) 6.38 percent 
E) 6.34 percent

Question 12

A bond yielded a real rate of return of 3.87 percent for a time period when the inflation rate was 3.75 percent.What was the actual nominal rate of return?

Accepted Answer

A) 87.58 percent 
B) 7.62 percent 
C) 7.77 percent 
D) 8.28 percent 
E) .36 percent 
A) 87.58 percent 
B) 7.62 percent 
C) 7.77 percent 
D) 8.28 percent 
E) .36 percent

Question 13

A U.S.Treasury bond pays 2.80 percent interest.You are in the 27 percent marginal tax bracket.What is your after tax yield on this bond?

Accepted Answer

A) 2.89 percent 
B) 2.14 percent 
C) 2.04 percent 
D) 1.97 percent 
E) 2.22 percent 
A) 2.89 percent 
B) 2.14 percent 
C) 2.04 percent 
D) 1.97 percent 
E) 2.22 percent

Question 14

A bond has a coupon rate of 5.65 percent, a face value of $1,000, semiannual payments, and sells at par.The current yield is _____ percent and the effective annual yield is _____ percent.

Accepted Answer

A) 5.73; 5.81 
B) 5.73; 5.65 
C) 5.73; 5.73 
D) 5.65; 5.73 
E) 5.65; 5.81 
A) 5.73; 5.81 
B) 5.73; 5.65 
C) 5.73; 5.73 
D) 5.65; 5.73 
E) 5.65; 5.81

Question 15

The price at which an investor can purchase in the bond market is called the _____ price.

Accepted Answer

A) asked 
B) coupon 
C) call 
D) face 
E) bid 
A) asked 
B) coupon 
C) call 
D) face 
E) bid

Question 16

Which one of the following bonds is the most sensitive to changes in market interest rates?

Accepted Answer

A) 5-year, zero coupon 
B) 5-year, 5 percent coupon 
C) 5-year, 8 percent coupon 
D) 10-year, zero coupon 
E) 10-year, 5 percent coupon 
A) 5-year, zero coupon 
B) 5-year, 5 percent coupon 
C) 5-year, 8 percent coupon 
D) 10-year, zero coupon 
E) 10-year, 5 percent coupon

Question 17

Which one of the following is the quoted price of a bond?

Accepted Answer

A) Par value 
B) Discount price 
C) Face value 
D) Dirty price 
E) Clean price 
A) Par value 
B) Discount price 
C) Face value 
D) Dirty price 
E) Clean price

Question 18

Whitts BBQ would like to issue some 10-year, semiannual coupon bonds at par.Comparable bonds have a current yield of 9.16 percent, an effective annual yield of 9.68 percent, and a yield to maturity of 9.50 percent.What coupon rate should Whitts BBQ set on its bonds?

Accepted Answer

A) 9.00 percent 
B) 9.16 percent 
C) 9.50 percent 
D) 9.68 percent 
E) 10.00 percent 
A) 9.00 percent 
B) 9.16 percent 
C) 9.50 percent 
D) 9.68 percent 
E) 10.00 percent

Question 19

Jeffries, Inc., has semiannual, 6 percent coupon bonds on the market that currently have 11 years left to maturity.If the market rate of return for this bond is 7.13 percent three years from now, what will be the bond's clean price at that time?

Accepted Answer

A) $925.88 
B) $932.00 
C) $903.14 
D) $921.42 
E) $933.33 
A) $925.88 
B) $932.00 
C) $903.14 
D) $921.42 
E) $933.33

Question 20

Last year, Forest Products issued both 5-year and 10-year bonds at par.The bonds each have a coupon rate of 5.5 percent, paid semiannually, and a face value of $1,000.Assume the yield to maturity on each of these bonds is now 7.4 percent.What is the percentage change in the price of the 5-year bond since it was issued? The 10-year bond?

Accepted Answer

A) -3.39; -6.08 
B) -6.08; -6.33 
C) -6.48; -12.33 
D) -6.48; -10.87 
E) -3.39; -5.77 
A) -3.39; -6.08 
B) -6.08; -6.33 
C) -6.48; -12.33 
D) -6.48; -10.87 
E) -3.39; -5.77

The price at which a dealer will purchase a bond is referred to as the _____ price.

Smiley Industrial Goods has $1,000 face value bonds on the market with semiannual interest payments, 13.5 years to maturity, and a market price of $1,023.At this price, the bonds yield 6.4 percent.What must be the coupon rate on these bonds?

A company originally issued bonds that were rated investment grade.These bonds have now been downgraded to junk status.These bonds are referred to as:

The relationship between nominal returns, real returns, and inflation is referred to as the:

The purpose of a bond sinking fund is to:

If inflation is expected to steadily decrease in the future, the term structure of interest rates will most likely be:

What is the principal amount of a bond that is repaid at the end of the loan term called?

Which one of the following types of bonds should an investor purchase if he or she is primarily concerned about ensuring that bond ownership will increase his or her purchasing power?

Which statement is correct?

GN Supply wants to issue new 10-year, $1,000 face value bonds at par.The company currently has 6.35 percent coupon bonds on the market that sell for $983.20, make semiannual interest payments, and mature in 10 years.What coupon rate should the company set on its new bonds?

A 15-year, annual coupon bond is priced at $984.56.The bond has a $1,000 face value and a yield to maturity of 6.5 percent.What is the coupon rate?

A bond yielded a real rate of return of 3.87 percent for a time period when the inflation rate was 3.75 percent.What was the actual nominal rate of return?

A U.S.Treasury bond pays 2.80 percent interest.You are in the 27 percent marginal tax bracket.What is your after tax yield on this bond?

A bond has a coupon rate of 5.65 percent, a face value of $1,000, semiannual payments, and sells at par.The current yield is _ percent and the effective annual yield is _ percent.

The price at which an investor can purchase in the bond market is called the _____ price.

Which one of the following bonds is the most sensitive to changes in market interest rates?

Which one of the following is the quoted price of a bond?

Whitts BBQ would like to issue some 10-year, semiannual coupon bonds at par.Comparable bonds have a current yield of 9.16 percent, an effective annual yield of 9.68 percent, and a yield to maturity of 9.50 percent.What coupon rate should Whitts BBQ set on its bonds?

Jeffries, Inc., has semiannual, 6 percent coupon bonds on the market that currently have 11 years left to maturity.If the market rate of return for this bond is 7.13 percent three years from now, what will be the bond's clean price at that time?

Introduction to Financial Management

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Equity Markets and Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Some Lessons From Capital Market History

Risk and Return

Cost of Capital

Leverage and Capital Structure

Dividends and Dividend Policy

Raising Capital

Short-Term Financial Planning

Working Capital Management

International Aspects of Financial Management

Filters

Exam 6: Interest Rates and Bond Valuation

The price at which a dealer will purchase a bond is referred to as the _____ price.

Smiley Industrial Goods has $1,000 face value bonds on the market with semiannual interest payments, 13.5 years to maturity, and a market price of $1,023.At this price, the bonds yield 6.4 percent.What must be the coupon rate on these bonds?

A company originally issued bonds that were rated investment grade.These bonds have now been downgraded to junk status.These bonds are referred to as:

The relationship between nominal returns, real returns, and inflation is referred to as the:

The purpose of a bond sinking fund is to:

If inflation is expected to steadily decrease in the future, the term structure of interest rates will most likely be:

What is the principal amount of a bond that is repaid at the end of the loan term called?

Which one of the following types of bonds should an investor purchase if he or she is primarily concerned about ensuring that bond ownership will increase his or her purchasing power?

Which statement is correct?

GN Supply wants to issue new 10-year, $1,000 face value bonds at par.The company currently has 6.35 percent coupon bonds on the market that sell for $983.20, make semiannual interest payments, and mature in 10 years.What coupon rate should the company set on its new bonds?

A 15-year, annual coupon bond is priced at $984.56.The bond has a $1,000 face value and a yield to maturity of 6.5 percent.What is the coupon rate?

A bond yielded a real rate of return of 3.87 percent for a time period when the inflation rate was 3.75 percent.What was the actual nominal rate of return?

A U.S.Treasury bond pays 2.80 percent interest.You are in the 27 percent marginal tax bracket.What is your after tax yield on this bond?

A bond has a coupon rate of 5.65 percent, a face value of $1,000, semiannual payments, and sells at par.The current yield is _____ percent and the effective annual yield is _____ percent.

The price at which an investor can purchase in the bond market is called the _____ price.

Which one of the following bonds is the most sensitive to changes in market interest rates?

Which one of the following is the quoted price of a bond?

Whitts BBQ would like to issue some 10-year, semiannual coupon bonds at par.Comparable bonds have a current yield of 9.16 percent, an effective annual yield of 9.68 percent, and a yield to maturity of 9.50 percent.What coupon rate should Whitts BBQ set on its bonds?

Jeffries, Inc., has semiannual, 6 percent coupon bonds on the market that currently have 11 years left to maturity.If the market rate of return for this bond is 7.13 percent three years from now, what will be the bond's clean price at that time?

Introduction to Financial Management

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Equity Markets and Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Some Lessons From Capital Market History

Risk and Return

Cost of Capital

Leverage and Capital Structure

Dividends and Dividend Policy

Raising Capital

Short-Term Financial Planning

Working Capital Management

International Aspects of Financial Management

Filters

A bond has a coupon rate of 5.65 percent, a face value of $1,000, semiannual payments, and sells at par.The current yield is _ percent and the effective annual yield is _ percent.