Question 1

Treasury notes typically have initial maturities ranging from _____.

Accepted Answer

A)  1 to 3 years 
B)  1 to 5 years 
C)  1 to 10 years 
D)  10 to 30 years 
A)  1 to 3 years 
B)  1 to 5 years 
C)  1 to 10 years 
D)  10 to 30 years

Question 2

WXAM has an outstanding bond issue with a coupon rate of 6 1/8% and a current yield of 6.9%. The yield to maturity on this bond is 7 5/8%. What is the market price of this bond if it pays interest semi-annually and has 12 years to maturity?

Accepted Answer

A)  $883.42 
B)  $937.45 
C)  $943.65 
D)  $1,000.00 
A)  $883.42 
B)  $937.45 
C)  $943.65 
D)  $1,000.00

Question 3

Two years ago, Trans-Atlantic Airlines sold a $250 million bond issue to finance the purchase of new jet airliners. These bonds were issued in $1,000 denominations with an original maturity of 12 years and a coupon rate of 12%. Determine the value today of one of these bonds to an investor who requires a 14% rate of return on these securities.

Accepted Answer

A)  $626 
B)  $463 
C)  $897 
D)  $270 
A)  $626 
B)  $463 
C)  $897 
D)  $270

Question 4

____ bonds normally are denominated in the currency of the country of sale.

Accepted Answer

A)  Eurodollar 
B)  International 
C)  Foreign 
D)  LIBOR 
A)  Eurodollar 
B)  International 
C)  Foreign 
D)  LIBOR

Question 5

A General Electric 7½ bond closed at 98. What is the current yield?

Accepted Answer

A)  7.65% 
B)  7.81% 
C)  7.50% 
D)  7.34% 
A)  7.65% 
B)  7.81% 
C)  7.50% 
D)  7.34%

Question 6

The current required rate of return on a bond issued by Who LTD is 11 percent. "Who" has a bond issue outstanding that pays interest semiannually, is selling for $845, and matures in 8 years. What is the approximate coupon rate on the outstanding bond?

Accepted Answer

A)  4.00% 
B)  8.00% 
C)  10.68% 
D)  6.05% 
A)  4.00% 
B)  8.00% 
C)  10.68% 
D)  6.05%

Question 7

The value of a 15-year bond will change ____ for a given change in the required rate of return than will the value of a 5 year bond.

Accepted Answer

A)  more 
B)  less 
C)  the same percentage 
D)  exactly the same 
A)  more 
B)  less 
C)  the same percentage 
D)  exactly the same

Question 8

Marko needs to raise capital through a zero coupon bond debt offering. If the bonds will have 12 years to maturity and the rate of return on a bond in Marko's risk class is 11 percent, what will be the selling price of the bond?

Accepted Answer

A)  $302.50 
B)  $335.50 
C)  $269.50 
D)  $286.00 
A)  $302.50 
B)  $335.50 
C)  $269.50 
D)  $286.00

Question 9

If an Allied Chemical zero coupon bond due in 12 years is selling for $420, what is its yield to maturity?

Accepted Answer

A)  7.50% 
B)  4.64% 
C)  6.51% 
D)  5.26% 
A)  7.50% 
B)  4.64% 
C)  6.51% 
D)  5.26%

Question 10

A U.S. Government bond was quoted at 95:13 "bid" and 95:15 "asked." How much would you have to pay for one of these $1,000.00 face value bonds?

Accepted Answer

A)  $951.50 
B)  $950.13 
C)  $950.15 
D)  $954.69 
A)  $951.50 
B)  $950.13 
C)  $950.15 
D)  $954.69

Question 11

National Medical has a zero coupon bond outstanding that sells for $242.60 and has 15 years to maturity. What is the yield to maturity on the bond to the nearest tenth of one percent?

Accepted Answer

A)  10.5% 
B)  9.1% 
C)  9.9% 
D)  11.0% 
A)  10.5% 
B)  9.1% 
C)  9.9% 
D)  11.0%

Question 12

The ____ the investor's required rate of return on a bond, the ____ will be the value of the bond to the investor.

Accepted Answer

A)  lower; higher 
B)  higher; higher 
C)  lower; lower 
D)  higher; lower 
A)  lower; higher 
B)  higher; higher 
C)  lower; lower 
D)  higher; lower

Question 13

What is the value of a Northern Pacific bond with an 11 percent coupon, maturing in 15 years? Assume the market rate for this bond is 14 percent and that the interest is paid semiannually.

Accepted Answer

A)  $1,000.00 
B)  $790.74 
C)  $813.50 
D)  $853.30 
A)  $1,000.00 
B)  $790.74 
C)  $813.50 
D)  $853.30

Question 14

What is the value of an Orion bond that has a 10 percent coupon, pays interest semiannually, and has 10 years to maturity, if the required rate of return is 12 percent?

Accepted Answer

A)  $1,200.00 
B)  $885.50 
C)  $895.27 
D)  $1,000.00 
A)  $1,200.00 
B)  $885.50 
C)  $895.27 
D)  $1,000.00

Question 15

A sinking fund allows the issuer to ______.

Accepted Answer

A)  redeem an entire debt issue prior to maturity 
B)  purchase a portion of the debt each year in the open market or call a portion of the debt for mandatory redemption 
C)  call the entire debt issue 
D)  accumulate interest expenses into a sinking fund account 
A)  redeem an entire debt issue prior to maturity 
B)  purchase a portion of the debt each year in the open market or call a portion of the debt for mandatory redemption 
C)  call the entire debt issue 
D)  accumulate interest expenses into a sinking fund account

Question 16

Five years ago, the city of Baltimore sold at par a $1,000 bond with a coupon rate of 8 percent and 20 years to maturity. If this bond pays interest semiannually, what is the value of this bond to an investor who requires an 8 percent rate of return?

Accepted Answer

A)  $607.72 
B)  $692.00 
C)  $1,000.00 
D)  $1,080.00 
A)  $607.72 
B)  $692.00 
C)  $1,000.00 
D)  $1,080.00

Question 17

What is the market value of a zero coupon bond with 5 years to maturity? The bond was originally sold with a yield to maturity equal to 11 percent, but the market rate today is 9 percent.

Accepted Answer

A)  $593 
B)  $650 
C)  $621 
D)  $577 
A)  $593 
B)  $650 
C)  $621 
D)  $577

Question 18

Rank in ascending order (lowest to highest) the relative risk associated with holding the preferred stock, common stock, and bonds of a firm.

Accepted Answer

A)  preferred stock, bonds, common stock 
B)  bonds, common stock, preferred stock 
C)  common stock, preferred stock, bonds 
D)  bonds, preferred stock, common stock 
A)  preferred stock, bonds, common stock 
B)  bonds, common stock, preferred stock 
C)  common stock, preferred stock, bonds 
D)  bonds, preferred stock, common stock

Question 19

____ occurs when a firm calls a relatively high interest rate issue and replaces it with a lower interest rate issue.

Accepted Answer

A)  A call feature 
B)  A sinking fund 
C)  Bond refunding 
D)  Indenture refinancing 
A)  A call feature 
B)  A sinking fund 
C)  Bond refunding 
D)  Indenture refinancing

Question 20

At what price will Gohm have to sell a 10-year zero coupon bond that will yield 8.75% if held to maturity?

Accepted Answer

A)  $453.00 
B)  $875.00 
C)  $87.50 
D)  $432.00 
A)  $453.00 
B)  $875.00 
C)  $87.50 
D)  $432.00

Exam 7: Fixed Income Securities: Characteristics and Valuation

Treasury notes typically have initial maturities ranging from _____.

WXAM has an outstanding bond issue with a coupon rate of 6 1/8% and a current yield of 6.9%. The yield to maturity on this bond is 7 5/8%. What is the market price of this bond if it pays interest semi-annually and has 12 years to maturity?

____ bonds normally are denominated in the currency of the country of sale.

A General Electric 7½ bond closed at 98. What is the current yield?

The current required rate of return on a bond issued by Who LTD is 11 percent. "Who" has a bond issue outstanding that pays interest semiannually, is selling for $845, and matures in 8 years. What is the approximate coupon rate on the outstanding bond?

The value of a 15-year bond will change ____ for a given change in the required rate of return than will the value of a 5 year bond.

Marko needs to raise capital through a zero coupon bond debt offering. If the bonds will have 12 years to maturity and the rate of return on a bond in Marko's risk class is 11 percent, what will be the selling price of the bond?

If an Allied Chemical zero coupon bond due in 12 years is selling for $420, what is its yield to maturity?

A U.S. Government bond was quoted at 95:13 "bid" and 95:15 "asked." How much would you have to pay for one of these $1,000.00 face value bonds?

National Medical has a zero coupon bond outstanding that sells for $242.60 and has 15 years to maturity. What is the yield to maturity on the bond to the nearest tenth of one percent?

The ____ the investor's required rate of return on a bond, the ____ will be the value of the bond to the investor.

What is the value of a Northern Pacific bond with an 11 percent coupon, maturing in 15 years? Assume the market rate for this bond is 14 percent and that the interest is paid semiannually.

What is the value of an Orion bond that has a 10 percent coupon, pays interest semiannually, and has 10 years to maturity, if the required rate of return is 12 percent?

A sinking fund allows the issuer to ______.

Five years ago, the city of Baltimore sold at par a $1,000 bond with a coupon rate of 8 percent and 20 years to maturity. If this bond pays interest semiannually, what is the value of this bond to an investor who requires an 8 percent rate of return?

What is the market value of a zero coupon bond with 5 years to maturity? The bond was originally sold with a yield to maturity equal to 11 percent, but the market rate today is 9 percent.

Rank in ascending order (lowest to highest) the relative risk associated with holding the preferred stock, common stock, and bonds of a firm.

____ occurs when a firm calls a relatively high interest rate issue and replaces it with a lower interest rate issue.

At what price will Gohm have to sell a 10-year zero coupon bond that will yield 8.75% if held to maturity?

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

Continuous Compounding and Discounting

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Mutually Exclusive Investments Having Unequal Lives

Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Breakeven Analysis

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-Term Financing

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate Term Financing

Financing With Derivatives

Bond Refunding Analysis

Risk Management

International Financial Management

Corporate Restructuring

Filters

The the investor's required rate of return on a bond, the will be the value of the bond to the investor.