Question 1

Investors who buy which type of bond will be guaranteed a capital loss if they hold the bond to maturity?

Accepted Answer

A) discount bond 
B) premium bond 
C) zero-coupon bond 
D) junk bond 
A) discount bond 
B) premium bond 
C) zero-coupon bond 
D) junk bond

Question 2

Investors who purchase bonds having lower credit ratings should expect:

Accepted Answer

A) lower yields to maturity. 
B) higher default possibilities. 
C) lower coupon payments. 
D) higher purchase prices. 
A) lower yields to maturity. 
B) higher default possibilities. 
C) lower coupon payments. 
D) higher purchase prices.

Question 3

By how much will a bond increase in price over the next year if it currently sells for $925.16, has 5 years until maturity, and an annual coupon rate of 7%? (Do not round intermediate calculations.)

Accepted Answer

A) $8.26 
B) $8.92 
C) $12.53 
D) $11.98 
A) $8.26 
B) $8.92 
C) $12.53 
D) $11.98

Question 4

Asked yields can be guaranteed only to investors who buy a bond and hold it until maturity.

Accepted Answer

A) True 
 B)False

Question 5

This asymmetric pattern of bond price changes relative to interest rate changes is also called bond?

Accepted Answer

A) Convexity 
B) Concavity 
C) Skewness 
D) Abnormal 
A) Convexity 
B) Concavity 
C) Skewness 
D) Abnormal

Question 6

How much does the $1,000 to be received upon a bond's maturity in 4 years add to the bond's price if the appropriate discount rate is 6%?

Accepted Answer

A) $209.91 
B) $260.00 
C) $760.00 
D) $792.09 
A) $209.91 
B) $260.00 
C) $760.00 
D) $792.09

Question 7

The current yield tends to understate a bond's total return when the bond sells for a discount because:

Accepted Answer

A) increases in interest rates will increase the current yield. 
B) the bond's price will increase each year. 
C) current yields show only nominal returns. 
D) the bond may have a higher face value. 
A) increases in interest rates will increase the current yield. 
B) the bond's price will increase each year. 
C) current yields show only nominal returns. 
D) the bond may have a higher face value.

Question 8

If the coupon rate on an outstanding bond is lower than the relevant current interest rate, then the yield to maturity will be:

Accepted Answer

A) lower than current interest rates. 
B) equal to the coupon rate. 
C) higher than the coupon rate. 
D) lower than the coupon rate. 
A) lower than current interest rates. 
B) equal to the coupon rate. 
C) higher than the coupon rate. 
D) lower than the coupon rate.

Question 9

The existence of an upward-sloping yield curve suggests that:

Accepted Answer

A) bonds should be selling at a discount to par value. 
B) bonds will not return as much as common stocks. 
C) interest rates will be increasing in the future. 
D) real interest rates will be increasing soon. 
A) bonds should be selling at a discount to par value. 
B) bonds will not return as much as common stocks. 
C) interest rates will be increasing in the future. 
D) real interest rates will be increasing soon.

Question 10

Assume a bond has been owned by four different investors during its 20-year history.Which one of the following is most apt to have been different for each of these owners?

Accepted Answer

A) Coupon rate 
B) Coupon frequency 
C) Par value 
D) Yield to maturity 
A) Coupon rate 
B) Coupon frequency 
C) Par value 
D) Yield to maturity

Question 11

Current yield overstates the return of premium bonds since investors who buy a bond at a premium face a capital loss over the life of the bond.

Accepted Answer

A) True 
 B)False

Question 12

Even when the yield curve is upward-sloping, investors might rationally stay away from long-term bonds.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following would not be associated with a zero-coupon bond?

Accepted Answer

A) yield to maturity 
B) discount bond 
C) current yield 
D) interest-rate risk 
A) yield to maturity 
B) discount bond 
C) current yield 
D) interest-rate risk

Question 14

Periodic receipts of interest by the bondholder are known as:

Accepted Answer

A) the coupon rate. 
B) a zero-coupon. 
C) coupon payments. 
D) the default premium. 
A) the coupon rate. 
B) a zero-coupon. 
C) coupon payments. 
D) the default premium.

Question 15

Which of the following statements is correct for a 10% coupon bond that has a current yield of 7%?

Accepted Answer

A) the face value of the bond has decreased. 
B) the bond's maturity value exceeds the bond's price. 
C) the bond's internal rate of return is 7%. 
D) the bond's maturity value is lower than the bond's price. 
A) the face value of the bond has decreased. 
B) the bond's maturity value exceeds the bond's price. 
C) the bond's internal rate of return is 7%. 
D) the bond's maturity value is lower than the bond's price.

Question 16

What is the yield to maturity for a bond paying $100 annually that has 6 years until maturity and sells for $1,000?

Accepted Answer

A) 6.0% 
B) 8.5% 
C) 10.0% 
D) 12.5% 
A) 6.0% 
B) 8.5% 
C) 10.0% 
D) 12.5%

Question 17

When comparing a highly liquid bond with a comparable but less liquid bond, the highly liquid bond is most apt to have:

Accepted Answer

A) a lower yield. 
B) a shorter maturity. 
C) a higher yield. 
D) a longer maturity. 
A) a lower yield. 
B) a shorter maturity. 
C) a higher yield. 
D) a longer maturity.

Question 18

Which one of the following is most apt to be correct for a CCC-rated bond, compared to a BBB-rated bond?

Accepted Answer

A) the CCC bond will have a variable-coupon rate. 
B) the CCC bond will have a shorter term. 
C) the CCC bond will offer a higher promised yield to maturity. 
D) the CCC bond will have a higher price for the same term. 
A) the CCC bond will have a variable-coupon rate. 
B) the CCC bond will have a shorter term. 
C) the CCC bond will offer a higher promised yield to maturity. 
D) the CCC bond will have a higher price for the same term.

Question 19

What happens to the coupon rate of a $1,000 face value bond that pays $80 annually in interest if market interest rates change from 9% to 10%?

Accepted Answer

A) the coupon rate increases to 10%. 
B) the coupon rate remains at 9%. 
C) the coupon rate remains at 8%. 
D) the coupon rate decreases to 8%. 
A) the coupon rate increases to 10%. 
B) the coupon rate remains at 9%. 
C) the coupon rate remains at 8%. 
D) the coupon rate decreases to 8%.

Question 20

Which one of the following is correct concerning real interest rates?

Accepted Answer

A) real interest rates are constant. 
B) real interest rates must be positive. 
C) real interest rates must be less than nominal interest rates. 
D) real interest rates, if positive, increase purchasing power over time. 
A) real interest rates are constant. 
B) real interest rates must be positive. 
C) real interest rates must be less than nominal interest rates. 
D) real interest rates, if positive, increase purchasing power over time.

Exam 6: Valuing Bonds

Investors who buy which type of bond will be guaranteed a capital loss if they hold the bond to maturity?

Investors who purchase bonds having lower credit ratings should expect:

By how much will a bond increase in price over the next year if it currently sells for $925.16, has 5 years until maturity, and an annual coupon rate of 7%? (Do not round intermediate calculations.)

Asked yields can be guaranteed only to investors who buy a bond and hold it until maturity.

This asymmetric pattern of bond price changes relative to interest rate changes is also called bond?

How much does the $1,000 to be received upon a bond's maturity in 4 years add to the bond's price if the appropriate discount rate is 6%?

The current yield tends to understate a bond's total return when the bond sells for a discount because:

If the coupon rate on an outstanding bond is lower than the relevant current interest rate, then the yield to maturity will be:

The existence of an upward-sloping yield curve suggests that:

Assume a bond has been owned by four different investors during its 20-year history.Which one of the following is most apt to have been different for each of these owners?

Current yield overstates the return of premium bonds since investors who buy a bond at a premium face a capital loss over the life of the bond.

Even when the yield curve is upward-sloping, investors might rationally stay away from long-term bonds.

Which of the following would not be associated with a zero-coupon bond?

Periodic receipts of interest by the bondholder are known as:

Which of the following statements is correct for a 10% coupon bond that has a current yield of 7%?

What is the yield to maturity for a bond paying $100 annually that has 6 years until maturity and sells for $1,000?

When comparing a highly liquid bond with a comparable but less liquid bond, the highly liquid bond is most apt to have:

Which one of the following is most apt to be correct for a CCC-rated bond, compared to a BBB-rated bond?

What happens to the coupon rate of a $1,000 face value bond that pays $80 annually in interest if market interest rates change from 9% to 10%?

Which one of the following is correct concerning real interest rates?

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