Question 1

How much should you be prepared to pay for a $1,000 10-year bond with a 6% coupon, semiannual payments, and a yield of 7.5%, compounded semiannually?

Accepted Answer

A) $895.78 
B) $897.04 
C) $938.40 
D) $1,312.66 
A) $895.78 
B) $897.04 
C) $938.40 
D) $1,312.66

Question 2

What is the current yield of a bond with a 6% coupon, 4 years until maturity, and a price quote of 84?

Accepted Answer

A) 6.00% 
B) 11.18% 
C) 5.04% 
D) 6.38% 
A) 6.00% 
B) 11.18% 
C) 5.04% 
D) 6.38%

Question 3

If a bond offers an investor 11% in nominal return during a year in which the rate of inflation is 4%, then the investor's real return is:

Accepted Answer

A) 6.73%. 
B) 6.31%. 
C) 15.44%. 
D) 10.56%. 
A) 6.73%. 
B) 6.31%. 
C) 15.44%. 
D) 10.56%.

Question 4

A bond's payment at maturity is referred to as its face value.

Accepted Answer

A) True 
 B)False

Question 5

How much should you pay for a $1,000 bond with 10% coupon, annual payments, and 5 years to maturity if the interest rate is 12%?

Accepted Answer

A) $927.90 
B) $981.40 
C) $1,000.00 
D) $1,075.82 
A) $927.90 
B) $981.40 
C) $1,000.00 
D) $1,075.82

Question 6

A long-term investor would more likely be interested in a bond's current yield rather than its yield to maturity.

Accepted Answer

A) True 
 B)False

Question 7

Rosita purchased a bond for $989 that had a 7% coupon and semiannual interest payments.She sold the bond after 6 months and earned a total return of 4.8% on this investment.At what price, did she sell the bond?

Accepted Answer

A) $1,001.47 
B) $974.28 
C) $981.06 
D) $1,003.18 
A) $1,001.47 
B) $974.28 
C) $981.06 
D) $1,003.18

Question 8

Many investors may be drawn to bonds with capital gains only because:

Accepted Answer

A) no taxation on capital gains. 
B) high coupon payments. 
C) long periods until maturity. 
D) reduced taxation on capital gains. 
A) no taxation on capital gains. 
B) high coupon payments. 
C) long periods until maturity. 
D) reduced taxation on capital gains.

Question 9

What happens to a discount bond as the time to maturity decreases?

Accepted Answer

A) the coupon rate increases. 
B) the bond price increases. 
C) the coupon rate decreases. 
D) the bond price decreases. 
A) the coupon rate increases. 
B) the bond price increases. 
C) the coupon rate decreases. 
D) the bond price decreases.

Question 10

Which one of these is included in the yield of a bond with a low credit rating but not included in a Canadian Treasury bond yield? Assume both bonds are selling at a premium.

Accepted Answer

A) real rate of return 
B) inflation premium 
C) default premium 
D) loss of premium 
A) real rate of return 
B) inflation premium 
C) default premium 
D) loss of premium

Question 11

Bond ratings measure a bond's credit risk.

Accepted Answer

A) True 
 B)False

Question 12

You purchased a 6% annual coupon bond at par and sold it one year later for $1,015.16.What was your rate of return on this investment if the face value at maturity was $1,000?

Accepted Answer

A) 4.48% 
B) 6.15% 
C) 7.52% 
D) 6.07% 
A) 4.48% 
B) 6.15% 
C) 7.52% 
D) 6.07%

Question 13

When an investor purchases a $1,000 par value bond that was quoted at 97.162, the investor:

Accepted Answer

A) receives 97.162% of the stated coupon payments. 
B) receives $971.62 upon the maturity date of the bond. 
C) pays 97.162% of face value for the bond. 
D) pays $10,971.62 for a $10,000 face value bond. 
A) receives 97.162% of the stated coupon payments. 
B) receives $971.62 upon the maturity date of the bond. 
C) pays 97.162% of face value for the bond. 
D) pays $10,971.62 for a $10,000 face value bond.

Question 14

An investor buys a 10-year $1,000, 7% coupon bond for $1,050, holds it for 1 year, and then sells it for $1,040.What was the investor's rate of return?

Accepted Answer

A) 5.71% 
B) 6.00% 
C) 6.67% 
D) 7.00% 
A) 5.71% 
B) 6.00% 
C) 6.67% 
D) 7.00%

Question 15

What price will be paid for a Canadian Treasury bond with an ask price of 135.4062 if the face value is $100,000?

Accepted Answer

A) $100,135.41 
B) $135,000.41 
C) $136,269.38 
D) $135,406.20 
A) $100,135.41 
B) $135,000.41 
C) $136,269.38 
D) $135,406.20

Question 16

Which one of the following is fixed for the life of a given bond?

Accepted Answer

A) current price 
B) current yield 
C) yield to maturity 
D) coupon rate 
A) current price 
B) current yield 
C) yield to maturity 
D) coupon rate

Question 17

When market interest rates exceed a bond's coupon rate, the bond will:

Accepted Answer

A) sell for less than par value. 
B) sell for more than par value. 
C) decrease its coupon rate. 
D) increase its coupon rate. 
A) sell for less than par value. 
B) sell for more than par value. 
C) decrease its coupon rate. 
D) increase its coupon rate.

Question 18

Zero-coupon bonds are issued at prices below face value, and the investor's return comes from the difference between the purchase price and the payment of face value at maturity.

Accepted Answer

A) True 
 B)False

Question 19

Bonds that have a Standard & Poor's rating of BBB or better are considered to be investment-grade bonds.

Accepted Answer

A) True 
 B)False

Question 20

The current yield measures the bond's total rate of return.

Accepted Answer

A) True 
 B)False

Exam 6: Valuing Bonds

How much should you be prepared to pay for a $1,000 10-year bond with a 6% coupon, semiannual payments, and a yield of 7.5%, compounded semiannually?

What is the current yield of a bond with a 6% coupon, 4 years until maturity, and a price quote of 84?

If a bond offers an investor 11% in nominal return during a year in which the rate of inflation is 4%, then the investor's real return is:

A bond's payment at maturity is referred to as its face value.

How much should you pay for a $1,000 bond with 10% coupon, annual payments, and 5 years to maturity if the interest rate is 12%?

A long-term investor would more likely be interested in a bond's current yield rather than its yield to maturity.

Rosita purchased a bond for $989 that had a 7% coupon and semiannual interest payments.She sold the bond after 6 months and earned a total return of 4.8% on this investment.At what price, did she sell the bond?

Many investors may be drawn to bonds with capital gains only because:

What happens to a discount bond as the time to maturity decreases?

Which one of these is included in the yield of a bond with a low credit rating but not included in a Canadian Treasury bond yield? Assume both bonds are selling at a premium.

Bond ratings measure a bond's credit risk.

You purchased a 6% annual coupon bond at par and sold it one year later for $1,015.16.What was your rate of return on this investment if the face value at maturity was $1,000?

When an investor purchases a $1,000 par value bond that was quoted at 97.162, the investor:

An investor buys a 10-year $1,000, 7% coupon bond for $1,050, holds it for 1 year, and then sells it for $1,040.What was the investor's rate of return?

What price will be paid for a Canadian Treasury bond with an ask price of 135.4062 if the face value is $100,000?

Which one of the following is fixed for the life of a given bond?

When market interest rates exceed a bond's coupon rate, the bond will:

Zero-coupon bonds are issued at prices below face value, and the investor's return comes from the difference between the purchase price and the payment of face value at maturity.

Bonds that have a Standard & Poor's rating of BBB or better are considered to be investment-grade bonds.

The current yield measures the bond's total rate of return.

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters