Question 1

What is the coupon rate for a bond with 3 years until maturity, a price of $1,053.46, and a yield to maturity of 6%? Interest is paid annually.

Accepted Answer

A) 6% 
B) 8% 
C) 10% 
D) 11% 
A) 6% 
B) 8% 
C) 10% 
D) 11%

Question 2

This ______ pattern of bond price changes relative to interest rate changes is also called bond convexity.

Accepted Answer

A) asymmetric 
B) symmetric 
C) normal 
D) uniform 
A) asymmetric 
B) symmetric 
C) normal 
D) uniform

Question 3

Assume a bond is currently selling at par value.What will happen if the bond's expected cash flows are discounted at a rate lower than the bond's coupon rate?

Accepted Answer

A) The price of the bond will increase. 
B) The coupon rate of the bond will increase. 
C) The par value of the bond will decrease. 
D) The coupon payments will be adjusted to the new discount rate. 
A) The price of the bond will increase. 
B) The coupon rate of the bond will increase. 
C) The par value of the bond will decrease. 
D) The coupon payments will be adjusted to the new discount rate.

Question 4

If an investor purchases a 3%, 5-year bond at its par value of $1,000 and the CPI increases 3% over each of the next 5 years, what will be the real value of the principal at maturity?

Accepted Answer

A) $1,000.00 
B) $1,030.00 
C) $1,060.90 
D) $1,061.36 
A) $1,000.00 
B) $1,030.00 
C) $1,060.90 
D) $1,061.36

Question 5

When the market interest rate exceeds the coupon rate, bonds sell for less than face value to provide enough compensation to investors.

Accepted Answer

A) True 
 B)False

Question 6

A bond is priced at $1,100, has 10 years remaining until maturity, and has a 10% coupon, paid semiannually.What is the amount of the next interest payment?

Accepted Answer

A) $50 
B) $55 
C) $100 
D) $110 
A) $50 
B) $55 
C) $100 
D) $110

Question 7

Consider a 3-year bond with a par value of $1,000 and an 8% annual coupon.If interest rates change from 8% to 6% the bond's price will:

Accepted Answer

A) increase by $51.54. 
B) decrease by $51.54. 
C) increase by $53.46. 
D) decrease by $53.46. 
A) increase by $51.54. 
B) decrease by $51.54. 
C) increase by $53.46. 
D) decrease by $53.46.

Question 8

A bond's par value can also be called its:

Accepted Answer

A) coupon payment. 
B) present value. 
C) market value. 
D) face value. 
A) coupon payment. 
B) present value. 
C) market value. 
D) face value.

Question 9

If you purchase a 3-year, 9% annual coupon bond for $1,002.03, how much could it be sold for 2 years later if interest rates have remained stable (retain all decimal places in all intermediate steps)?

Accepted Answer

A) $999.29 
B) $1,001.74 
C) $998.97 
D) $1,000.00 
A) $999.29 
B) $1,001.74 
C) $998.97 
D) $1,000.00

Question 10

Which one of the following must be correct for a bond currently selling at a premium?

Accepted Answer

A) its coupon rate is variable. 
B) its current yield is lower than its coupon rate. 
C) its yield to maturity is higher than its coupon rate. 
D) its coupon rate is lower than the current market rate on similar bonds. 
A) its coupon rate is variable. 
B) its current yield is lower than its coupon rate. 
C) its yield to maturity is higher than its coupon rate. 
D) its coupon rate is lower than the current market rate on similar bonds.

Question 11

It is impossible for an investor to insure against the risk of bond default.

Accepted Answer

A) True 
 B)False

Question 12

How much should you be prepared to pay for a $1,000 10-year bond with an annual coupon of 6% and a yield to maturity of 7.5%?

Accepted Answer

A) $411.84 
B) $897.04 
C) $985.00 
D) $1,000.00 
A) $411.84 
B) $897.04 
C) $985.00 
D) $1,000.00

Question 13

T-bills are unlike most bonds in that their cash flows increase when the national rate of gross domestic product increases.

Accepted Answer

A) True 
 B)False

Question 14

What is the amount of the annual coupon payment for a bond that has 6 years until maturity, sells for $1,050, and has a yield to maturity of 9.37%?

Accepted Answer

A) $98.64 
B) $95.27 
C) $101.38 
D) $104.97 
A) $98.64 
B) $95.27 
C) $101.38 
D) $104.97

Question 15

The coupon rate of a bond equals:

Accepted Answer

A) its yield to maturity. 
B) a defined percentage of its face value. 
C) the yield to maturity when the bond sells at a discount. 
D) the annual interest divided by the current market price. 
A) its yield to maturity. 
B) a defined percentage of its face value. 
C) the yield to maturity when the bond sells at a discount. 
D) the annual interest divided by the current market price.

Question 16

A bond has a coupon rate of 8%, pays interest semiannually, sells for $960, and matures in 3 years.What is its yield to maturity?

Accepted Answer

A) 4.78% 
B) 5.48% 
C) 9.57% 
D) 12.17% 
A) 4.78% 
B) 5.48% 
C) 9.57% 
D) 12.17%

Question 17

When the yield curve is upward-sloping, then:

Accepted Answer

A) short-maturity bonds offer the highest coupon rates. 
B) long-maturity bonds are priced above par value. 
C) short-maturity bonds yield less than long-maturity bonds. 
D) long-maturity bonds increase in price when interest rates increase. 
A) short-maturity bonds offer the highest coupon rates. 
B) long-maturity bonds are priced above par value. 
C) short-maturity bonds yield less than long-maturity bonds. 
D) long-maturity bonds increase in price when interest rates increase.

Exam 6: Valuing Bonds

What is the coupon rate for a bond with 3 years until maturity, a price of $1,053.46, and a yield to maturity of 6%? Interest is paid annually.

This ______ pattern of bond price changes relative to interest rate changes is also called bond convexity.

Assume a bond is currently selling at par value.What will happen if the bond's expected cash flows are discounted at a rate lower than the bond's coupon rate?

If an investor purchases a 3%, 5-year bond at its par value of $1,000 and the CPI increases 3% over each of the next 5 years, what will be the real value of the principal at maturity?

When the market interest rate exceeds the coupon rate, bonds sell for less than face value to provide enough compensation to investors.

A bond is priced at $1,100, has 10 years remaining until maturity, and has a 10% coupon, paid semiannually.What is the amount of the next interest payment?

Consider a 3-year bond with a par value of $1,000 and an 8% annual coupon.If interest rates change from 8% to 6% the bond's price will:

A bond's par value can also be called its:

If you purchase a 3-year, 9% annual coupon bond for $1,002.03, how much could it be sold for 2 years later if interest rates have remained stable (retain all decimal places in all intermediate steps)?

Which one of the following must be correct for a bond currently selling at a premium?

It is impossible for an investor to insure against the risk of bond default.

How much should you be prepared to pay for a $1,000 10-year bond with an annual coupon of 6% and a yield to maturity of 7.5%?

T-bills are unlike most bonds in that their cash flows increase when the national rate of gross domestic product increases.

What is the amount of the annual coupon payment for a bond that has 6 years until maturity, sells for $1,050, and has a yield to maturity of 9.37%?

The coupon rate of a bond equals:

A bond has a coupon rate of 8%, pays interest semiannually, sells for $960, and matures in 3 years.What is its yield to maturity?

When the yield curve is upward-sloping, then:

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