Question 1

$1,000 par value zero coupon bonds, ignore liquidity premiums  
-The expected two year interest rate three years from now should be _________.

Accepted Answer

A)  9.55% 
B)  11.74% 
C)  14.89% 
D)  13.73% 
A)  9.55% 
B)  11.74% 
C)  14.89% 
D)  13.73%

Question 2

Bonds issued in the currency of the issuer's country but sold in other national markets are called _____________.

Accepted Answer

A)  Eurobonds 
B)  Yankee bonds 
C)  Samurai bonds 
D)  foreign bonds 
A)  Eurobonds 
B)  Yankee bonds 
C)  Samurai bonds 
D)  foreign bonds

Question 3

You can be sure that a bond will sell at a premium to par when _________.

Accepted Answer

A)  its coupon rate is greater than its yield to maturity 
B)  its coupon rate is less than its yield to maturity 
C)  its coupon rate equal to its yield to maturity 
D)  its coupon rate is less than its conversion value 
A)  its coupon rate is greater than its yield to maturity 
B)  its coupon rate is less than its yield to maturity 
C)  its coupon rate equal to its yield to maturity 
D)  its coupon rate is less than its conversion value

Question 4

$1,000 par value zero coupon bonds, ignore liquidity premiums  
-The expected one-year interest rate one year from now should be about _________.

Accepted Answer

A)  6.00% 
B)  7.50 % 
C)  9.00% 
D)  10.00% 
A)  6.00% 
B)  7.50 % 
C)  9.00% 
D)  10.00%

Question 5

You buy a bond with a $1,000 par today for a price of $875.The bond has 6 years to maturity and makes annual coupon payments of $75 per year.You hold the bond to maturity but you do not reinvest any of your coupons.What was your effective EAR over the holding period?

Accepted Answer

A)  10.40% 
B)  9.57% 
C)  7.45% 
D)  8.78% 
A)  10.40% 
B)  9.57% 
C)  7.45% 
D)  8.78%

Question 6

If the quote for a Treasury bond is listed in the newspaper as 98:09 bid,98:13 ask,the actual price for you to purchase this bond given a $10,000 par value is _____________.

Accepted Answer

A)  $9,828.12 
B)  $9,809.38 
C)  $9,840.62 
D)  $9,813.42 
A)  $9,828.12 
B)  $9,809.38 
C)  $9,840.62 
D)  $9,813.42

Question 7

Which one of the following statements is correct?

Accepted Answer

A)  Invoice price = Flat price - Accrued Interest 
B)  Invoice price = Flat price + Accrued Interest 
C)  Flat price = Invoice price + Accrued Interest 
D)  Invoice price = Settlement price - Accrued Interest 
A)  Invoice price = Flat price - Accrued Interest 
B)  Invoice price = Flat price + Accrued Interest 
C)  Flat price = Invoice price + Accrued Interest 
D)  Invoice price = Settlement price - Accrued Interest

Question 8

The price of a bond at the beginning of a period is $980.00 and $975.00 at the end of the period.What is the holding period return if the annual coupon rate is 4.5%?

Accepted Answer

A)  4.08% 
B)  4.50% 
C)  5.10% 
D)  5.6% 
A)  4.08% 
B)  4.50% 
C)  5.10% 
D)  5.6%

Question 9

When discussing bonds,convexity relates to the _______.

Accepted Answer

A)  shape of the bond price curve with respect to interest rates 
B)  shape of the yield curve with respect to maturity 
C)  slope of the yield curve with respect to liquidity premiums 
D)  size of the bid-ask spread 
A)  shape of the bond price curve with respect to interest rates 
B)  shape of the yield curve with respect to maturity 
C)  slope of the yield curve with respect to liquidity premiums 
D)  size of the bid-ask spread

Question 10

A coupon bond pays semi-annual interest is reported as having an ask price of 117% of its $1,000 par value in the Wall Street Journal.If the last interest payment was made 2 months ago and the coupon rate is 6%,the invoice price of the bond will be _________.

Accepted Answer

A)  $1,140 
B)  $1,170 
C)  $1,180 
D)  $1,200 
A)  $1,140 
B)  $1,170 
C)  $1,180 
D)  $1,200

Question 11

A bond has a 5% coupon rate.The coupon is paid semi-annually and the last coupon was paid 35 days ago.If the bond has a par value of $1,000,what is the accrued interest?

Accepted Answer

A)  $4.81 
B)  $14.24 
C)  $25.00 
D)  $50.00 
A)  $4.81 
B)  $14.24 
C)  $25.00 
D)  $50.00

Question 12

A __________ bond is a bond where the bondholder has the right to cash in the bond before maturity at a specific price after a specific date.

Accepted Answer

A)  callable 
B)  coupon 
C)  puttable 
D)  treasury 
A)  callable 
B)  coupon 
C)  puttable 
D)  treasury

Question 13

You purchased a 5-year annual interest coupon bond one year ago.Its coupon interest rate was 6% and its par value was $1,000.At the time you purchased the bond,the yield to maturity was 4%.If you sold the bond after receiving the first interest payment and the bond's yield to maturity had changed to 3%,your annual total rate of return on holding the bond for that year would have been approximately _________.

Accepted Answer

A)  5.0% 
B)  5.5% 
C)  7.6% 
D)  8.9% 
A)  5.0% 
B)  5.5% 
C)  7.6% 
D)  8.9%

Question 14

An investor pays $989.40 for a bond.The bond has an annual coupon rate of 4.8%.What is the current yield on this bond?

Accepted Answer

A)  4.80% 
B)  4.85% 
C)  9.60% 
D)  9.70% 
A)  4.80% 
B)  4.85% 
C)  9.60% 
D)  9.70%

Question 15

A coupon bond which pays interest of $60 annually,has a par value of $1,000,matures in 5 years,and is selling today at a $75.25 discount from par value.The current yield on this bond is _________.

Accepted Answer

A)  6.00% 
B)  6.49% 
C)  6.73% 
D)  7.00% 
A)  6.00% 
B)  6.49% 
C)  6.73% 
D)  7.00%

Question 16

The price on a treasury bond is 104:21 with a yield to maturity of 3.45%.The price on a comparable maturity corporate bond is 103:11 with a yield to maturity of 4.59%.What is the approximate percentage value of the credit risk of the corporate bond?

Accepted Answer

A)  1.14% 
B)  3.45% 
C)  4.59% 
D)  8.04% 
A)  1.14% 
B)  3.45% 
C)  4.59% 
D)  8.04%

Question 17

You buy a TIPS at issue at par for $1,000.The bond has a 3% coupon.Inflation turns out to be 2%,3% and 4% over the next three years.The total annual coupon income you will receive in year three is _________.

Accepted Answer

A)  $30.00 
B)  $33.00 
C)  $32.78 
D)  $30.90 
A)  $30.00 
B)  $33.00 
C)  $32.78 
D)  $30.90

Question 18

A 6% coupon U.S.treasury note pays interest on May 31 and November 30 and is traded for settlement on August 10.The accrued interest on $100,000 face amount of this note is _________.

Accepted Answer

A)  $581.97 
B)  $1,163.93 
C)  $2,327.87 
D)  $3,000.00 
A)  $581.97 
B)  $1,163.93 
C)  $2,327.87 
D)  $3,000.00

Question 19

You buy an 8 year $1000 par value bond today that has a 6% yield and a 6% annual payment coupon.In one year promised yields have risen to 7%.Your one year holding period return was ___.

Accepted Answer

A)  0.61% 
B)  -5.39% 
C)  1.28% 
D)  -3.25% 
A)  0.61% 
B)  -5.39% 
C)  1.28% 
D)  -3.25%

Question 20

Consider two bonds,A and B.Both bonds presently are selling at their par value of $1,000.Each pay interest of $120 annually.Bond A will mature in 5 years while bond B will mature in 6 years.If the yields to maturity on the two bonds change from 12% to 14%,_________.

Accepted Answer

A)  both bonds will increase in value but bond A will increase more than bond B 
B)  both bonds will increase in value but bond B will increase more than bond A 
C)  both bonds will decrease in value but bond A will decrease more than bond B 
D)  both bonds will decrease in value but bond B will decrease more than bond A 
A)  both bonds will increase in value but bond A will increase more than bond B 
B)  both bonds will increase in value but bond B will increase more than bond A 
C)  both bonds will decrease in value but bond A will decrease more than bond B 
D)  both bonds will decrease in value but bond B will decrease more than bond A

Exam 10: Bond Prices and Yields

$1,000 par value zero coupon bonds, ignore liquidity premiums -The expected two year interest rate three years from now should be _________.

Bonds issued in the currency of the issuer's country but sold in other national markets are called _____________.

You can be sure that a bond will sell at a premium to par when _________.

$1,000 par value zero coupon bonds, ignore liquidity premiums -The expected one-year interest rate one year from now should be about _________.

You buy a bond with a $1,000 par today for a price of $875.The bond has 6 years to maturity and makes annual coupon payments of $75 per year.You hold the bond to maturity but you do not reinvest any of your coupons.What was your effective EAR over the holding period?

If the quote for a Treasury bond is listed in the newspaper as 98:09 bid,98:13 ask,the actual price for you to purchase this bond given a $10,000 par value is _____________.

Which one of the following statements is correct?

The price of a bond at the beginning of a period is $980.00 and $975.00 at the end of the period.What is the holding period return if the annual coupon rate is 4.5%?

When discussing bonds,convexity relates to the _______.

A coupon bond pays semi-annual interest is reported as having an ask price of 117% of its $1,000 par value in the Wall Street Journal.If the last interest payment was made 2 months ago and the coupon rate is 6%,the invoice price of the bond will be _________.

A bond has a 5% coupon rate.The coupon is paid semi-annually and the last coupon was paid 35 days ago.If the bond has a par value of $1,000,what is the accrued interest?

A __________ bond is a bond where the bondholder has the right to cash in the bond before maturity at a specific price after a specific date.

An investor pays $989.40 for a bond.The bond has an annual coupon rate of 4.8%.What is the current yield on this bond?

A coupon bond which pays interest of $60 annually,has a par value of $1,000,matures in 5 years,and is selling today at a $75.25 discount from par value.The current yield on this bond is _________.

The price on a treasury bond is 104:21 with a yield to maturity of 3.45%.The price on a comparable maturity corporate bond is 103:11 with a yield to maturity of 4.59%.What is the approximate percentage value of the credit risk of the corporate bond?

You buy a TIPS at issue at par for $1,000.The bond has a 3% coupon.Inflation turns out to be 2%,3% and 4% over the next three years.The total annual coupon income you will receive in year three is _________.

A 6% coupon U.S.treasury note pays interest on May 31 and November 30 and is traded for settlement on August 10.The accrued interest on $100,000 face amount of this note is _________.

You buy an 8 year $1000 par value bond today that has a 6% yield and a 6% annual payment coupon.In one year promised yields have risen to 7%.Your one year holding period return was ___.

Consider two bonds,A and B.Both bonds presently are selling at their par value of $1,000.Each pay interest of $120 annually.Bond A will mature in 5 years while bond B will mature in 6 years.If the yields to maturity on the two bonds change from 12% to 14%,_________.

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