Question 1

The yield-to-maturity of a bond with a finite maturity date is a function of all of the following variables except:

Accepted Answer

A) the current price 
B) the required rate of return on the bond 
C) the uniform annual interest payments 
D) the maturity value 
A) the current price 
B) the required rate of return on the bond 
C) the uniform annual interest payments 
D) the maturity value

Question 2

What is the value of a PacTen bond with a 10 percent coupon that matures in 15 years? Assume the current market rate for this bond is 16 percent and that interest is paid semiannually.

Accepted Answer

A) $661.90 
B) $1,227.78 
C) $1,000 
D) $875.51 
A) $661.90 
B) $1,227.78 
C) $1,000 
D) $875.51

Question 3

There are various types of government debt securities.Which of the following is considered a long term government debt instrument?

Accepted Answer

A) Treasury bills 
B) Treasury notes 
C) Commercial paper 
D) Debentures 
A) Treasury bills 
B) Treasury notes 
C) Commercial paper 
D) Debentures

Question 4

Which of the following is/are correct regarding the maturity date on securities?

Accepted Answer

A) I only 
B) II only 
C) Both I and II 
D) Neither I nor II 
A) I only 
B) II only 
C) Both I and II 
D) Neither I nor II

Question 5

Which of the following is NOT one of the many differences between long-term debt and preferred stock?

Accepted Answer

A) Long-term debt pays interest which is tax-deductible to the borrower. 
B) Preferred stockholders are paid before bondholders if the company bankrupts. 
C) Preferred stockholders are considered non-voting owners of the company. 
D) The firm is not legally required to pay preferred stock dividends, but must pay interest to bondholders. 
A) Long-term debt pays interest which is tax-deductible to the borrower. 
B) Preferred stockholders are paid before bondholders if the company bankrupts. 
C) Preferred stockholders are considered non-voting owners of the company. 
D) The firm is not legally required to pay preferred stock dividends, but must pay interest to bondholders.

Question 6

When an investor is trying to find the market value of an asset, he/she is trying to determine:

Accepted Answer

A) the exchange rate 
B) the par value 
C) the interest payment 
D) the market price 
A) the exchange rate 
B) the par value 
C) the interest payment 
D) the market price

Question 7

Penny Pincher Discount Grocers has issued a bond with a coupon rate of 11%. It recently closed at a price of $1023.75. What is the bond's current yield?

Accepted Answer

A) 10.75% 
B) 3.25%% 
C) 12.8% 
D) 8.9% 
A) 10.75% 
B) 3.25%% 
C) 12.8% 
D) 8.9%

Question 8

The basic relationship in bond valuation is for a given percentage point change in the required rate of return, the the time to maturity, the the change in value.

Accepted Answer

A) shorter, greater 
B) longer, smaller 
C) longer, greater 
D) shorter, smaller 
A) shorter, greater 
B) longer, smaller 
C) longer, greater 
D) shorter, smaller

Question 9

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 
B) $790.74 
C) $813.50 
D) $853.30 
A) $1,000 
B) $790.74 
C) $813.50 
D) $853.30

Question 10

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 11

Which of the following types of debt securities protect investors against interest rate risk?

Accepted Answer

A) floating rate bonds 
B) extendible notes 
C) original issue deep discount bonds 
D) floating rate bonds and extendible notes 
A) floating rate bonds 
B) extendible notes 
C) original issue deep discount bonds 
D) floating rate bonds and extendible notes

Question 12

UOP, a petroleum processing technology firm, issued a 10% coupon, 20 year to maturity first mortgage bond five years ago.If the current market rate of debt for UOP is 8%, at what price should this bond sell, to the nearest dollar? Assume a par value of $1,000, and pays interest semi-annually.

Accepted Answer

A) $1,170. 
B) $999 
C) $1,095 
D) $1,173 
A) $1,170. 
B) $999 
C) $1,095 
D) $1,173

Question 13

Foreign bonds have all of the following characteristics EXCEPT:

Accepted Answer

A) They are underwritten by an investment banking syndicate. 
B) They are denominated in the currency of the country of sale. 
C) They are denominated in euros. 
D) The bond issuer is from a country other than the country in which the bonds are being issued. 
A) They are underwritten by an investment banking syndicate. 
B) They are denominated in the currency of the country of sale. 
C) They are denominated in euros. 
D) The bond issuer is from a country other than the country in which the bonds are being issued.

Question 14

Mighty Mollusk, Inc.issued a 30-year bond which is callable in 8 years.It has a coupon rate of 5.5% payable semi-annually, a yield to maturity of 8% and a call premium of one year's interest.What is the yield to call?

Accepted Answer

A) 6.75% 
B) 13,67% 
C) 4.82% 
D) 11.42% 
A) 6.75% 
B) 13,67% 
C) 4.82% 
D) 11.42%

Question 15

CUP Company 8% bonds are currently selling for $950.These bonds (par value of $1,000) mature in one year and pay interest annually.Determine the yield to maturity (to the nearest tenth of 1 percent) on this bond issue.

Accepted Answer

A) 13.7% 
B) 13.0% 
C) 13.3% 
D) 5.0% 
A) 13.7% 
B) 13.0% 
C) 13.3% 
D) 5.0%

Question 16

Equipment trust certificates are used mainly by

Accepted Answer

A) equipment manufacturers 
B) oil drilling companies 
C) state governments 
D) trucking companies 
A) equipment manufacturers 
B) oil drilling companies 
C) state governments 
D) trucking companies

Question 17

There is a(n) relationship between the value of a bond and its required rate of return.

Accepted Answer

A) direct 
B) distant 
C) inverse 
D) turgid 
A) direct 
B) distant 
C) inverse 
D) turgid

Question 18

Mid-States Utility Company sold a 10-year note with a 7 7/8% coupon and a par value of $1,000.If the note sold at a discount for $930, what was the implied yield-to-maturity to the nearest tenth of one percent? Assume interest is paid semiannually.

Accepted Answer

A) 8.5% 
B) 8.7% 
C) 8.9% 
D) 9.4% 
A) 8.5% 
B) 8.7% 
C) 8.9% 
D) 9.4%

Question 19

What is the yield to maturity for a Poughkeepsie Gypsy Fortune Tellers' zero coupon bond that matures in 14 years if the bond is selling for $530.00?

Accepted Answer

A) 5.84% 
B) 4.64% 
C) 4.28% 
D) 5.49% 
A) 5.84% 
B) 4.64% 
C) 4.28% 
D) 5.49%

Question 20

The indenture is a contract between the issuer and lenders that does all the following except:

Accepted Answer

A) specifies the manner in which the principal must be repaid 
B) details the nature of the debt issue 
C) gives management's expectations about return of the proceeds 
D) lists any restrictive covenants 
A) specifies the manner in which the principal must be repaid 
B) details the nature of the debt issue 
C) gives management's expectations about return of the proceeds 
D) lists any restrictive covenants

Exam 6: Fixed-Income Securities: Characteristics and Valuation

The yield-to-maturity of a bond with a finite maturity date is a function of all of the following variables except:

What is the value of a PacTen bond with a 10 percent coupon that matures in 15 years? Assume the current market rate for this bond is 16 percent and that interest is paid semiannually.

There are various types of government debt securities.Which of the following is considered a long term government debt instrument?

Which of the following is/are correct regarding the maturity date on securities?

Which of the following is NOT one of the many differences between long-term debt and preferred stock?

When an investor is trying to find the market value of an asset, he/she is trying to determine:

Penny Pincher Discount Grocers has issued a bond with a coupon rate of 11%. It recently closed at a price of $1023.75. What is the bond's current yield?

The basic relationship in bond valuation is for a given percentage point change in the required rate of return, the the time to maturity, the the change in value.

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.

Treasury notes typically have initial maturities ranging from

Which of the following types of debt securities protect investors against interest rate risk?

UOP, a petroleum processing technology firm, issued a 10% coupon, 20 year to maturity first mortgage bond five years ago.If the current market rate of debt for UOP is 8%, at what price should this bond sell, to the nearest dollar? Assume a par value of $1,000, and pays interest semi-annually.

Foreign bonds have all of the following characteristics EXCEPT:

Mighty Mollusk, Inc.issued a 30-year bond which is callable in 8 years.It has a coupon rate of 5.5% payable semi-annually, a yield to maturity of 8% and a call premium of one year's interest.What is the yield to call?

CUP Company 8% bonds are currently selling for $950.These bonds (par value of $1,000) mature in one year and pay interest annually.Determine the yield to maturity (to the nearest tenth of 1 percent) on this bond issue.

Equipment trust certificates are used mainly by

There is a(n) relationship between the value of a bond and its required rate of return.

Mid-States Utility Company sold a 10-year note with a 7 7/8% coupon and a par value of $1,000.If the note sold at a discount for $930, what was the implied yield-to-maturity to the nearest tenth of one percent? Assume interest is paid semiannually.

What is the yield to maturity for a Poughkeepsie Gypsy Fortune Tellers' zero coupon bond that matures in 14 years if the bond is selling for $530.00?

The indenture is a contract between the issuer and lenders that does all the following except:

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

A: The Time Value of Money

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Capital Budgeting: Decision Criteria and Real Option Considerations

A: Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital, Capital Structure, and Dividend Policy

Capital Structure Concepts

Capital Structure Management in Practice

A: Capital Structure Management in Practice

Dividend Policy

Working Capital Management

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate-Term Financing

Financing with Derivatives

A: Financing with Derivatives

Risk Management

International Financial Management

Corporate Restructuring

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