Question 1

A 5-year bond has a $1,000 par value bond,a 12% coupon and a yield to maturity of 8%.Interest is paid semiannually.The bond's price is

Accepted Answer

A)  $864.65 
B)  $1081.78 
C)  $852.80 
D)  $1162.22 
E)  None of the above 
A)  $864.65 
B)  $1081.78 
C)  $852.80 
D)  $1162.22 
E)  None of the above

Question 2

Suppose you have a 15%,25 year bond traded at $975.If it is callable in 5 years at $1050,what is the bond's yield to call? Interest is paid annually.

Accepted Answer

A)  15% 
B)  16.5% 
C)  7.65% 
D)  8.52% 
E)  9.64% 
A)  15% 
B)  16.5% 
C)  7.65% 
D)  8.52% 
E)  9.64%

Question 3

Convexity is a measure of how much a bond's price-yield curve deviates from the linear approximation of that curve.

Accepted Answer

A) True 
 B)False

Question 4

Consider a bond with a duration of 7 years having a yield to maturity of 7% and interest rates are expected to rise by 50 basis points.What is the percentage change in the price of the bond?

Accepted Answer

A)  3.62% 
B)  3.45% 
C)  -3.38% 
D)  3.38% 
E)  -3.62% 
A)  3.62% 
B)  3.45% 
C)  -3.38% 
D)  3.38% 
E)  -3.62%

Question 5

Estimate the percentage price change for a 5-year $1,000 par value bond,with a 6% coupon,if the yield rises from 8% to 8.5%.Interest is paid semiannually.

Accepted Answer

A)  2.1% 
B)  -2.1% 
C)  4.4% 
D)  -4.4% 
E)  None of the above 
A)  2.1% 
B)  -2.1% 
C)  4.4% 
D)  -4.4% 
E)  None of the above

Question 6

Assume that you purchase a 10-year $1,000 par value bond,with a 12% coupon,and a yield of 9%.Immediately after you purchase the bond,yields fall to 8% and remain at that level to maturity.Calculate the realized horizon yield,if you hold the bond for 5 years and then sell.Interest is paid annually.

Accepted Answer

A)  16.25% 
B)  12.15% 
C)  7.75% 
D)  10.05% 
E)  9.34% 
A)  16.25% 
B)  12.15% 
C)  7.75% 
D)  10.05% 
E)  9.34%

Question 7

Exhibit 18.2
Use the Information Below for the Following Problem(S)
Talmart Corporation bonds have a $1,000 face value and will mature in 4 years. The bonds have a 7% coupon rate. Interest is paid annually and the required rate of return is 6 percent for these bonds.
-Refer to Exhibit 18.2.If interest rates increase 50 basis points,what will be the approximate price change for the Talmart bond?

Accepted Answer

A)  -17.0% 
B)  -1.7% 
C)  1.7% 
D)  1.8% 
E)  17.0% 
A)  -17.0% 
B)  -1.7% 
C)  1.7% 
D)  1.8% 
E)  17.0%

Question 8

The importance of the reinvestment assumption increases with a ____ coupon and a ____ term to maturity.

Accepted Answer

A)  Low, short 
B)  Low, long 
C)  High, short 
D)  High, long 
E)  Zero, very long 
A)  Low, short 
B)  Low, long 
C)  High, short 
D)  High, long 
E)  Zero, very long

Question 9

Which of the following is not a major risk premium component for bond investors?

Accepted Answer

A)  Quality differentials. 
B)  Term to maturity. 
C)  Indenture provisions. 
D)  Yield to maturity. 
E)  Exchange rate risk differences. 
A)  Quality differentials. 
B)  Term to maturity. 
C)  Indenture provisions. 
D)  Yield to maturity. 
E)  Exchange rate risk differences.

Question 10

When there are no embedded options,____ duration can be used to provide an approximation of the interest rate sensitivity of the bond.

Accepted Answer

A)  Macaulay 
B)  Modified 
C)  Effective 
D)  Empirical 
E)  None of the above 
A)  Macaulay 
B)  Modified 
C)  Effective 
D)  Empirical 
E)  None of the above

Question 11

If you expected interest rates to rise,you would prefer to own bonds with

Accepted Answer

A)  short maturities and low coupons. 
B)  long maturities and high coupons . 
C)  long maturities and low coupons. 
D)  short maturities and high coupons. 
E)  none of the above. 
A)  short maturities and low coupons. 
B)  long maturities and high coupons . 
C)  long maturities and low coupons. 
D)  short maturities and high coupons. 
E)  none of the above.

Question 12

According to the expectations hypothesis,a rising yield curve indicates that investors' demand for long maturity bonds is expected to rise.

Accepted Answer

A) True 
 B)False

Question 13

Zappo Corporation just issued $1,000 face value bonds that will mature in 20 years and have a 7% coupon rate.Interest is paid semi-annually and the required rate of return is 9 percent for these bonds.The bonds have a 5 year call provision that will pay a call premium of $1,050 if they are called in.What is the price of the Zappo Corporation bond?

Accepted Answer

A)  $815.98 
B)  $817.43 
C)  $826.35 
D)  $920.87 
E)  $953.07 
A)  $815.98 
B)  $817.43 
C)  $826.35 
D)  $920.87 
E)  $953.07

Question 14

According to the segmented-market hypothesis a rising yield curve indicates that

Accepted Answer

A)  demand for long term bonds has fallen and demand for short term bonds has fallen. 
B)  demand for long term bonds has risen and demand for short term bonds has fallen. 
C)  demand for long term bonds has fallen and demand for short term bonds has risen. 
D)  demand for long term bonds has risen and demand for short term bonds has risen. 
E)  none of the above. 
A)  demand for long term bonds has fallen and demand for short term bonds has fallen. 
B)  demand for long term bonds has risen and demand for short term bonds has fallen. 
C)  demand for long term bonds has fallen and demand for short term bonds has risen. 
D)  demand for long term bonds has risen and demand for short term bonds has risen. 
E)  none of the above.

Question 15

Consider a bond with a price of $944.44 and a coupon of 8 1/2%.What is the current yield?

Accepted Answer

A)  9.4% 
B)  6.8% 
C)  8.6% 
D)  9.0% 
E)  11.0% 
A)  9.4% 
B)  6.8% 
C)  8.6% 
D)  9.0% 
E)  11.0%

Question 16

Consider a bond with a 9% coupon and a current yield of 8 1/2%.What is this bond's price?

Accepted Answer

A)  $1058.82 
B)  $1009.00 
C)  $1085.00 
D)  $1062.44 
E)  $1077.96 
A)  $1058.82 
B)  $1009.00 
C)  $1085.00 
D)  $1062.44 
E)  $1077.96

Question 17

Exhibit 18.3
Use the Information Below for the Following Problem(S)
A $1000 par value bond with 4 years to maturity and a 5% coupon has a yield to maturity of 6%. Interest is paid annually.
-Refer to Exhibit 18.3.Estimate the percentage price change for this 4-year $1,000 par value bond,with annual 5% coupon,if the yield falls from 6% to 5.5%.

Accepted Answer

A)  -3.50% 
B)  -1.75% 
C)  1.75% 
D)  3.50% 
E)  None of the above 
A)  -3.50% 
B)  -1.75% 
C)  1.75% 
D)  3.50% 
E)  None of the above

Question 18

A graph of a bond's Price-Yield curve reveals all of the following except

Accepted Answer

A)  Price moves inverse to yield 
B)  The bond sells at a premium when the yield is below the coupon rate 
C)  The bond sells at a discount when the yield is above the coupon rate 
D)  The Price-Yield curve in concave 
E)  All of the above are characteristics of the Price-Yield curve 
A)  Price moves inverse to yield 
B)  The bond sells at a premium when the yield is below the coupon rate 
C)  The bond sells at a discount when the yield is above the coupon rate 
D)  The Price-Yield curve in concave 
E)  All of the above are characteristics of the Price-Yield curve

Question 19

The longer the time to maturity,the greater the percentage change in a bond's price.

Accepted Answer

A) True 
 B)False

Question 20

All of the following are one of Malkiel's stated relationships between yield changes and bond prices except

Accepted Answer

A)  Bond prices move inversely to bond yields. 
B)  Longer-maturity bonds experience larger price changes than shorter-maturity bonds. 
C)  Bond price volatility increases at a diminishing rate as term to maturity increases. 
D)  Bond price movements resulting from equal absolute increases or decreases in yield are symmetrical. 
E)  Bond price volatility is inversely related to the coupon rate. 
A)  Bond prices move inversely to bond yields. 
B)  Longer-maturity bonds experience larger price changes than shorter-maturity bonds. 
C)  Bond price volatility increases at a diminishing rate as term to maturity increases. 
D)  Bond price movements resulting from equal absolute increases or decreases in yield are symmetrical. 
E)  Bond price volatility is inversely related to the coupon rate.

Exam 18: The Analysis and Valuation of Bonds

A 5-year bond has a $1,000 par value bond,a 12% coupon and a yield to maturity of 8%.Interest is paid semiannually.The bond's price is

Suppose you have a 15%,25 year bond traded at $975.If it is callable in 5 years at $1050,what is the bond's yield to call? Interest is paid annually.

Convexity is a measure of how much a bond's price-yield curve deviates from the linear approximation of that curve.

Consider a bond with a duration of 7 years having a yield to maturity of 7% and interest rates are expected to rise by 50 basis points.What is the percentage change in the price of the bond?

Estimate the percentage price change for a 5-year $1,000 par value bond,with a 6% coupon,if the yield rises from 8% to 8.5%.Interest is paid semiannually.

Assume that you purchase a 10-year $1,000 par value bond,with a 12% coupon,and a yield of 9%.Immediately after you purchase the bond,yields fall to 8% and remain at that level to maturity.Calculate the realized horizon yield,if you hold the bond for 5 years and then sell.Interest is paid annually.

The importance of the reinvestment assumption increases with a ____ coupon and a ____ term to maturity.

Which of the following is not a major risk premium component for bond investors?

When there are no embedded options,____ duration can be used to provide an approximation of the interest rate sensitivity of the bond.

If you expected interest rates to rise,you would prefer to own bonds with

According to the expectations hypothesis,a rising yield curve indicates that investors' demand for long maturity bonds is expected to rise.

According to the segmented-market hypothesis a rising yield curve indicates that

Consider a bond with a price of $944.44 and a coupon of 8 1/2%.What is the current yield?

Consider a bond with a 9% coupon and a current yield of 8 1/2%.What is this bond's price?

A graph of a bond's Price-Yield curve reveals all of the following except

The longer the time to maturity,the greater the percentage change in a bond's price.

All of the following are one of Malkiel's stated relationships between yield changes and bond prices except

An Overview of the Investment Process

The Asset Allocation Decision

The Global Market Investment Decision

Securities Markets: Organization and Operation

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Security Valuation Principles

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Equity Portfolio Management Stragtegies

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An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

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Swap Contracts,convertible Securities,and Other Embedded Derivatives

Professional Money Management, alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

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Calculating Covariance and Correlation Coefficient of Assets

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Portfolio Optimization with Negative Correlation: Finding Minimum Variance and Weight Allocation

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The importance of the reinvestment assumption increases with a coupon and a term to maturity.