Question 1

Which duration is computed by discounting flows using the yield to maturity of the bond?

Accepted Answer

A)  Effective 
B)  Macaulay Duration 
C)  Modified Duration 
D)  Present Value Duration 
E)  Cash Flow Duration 
A)  Effective 
B)  Macaulay Duration 
C)  Modified Duration 
D)  Present Value Duration 
E)  Cash Flow Duration

Question 2

Exhibit 18.1
Use the Information Below for the Following Problem(S)
A $1000 par value bond with 5 years to maturity and a 6% coupon has a yield to maturity of 8%. Interest is paid semiannually.
-Refer to Exhibit 18.1.Calculate the current price of the bond.

Accepted Answer

A)  $1579.46 
B)  $918.89 
C)  $789.29 
D)  $1000 
E)  $743.29 
A)  $1579.46 
B)  $918.89 
C)  $789.29 
D)  $1000 
E)  $743.29

Question 3

A 15-year bond,purchased 5 years ago,has a $1,000 par value bond,a 10 percent coupon and a yield to maturity of 12%.Interest is paid annually.The bond's price is

Accepted Answer

A)  $864 
B)  $887 
C)  $1152 
D)  $1123 
E)  None of the above 
A)  $864 
B)  $887 
C)  $1152 
D)  $1123 
E)  None of the above

Question 4

Consider a bond portfolio manager who expects interest rates to decline and has to choose between the following two bonds.
Bond A: 10 years to maturity,5% coupon,5% yield to maturity
Bond B: 10 years to maturity,3% coupon,4% yield to maturity

Accepted Answer

A)  Bond A because it has a higher coupon rate. 
B)  Bond A because it has a higher yield to maturity. 
C)  Bond B because it has a lower coupon rate. 
D)  Bond A or Bond B because the maturities are the same. 
E)  None of the above. 
A)  Bond A because it has a higher coupon rate. 
B)  Bond A because it has a higher yield to maturity. 
C)  Bond B because it has a lower coupon rate. 
D)  Bond A or Bond B because the maturities are the same. 
E)  None of the above.

Question 5

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.Calculate the Macaulay duration for the bond.

Accepted Answer

A)  3.19 years 
B)  3.36 years 
C)  3.57 years 
D)  3.72 years 
E)  3.84 years 
A)  3.19 years 
B)  3.36 years 
C)  3.57 years 
D)  3.72 years 
E)  3.84 years

Question 6

Which of the four major yield spreads defines the difference in yields between pure government agency bonds and corporate bonds?

Accepted Answer

A)  Segments 
B)  Sectors 
C)  Coupons 
D)  Seasoning 
E)  Maturity 
A)  Segments 
B)  Sectors 
C)  Coupons 
D)  Seasoning 
E)  Maturity

Question 7

Consider a 12%,15 year bond that pays interest semiannually,and its current price is $675.What is the promised yield to maturity?

Accepted Answer

A)  10.23% 
B)  18.45% 
C)  17.77% 
D)  2.31% 
E)  9.26% 
A)  10.23% 
B)  18.45% 
C)  17.77% 
D)  2.31% 
E)  9.26%

Question 8

Bond price volatility varies directly with the term to maturity and directly with the coupon.

Accepted Answer

A) True 
 B)False

Question 9

According to the segmented-market hypothesis a downward sloping 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 10

The yield to call is a more conservative yield measure whenever the price of a callable bond is quoted at a value

Accepted Answer

A)  Equal to or greater than par plus one year's interest. 
B)  Equal to par. 
C)  Equal to par less one year's interest. 
D)  Less than par. 
E)  Five percent over par. 
A)  Equal to or greater than par plus one year's interest. 
B)  Equal to par. 
C)  Equal to par less one year's interest. 
D)  Less than par. 
E)  Five percent over par.

Question 11

Calculate the Macaulay duration for a 5-year $1,000 par value bond,with a 6% coupon and a yield to maturity of 8%.Interest is paid annually.

Accepted Answer

A)  6.44 years 
B)  5.25 years 
C)  4.44 years 
D)  2.50 years 
E)  None of the above 
A)  6.44 years 
B)  5.25 years 
C)  4.44 years 
D)  2.50 years 
E)  None of the above

Question 12

There is a direct relationship between coupon and price.

Accepted Answer

A) True 
 B)False

Question 13

The position of a bondholder that is long a callable bond is equal to being

Accepted Answer

A)  Long a noncallable bond + long a call option on the bond. 
B)  Long a noncallable bond + short a call option on the bond. 
C)  Short a noncallable bond + long a call option on the bond. 
D)  Short a noncallable bond + short a call option on the bond. 
E)  None of the above. 
A)  Long a noncallable bond + long a call option on the bond. 
B)  Long a noncallable bond + short a call option on the bond. 
C)  Short a noncallable bond + long a call option on the bond. 
D)  Short a noncallable bond + short a call option on the bond. 
E)  None of the above.

Question 14

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.What is the Modified duration of the Talmart corporate bonds?

Accepted Answer

A)  3.43 
B)  3.64 
C)  3.76 
D)  3.85 
E)  4.11 
A)  3.43 
B)  3.64 
C)  3.76 
D)  3.85 
E)  4.11

Question 15

____ measures the expected rate of return of a bond assuming that you sell it prior to its maturity.

Accepted Answer

A)  Yield to maturity 
B)  Current yield 
C)  Realized yield 
D)  Coupon rate 
E)  None of the above 
A)  Yield to maturity 
B)  Current yield 
C)  Realized yield 
D)  Coupon rate 
E)  None of the above

Question 16

If the price before yields changed was $975,what is the resulting price?

Accepted Answer

A)  $937.46 
B)  $918.66 
C)  $965.55 
D)  $898.62 
E)  $1012.45 
A)  $937.46 
B)  $918.66 
C)  $965.55 
D)  $898.62 
E)  $1012.45

Question 17

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.
-Calculate the modified duration of a bond that has a Macaulay duration of 7.6 and the bond pays interest semi-annually with a coupon rate of 6% and a required rate of return of 8%.

Accepted Answer

A)  7.04 
B)  7.17 
C)  7.31 
D)  7.38 
E)  8.12 
A)  7.04 
B)  7.17 
C)  7.31 
D)  7.38 
E)  8.12

Question 18

The lower a bond's yield to maturity,the greater its duration.

Accepted Answer

A) True 
 B)False

Question 19

Calculate the modified duration for a 10-year,12 percent bond with a yield to maturity of 10 percent and a Macaulay duration of 7.2 years.

Accepted Answer

A)  6.43 years 
B)  6.55 years 
C)  6.79 years 
D)  6.86 years 
E)  7.01 years 
A)  6.43 years 
B)  6.55 years 
C)  6.79 years 
D)  6.86 years 
E)  7.01 years

Question 20

The option adjusted duration will approach the duration to maturity,when

Accepted Answer

A)  Interest rates are significantly above the coupon rate because the option has very little chance of being called, and the call option will have very little value. 
B)  Interest rates are significantly below the coupon rate because the option has very little chance of being called, and the call option will have very little value. 
C)  Interest rates are significantly above the coupon rate because the option has a high chance of being called, and the call option will have significant value. 
D)  Interest rates are significantly below the coupon rate because the option has a high chance of being called, and the call option will have significant value. 
E)  None of the above. 
A)  Interest rates are significantly above the coupon rate because the option has very little chance of being called, and the call option will have very little value. 
B)  Interest rates are significantly below the coupon rate because the option has very little chance of being called, and the call option will have very little value. 
C)  Interest rates are significantly above the coupon rate because the option has a high chance of being called, and the call option will have significant value. 
D)  Interest rates are significantly below the coupon rate because the option has a high chance of being called, and the call option will have significant value. 
E)  None of the above.

Exam 18: The Analysis and Valuation of Bonds

Which duration is computed by discounting flows using the yield to maturity of the bond?

Exhibit 18.1 Use the Information Below for the Following Problem(S) A $1000 par value bond with 5 years to maturity and a 6% coupon has a yield to maturity of 8%. Interest is paid semiannually. -Refer to Exhibit 18.1.Calculate the current price of the bond.

A 15-year bond,purchased 5 years ago,has a $1,000 par value bond,a 10 percent coupon and a yield to maturity of 12%.Interest is paid annually.The bond's price is

Consider a bond portfolio manager who expects interest rates to decline and has to choose between the following two bonds. Bond A: 10 years to maturity,5% coupon,5% yield to maturity Bond B: 10 years to maturity,3% coupon,4% yield to maturity

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.Calculate the Macaulay duration for the bond.

Which of the four major yield spreads defines the difference in yields between pure government agency bonds and corporate bonds?

Consider a 12%,15 year bond that pays interest semiannually,and its current price is $675.What is the promised yield to maturity?

Bond price volatility varies directly with the term to maturity and directly with the coupon.

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

The yield to call is a more conservative yield measure whenever the price of a callable bond is quoted at a value

Calculate the Macaulay duration for a 5-year $1,000 par value bond,with a 6% coupon and a yield to maturity of 8%.Interest is paid annually.

There is a direct relationship between coupon and price.

The position of a bondholder that is long a callable bond is equal to being

____ measures the expected rate of return of a bond assuming that you sell it prior to its maturity.

If the price before yields changed was $975,what is the resulting price?

The lower a bond's yield to maturity,the greater its duration.

Calculate the modified duration for a 10-year,12 percent bond with a yield to maturity of 10 percent and a Macaulay duration of 7.2 years.

The option adjusted duration will approach the duration to maturity,when

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

Technical Analysis

Bond Fundamentals

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Swap Contracts,convertible Securities,and Other Embedded Derivatives

Professional Money Management, alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Investment Return and Risk Analysis Questions

Investment and Retirement Plans

Calculating Covariance and Correlation Coefficient of Assets

Portfolio Variance and Stock Weight Calculations

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

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