Question 1

What is the yield-to-maturity of a Viacom bond which is selling for $948.75 with 6 years to maturity and a 7% coupon?

Accepted Answer

A)  7.01% 
B)  8.11% 
C)  8.38% 
D)  7.38% 
A)  7.01% 
B)  8.11% 
C)  8.38% 
D)  7.38% B

Question 2

Which of the following is not a characteristic of long- term debt?

Accepted Answer

A)  interest paid to bond holders is a tax-deductible expense to the firm 
B)  firm is not legally required to pay interest to bond-holders 
C)  usually has a specific maturity 
D)  all of the above are characteristics of long-term debt 
A)  interest paid to bond holders is a tax-deductible expense to the firm 
B)  firm is not legally required to pay interest to bond-holders 
C)  usually has a specific maturity 
D)  all of the above are characteristics of long-term debt B

Question 3

Junk bonds are

Accepted Answer

A)  usually rated Ba or higher 
B)  are issued by firms with a high debt ratio 
C)  issued with coupon rates at least 8 percentage points or more above the highest quality issues 
D)  are issued by firms with a low debt ratio 
A)  usually rated Ba or higher 
B)  are issued by firms with a high debt ratio 
C)  issued with coupon rates at least 8 percentage points or more above the highest quality issues 
D)  are issued by firms with a low debt ratio B

Question 4

A General Electric 7½25 bond closed at 98. What is the current yield?

Accepted Answer

A)  7.65% 
B)  7.81% 
C)  7.50% 
D)  7.34% 
A)  7.65% 
B)  7.81% 
C)  7.50% 
D)  7.34%

Question 5

Assume that the dividend on Central Power Company's $3.25 preferred stock issue is paid annually at the end of the year. Determine the value of this preferred stock to an investor who requires a 12 percent rate of return.

Accepted Answer

A)  $3.25 
B)  $39 
C)  $12 
D)  $27.08 
A)  $3.25 
B)  $39 
C)  $12 
D)  $27.08

Question 6

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 7

At what price will Gohm have to sell a 10-year zero coupon bond that will yield 8.75% if held to maturity.

Accepted Answer

A)  $453 
B)  $875.00 
C)  $87.50 
D)  $432 
A)  $453 
B)  $875.00 
C)  $87.50 
D)  $432

Question 8

A zero coupon bond is a bond that

Accepted Answer

A)  originally sold at a discount 
B)  will sell for a premium 
C)  is a premium value bond 
D)  has a high current yield 
A)  originally sold at a discount 
B)  will sell for a premium 
C)  is a premium value bond 
D)  has a high current yield

Question 9

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 10

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 11

Rank in ascending order (lowest to highest) the relative risk associated with holding the preferred stock, common stock and bonds of a firm:

Accepted Answer

A)  preferred stock, bonds, common stock 
B)  bonds, common stock, preferred stock 
C)  common stock, preferred stock, bonds 
D)  bonds, preferred stock, common stock 
A)  preferred stock, bonds, common stock 
B)  bonds, common stock, preferred stock 
C)  common stock, preferred stock, bonds 
D)  bonds, preferred stock, common stock

Question 12

Yummy Tummy Bakeries has issued a 30 year par value bond that is callable in 5 years. If the coupon rate is 5.5% payable semi-annually, what is the bond's yield to call if the yield to maturity is 8% and the call premium is one year's interest?

Accepted Answer

A)  12.65% 
B)  18.91% 
C)  14.42% 
D)  10.62% 
A)  12.65% 
B)  18.91% 
C)  14.42% 
D)  10.62%

Question 13

Baywa has an outstanding bond that has a coupon rate of 8.3%. What is the market price of this bond if it pays interest semi-annually, has 15 years to maturity, and the current required rate of return is 9% on bonds of similar quality?

Accepted Answer

A)  $943 
B)  $1059 
C)  $954 
D)  $1,000 
A)  $943 
B)  $1059 
C)  $954 
D)  $1,000

Question 14

If a firm could sell a mortgage bond at an 8% interest rate, it could sell an otherwise identical debenture at

Accepted Answer

A)  a rate less than 8% 
B)  8% 
C)  a rate greater than 8% 
D)  cannot be determined 
A)  a rate less than 8% 
B)  8% 
C)  a rate greater than 8% 
D)  cannot be determined

Question 15

The value of a perpetual bond is equal to the annual interest payment divided by the:

Accepted Answer

A)  risk-free rate 
B)  required rate of return 
C)  bank interest rate 
D)  after-tax historical cost of capital 
A)  risk-free rate 
B)  required rate of return 
C)  bank interest rate 
D)  after-tax historical cost of capital

Question 16

The largest user of mortgage bonds is

Accepted Answer

A)  credit unions. 
B)  commercial banks. 
C)  utility companies. 
D)  small companies. 
A)  credit unions. 
B)  commercial banks. 
C)  utility companies. 
D)  small companies.

Question 17

An Exxon bond carries an 8 percent coupon, pays interest semiannually, and has 10 years to maturity. If this bond is currently selling for $925, what is the exact yield to maturity(to the nearest tenth of 1 percent)?

Accepted Answer

A)  9.2% 
B)  8.8% 
C)  9.8% 
D)  10.2% 
A)  9.2% 
B)  8.8% 
C)  9.8% 
D)  10.2%

Question 18

Extendable notes are redeemable at par at the option of the

Accepted Answer

A)  holder 
B)  company 
C)  trustee 
D)  holder and trustee 
A)  holder 
B)  company 
C)  trustee 
D)  holder and trustee

Question 19

The ____ of a debt issue is equal to the difference between the ____ and the ____.

Accepted Answer

A)  call price; market price; par value 
B)  call price; market price; call premium 
C)  call premium; call price; par value 
D)  call premium; market price; par value 
A)  call price; market price; par value 
B)  call price; market price; call premium 
C)  call premium; call price; par value 
D)  call premium; market price; par value

Question 20

Penny Pincher Discount Grocers has an 11s 22 bond that closed at 102 3/8. What is the current yield on this bond?

Accepted Answer

A)  10.74% 
B)  10.84% 
C)  10.78% 
D)  11.00% 
A)  10.74% 
B)  10.84% 
C)  10.78% 
D)  11.00%

Exam 6: Fixed Income Securities: Characteristics and Valuation

What is the yield-to-maturity of a Viacom bond which is selling for $948.75 with 6 years to maturity and a 7% coupon?

Which of the following is not a characteristic of long- term debt?

Junk bonds are

A General Electric 7½25 bond closed at 98. What is the current yield?

Assume that the dividend on Central Power Company's $3.25 preferred stock issue is paid annually at the end of the year. Determine the value of this preferred stock to an investor who requires a 12 percent rate of return.

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

At what price will Gohm have to sell a 10-year zero coupon bond that will yield 8.75% if held to maturity.

A zero coupon bond is a bond that

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.

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.

Rank in ascending order (lowest to highest) the relative risk associated with holding the preferred stock, common stock and bonds of a firm:

Yummy Tummy Bakeries has issued a 30 year par value bond that is callable in 5 years. If the coupon rate is 5.5% payable semi-annually, what is the bond's yield to call if the yield to maturity is 8% and the call premium is one year's interest?

Baywa has an outstanding bond that has a coupon rate of 8.3%. What is the market price of this bond if it pays interest semi-annually, has 15 years to maturity, and the current required rate of return is 9% on bonds of similar quality?

If a firm could sell a mortgage bond at an 8% interest rate, it could sell an otherwise identical debenture at

The value of a perpetual bond is equal to the annual interest payment divided by the:

The largest user of mortgage bonds is

An Exxon bond carries an 8 percent coupon, pays interest semiannually, and has 10 years to maturity. If this bond is currently selling for $925, what is the exact yield to maturity(to the nearest tenth of 1 percent)?

Extendable notes are redeemable at par at the option of the

The ____ of a debt issue is equal to the difference between the ____ and the ____.

Penny Pincher Discount Grocers has an 11s 22 bond that closed at 102 3/8. What is the current yield on this bond?

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

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

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-term Financing

The Management of Cash and Marketable Securities

Management of Accounts Receivable and Inventories

Lease and Intermediate-term Financing

Financing With Derivatives

Risk Management

International Financial Management

Corporate Restructuring

Continuous Compounding and Discounting

Mutually Exclusive Investments Having Unequal Lives

Breakeven Analysis

Bond Refunding Analysis

Taxes

Filters

The of a debt issue is equal to the difference between the and the .