Question 1

The written,legally binding agreement between a corporate borrower and its lenders detailing all of the terms of a bond issue is called the

Accepted Answer

A) indenture. 
B) covenant. 
C) terms of trade. 
D) put provision. 
E) call provision. 
A) indenture. 
B) covenant. 
C) terms of trade. 
D) put provision. 
E) call provision.

Question 2

Bonds issued by the U.S.government

Accepted Answer

A) are considered to be default-free. 
B) are exempt from interest-rate risk. 
C) provide totally tax-free income. 
D) pay interest that is exempt from federal income tax. 
E) are taxed the same as municipal bonds. 
A) are considered to be default-free. 
B) are exempt from interest-rate risk. 
C) provide totally tax-free income. 
D) pay interest that is exempt from federal income tax. 
E) are taxed the same as municipal bonds.

Question 3

The Rose Shoppe offers 10-year,6 percent coupon bonds with semiannual payments and a yield to maturity of 5.72 percent.What is the current market price if the face value is $1,000?

Accepted Answer

A) $990.32 
B) $1,021.10 
C) $1,108.16 
D) $987.64 
E) $1,000.00 
A) $990.32 
B) $1,021.10 
C) $1,108.16 
D) $987.64 
E) $1,000.00

Question 4

A U.S.Treasury bond has a face value of $5,000,a coupon rate of 3 percent compounded semiannually,a yield to maturity of 2.97 percent,and 7 years until maturity.What is the clean price quote of this bond?

Accepted Answer

A) $5,001.46 
B) $5,013.33 
C) $4,991.08 
D) $4,996.72 
E) $5,009.42 
A) $5,001.46 
B) $5,013.33 
C) $4,991.08 
D) $4,996.72 
E) $5,009.42

Question 5

Bond ratings

Accepted Answer

A) are provided solely by Moody's. 
B) only assess the possibility of default. 
C) of B or higher are considered investment-grade ratings. 
D) consider interest rate risk. 
E) of C indicate an average level of risk. 
A) are provided solely by Moody's. 
B) only assess the possibility of default. 
C) of B or higher are considered investment-grade ratings. 
D) consider interest rate risk. 
E) of C indicate an average level of risk.

Question 6

A bond currently sells for $924.58,matures in 11 years,pays $27.50 every 6 months in interest,and has a face value of $1,000.What is the yield to maturity?

Accepted Answer

A) 6)47% 
B) 5)98% 
C) 5)01% 
D) 3)23% 
E) 4)07% 
A) 6)47% 
B) 5)98% 
C) 5)01% 
D) 3)23% 
E) 4)07%

Question 7

The ABT Co.zero coupon bonds have a $1,000 face value,a required rate of return of 8 percent,and semiannual compounding.What is one of these bonds worth today if they mature in 12 years?

Accepted Answer

A) $390.12 
B) $360.27 
C) $397.11 
D) $376.89 
E) $356.30 
A) $390.12 
B) $360.27 
C) $397.11 
D) $376.89 
E) $356.30

Question 8

If the nominal rate of return on a bond is 7.47 percent and the real rate is 3.49 percent,what is the rate of inflation?

Accepted Answer

A) 3)85% 
B) 3)92% 
C) 3)98% 
D) 10.96% 
E) 11.22% 
A) 3)85% 
B) 3)92% 
C) 3)98% 
D) 10.96% 
E) 11.22%

Question 9

The term structure of interest rates reflects the

Accepted Answer

A) pure time value of money for various lengths of time. 
B) actual risk premium being paid for corporate bonds of varying maturities. 
C) pure inflation adjustment applied to bonds of various maturities. 
D) interest rate risk premium applicable to bonds of varying maturities. 
E) nominal interest rates applicable to coupon bonds of varying maturities. 
A) pure time value of money for various lengths of time. 
B) actual risk premium being paid for corporate bonds of varying maturities. 
C) pure inflation adjustment applied to bonds of various maturities. 
D) interest rate risk premium applicable to bonds of varying maturities. 
E) nominal interest rates applicable to coupon bonds of varying maturities.

Question 10

Assume a discount bond has a few years until maturity and a positive yield.All else constant,the bond's yield to maturity is

Accepted Answer

A) directly related to the time to maturity. 
B) equal to the coupon rate. 
C) inversely related to the bond's market price. 
D) unrelated to the time to maturity. 
E) less than its coupon rate. 
A) directly related to the time to maturity. 
B) equal to the coupon rate. 
C) inversely related to the bond's market price. 
D) unrelated to the time to maturity. 
E) less than its coupon rate.

Question 11

For tax purposes,the implicit annual interest for any one year on a zero coupon bond is equal to

Accepted Answer

A) zero. 
B) the annual change in the bond's value as determined by amortizing the loan. 
C) the current yield. 
D) the face value multiplied by the current market rate of interest. 
E) the face value minus the current market value. 
A) zero. 
B) the annual change in the bond's value as determined by amortizing the loan. 
C) the current yield. 
D) the face value multiplied by the current market rate of interest. 
E) the face value minus the current market value.

Question 12

Toy World bonds have a face value of $1,000,mature in 12 years,pay interest semiannually,and have a coupon rate of 7.2 percent.The next interest payment will be paid 4 months from today.What is the dirty price of this bond if the market rate of return is 7.4 percent?

Accepted Answer

A) $996.27 
B) $972.27 
C) $978.14 
D) $984.27 
E) $993.14 
A) $996.27 
B) $972.27 
C) $978.14 
D) $984.27 
E) $993.14

Question 13

DT Company bonds are priced at $932.17,have a par value of $1,000,a yield to maturity of 6.18 percent,and a coupon rate of 6.35 percent.How many years is it until this bond matures if interest is paid semiannually?

Accepted Answer

A) 18.04 years 
B) 20.42 years 
C) 28.00 years 
D) 40.84 years 
E) 36.08 years 
A) 18.04 years 
B) 20.42 years 
C) 28.00 years 
D) 40.84 years 
E) 36.08 years

Question 14

A discount bond has a coupon rate that

Accepted Answer

A) exceeds its current yield. 
B) is less than the bond's yield to maturity. 
C) exceeds both its current yield and its yield to maturity. 
D) equals its current yield. 
E) equals its current yield provided the bond pays interest annually. 
A) exceeds its current yield. 
B) is less than the bond's yield to maturity. 
C) exceeds both its current yield and its yield to maturity. 
D) equals its current yield. 
E) equals its current yield provided the bond pays interest annually.

Question 15

Assume a taxable bond yields 6.38 percent and a comparable municipal bond yields 4.27 percent.At what tax rate would an investor be indifferent between the bonds?

Accepted Answer

A) 66.93% 
B) 33.07% 
C) 51.49% 
D) 48.51% 
E) 57.03% 
A) 66.93% 
B) 33.07% 
C) 51.49% 
D) 48.51% 
E) 57.03%

Question 16

Which one of these is included in the term structure of interest rates and remains constant over the term?

Accepted Answer

A) Default risk premium 
B) Interest rate risk premium 
C) Liquidity premium 
D) Real rate of interest 
E) Inflation premium 
A) Default risk premium 
B) Interest rate risk premium 
C) Liquidity premium 
D) Real rate of interest 
E) Inflation premium

Question 17

A 5-year bond has a face value of $1,000,matures in 5 years,pays interest semiannually,and has a coupon rate of 6.35 percent.The next interest payment will be paid 2 months from today.What is the dirty price of this bond if the market rate of return is 6.2 percent?

Accepted Answer

A) $985.20 
B) $993.70 
C) $1,006.37 
D) $1,027.54 
E) $1,014.10 
A) $985.20 
B) $993.70 
C) $1,006.37 
D) $1,027.54 
E) $1,014.10

Question 18

Bonds that protect insurance companies from losses arising from natural disasters are called ________ bonds.

Accepted Answer

A) death 
B) CAT 
C) hurricane 
D) flood insurance 
E) DOG 
A) death 
B) CAT 
C) hurricane 
D) flood insurance 
E) DOG

Question 19

Municipal bonds

Accepted Answer

A) primarily appeal to high tax-bracket investors. 
B) generally pay a higher pretax rate of return than corporate bonds. 
C) are issued only by local municipalities,such as a city or a borough. 
D) are rarely callable. 
E) pay interest that is exempt from all income tax. 
A) primarily appeal to high tax-bracket investors. 
B) generally pay a higher pretax rate of return than corporate bonds. 
C) are issued only by local municipalities,such as a city or a borough. 
D) are rarely callable. 
E) pay interest that is exempt from all income tax.

Question 20

Bonds backed by assets with long-term payments are referred to as

Accepted Answer

A) payment bonds. 
B) time value bonds. 
C) securitized bonds. 
D) cash-flow bonds. 
E) inflation bonds. 
A) payment bonds. 
B) time value bonds. 
C) securitized bonds. 
D) cash-flow bonds. 
E) inflation bonds.

Exam 5: Interest Rates AMCQ Bomcq Valuation

The written,legally binding agreement between a corporate borrower and its lenders detailing all of the terms of a bond issue is called the

Bonds issued by the U.S.government

The Rose Shoppe offers 10-year,6 percent coupon bonds with semiannual payments and a yield to maturity of 5.72 percent.What is the current market price if the face value is $1,000?

A U.S.Treasury bond has a face value of $5,000,a coupon rate of 3 percent compounded semiannually,a yield to maturity of 2.97 percent,and 7 years until maturity.What is the clean price quote of this bond?

Bond ratings

A bond currently sells for $924.58,matures in 11 years,pays $27.50 every 6 months in interest,and has a face value of $1,000.What is the yield to maturity?

The ABT Co.zero coupon bonds have a $1,000 face value,a required rate of return of 8 percent,and semiannual compounding.What is one of these bonds worth today if they mature in 12 years?

If the nominal rate of return on a bond is 7.47 percent and the real rate is 3.49 percent,what is the rate of inflation?

The term structure of interest rates reflects the

Assume a discount bond has a few years until maturity and a positive yield.All else constant,the bond's yield to maturity is

For tax purposes,the implicit annual interest for any one year on a zero coupon bond is equal to

Toy World bonds have a face value of $1,000,mature in 12 years,pay interest semiannually,and have a coupon rate of 7.2 percent.The next interest payment will be paid 4 months from today.What is the dirty price of this bond if the market rate of return is 7.4 percent?

DT Company bonds are priced at $932.17,have a par value of $1,000,a yield to maturity of 6.18 percent,and a coupon rate of 6.35 percent.How many years is it until this bond matures if interest is paid semiannually?

A discount bond has a coupon rate that

Assume a taxable bond yields 6.38 percent and a comparable municipal bond yields 4.27 percent.At what tax rate would an investor be indifferent between the bonds?

Which one of these is included in the term structure of interest rates and remains constant over the term?

A 5-year bond has a face value of $1,000,matures in 5 years,pays interest semiannually,and has a coupon rate of 6.35 percent.The next interest payment will be paid 2 months from today.What is the dirty price of this bond if the market rate of return is 6.2 percent?

Bonds that protect insurance companies from losses arising from natural disasters are called ________ bonds.

Municipal bonds

Bonds backed by assets with long-term payments are referred to as

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