Question 1

As the coupon rate of a bond increases,the bond's:

Accepted Answer

A)  face value increases. 
B)  current price decreases. 
C)  interest payments increase. 
D)  maturity date is extended. 
A)  face value increases. 
B)  current price decreases. 
C)  interest payments increase. 
D)  maturity date is extended. C

Question 2

What price will be paid for a Canadian Treasury bond with an ask price of 135.4062 if the face value is $100,000?

Accepted Answer

A)  $100,135.41 
B)  $135,000.41 
C)  $136,269.38 
D)  $135,406.20 
A)  $100,135.41 
B)  $135,000.41 
C)  $136,269.38 
D)  $135,406.20 D

Question 3

How much should you be prepared to pay for a $1,000 10-year bond with a 6% coupon,semiannual payments,and a yield of 7.5%,compounded semiannually?

Accepted Answer

A)  $895.78 
B)  $897.04 
C)  $938.40 
D)  $1,312.66 
A)  $895.78 
B)  $897.04 
C)  $938.40 
D)  $1,312.66 A

Question 4

Assume an investor purchased a fixed-coupon bond at a time when the bond's yield to maturity was 6.9%.Further assume the investor sold the bond prior to maturity and realized a total return of 7.1%.Which of these most likely occurred while the investor owned the bond?

Accepted Answer

A)  the bond's current yield increased above the bond's coupon rate. 
B)  the inflation rate increased. 
C)  new bonds with similar characteristics have coupon rates of 6.5%. 
D)  market interest rates increased. 
A)  the bond's current yield increased above the bond's coupon rate. 
B)  the inflation rate increased. 
C)  new bonds with similar characteristics have coupon rates of 6.5%. 
D)  market interest rates increased.

Question 5

By how much will a bond increase in price over the next year if it currently sells for $925.16,has 5 years until maturity,and an annual coupon rate of 7%? (Do not round intermediate calculations.)

Accepted Answer

A)  $8.26 
B)  $8.92 
C)  $12.53 
D)  $11.98 
A)  $8.26 
B)  $8.92 
C)  $12.53 
D)  $11.98

Question 6

When an investor purchases a $1,000 par value bond that was quoted at 97.162,the investor:

Accepted Answer

A)  receives 97.162% of the stated coupon payments. 
B)  receives $971.62 upon the maturity date of the bond. 
C)  pays 97.162% of face value for the bond. 
D)  pays $10,971.62 for a $10,000 face value bond. 
A)  receives 97.162% of the stated coupon payments. 
B)  receives $971.62 upon the maturity date of the bond. 
C)  pays 97.162% of face value for the bond. 
D)  pays $10,971.62 for a $10,000 face value bond.

Question 7

Which one of the following must be correct for a bond currently selling at a premium?

Accepted Answer

A)  its coupon rate is variable. 
B)  its current yield is lower than its coupon rate. 
C)  its yield to maturity is higher than its coupon rate. 
D)  its coupon rate is lower than the current market rate on similar bonds. 
A)  its coupon rate is variable. 
B)  its current yield is lower than its coupon rate. 
C)  its yield to maturity is higher than its coupon rate. 
D)  its coupon rate is lower than the current market rate on similar bonds.

Question 8

How much does the $1,000 to be received upon a bond's maturity in 4 years add to the bond's price if the appropriate discount rate is 6%?

Accepted Answer

A)  $209.91 
B)  $260.00 
C)  $760.00 
D)  $792.09 
A)  $209.91 
B)  $260.00 
C)  $760.00 
D)  $792.09

Question 9

Which of the following would not be associated with a zero-coupon bond?

Accepted Answer

A)  yield to maturity 
B)  discount bond 
C)  current yield 
D)  interest-rate risk 
A)  yield to maturity 
B)  discount bond 
C)  current yield 
D)  interest-rate risk

Question 10

A long-term investor would more likely be interested in a bond's current yield rather than its yield to maturity.

Accepted Answer

A) True 
 B)False

Question 11

What is the yield to maturity for a bond paying $100 annually that has 6 years until maturity and sells for $1,000?

Accepted Answer

A)  6.0% 
B)  8.5% 
C)  10.0% 
D)  12.5% 
A)  6.0% 
B)  8.5% 
C)  10.0% 
D)  12.5%

Question 12

What is the rate of return for an investor who pays $1,054.47 for a 3-year bond with a coupon rate of 6.5% and sells the bond 1 year later for $1,037.19?

Accepted Answer

A)  4.53% 
B)  5.33% 
C)  5.16% 
D)  4.92% 
A)  4.53% 
B)  5.33% 
C)  5.16% 
D)  4.92%

Question 13

If a bond investor's rate of return for a particular period equaled the bond's coupon rate,then during that period,the bond's price:

Accepted Answer

A)  increased. 
B)  decreased. 
C)  remained constant. 
D)  changed, but the direction of the change is irrelevant. 
A)  increased. 
B)  decreased. 
C)  remained constant. 
D)  changed, but the direction of the change is irrelevant.

Question 14

T-bills are unlike most bonds in that their cash flows increase when the national rate of gross domestic product increases.

Accepted Answer

A) True 
 B)False

Question 15

It is impossible for an investor to insure against the risk of bond default.

Accepted Answer

A) True 
 B)False

Question 16

An investor buys a 10-year $1,000,7% coupon bond for $1,050,holds it for 1 year,and then sells it for $1,040.What was the investor's rate of return?

Accepted Answer

A)  5.71% 
B)  6.00% 
C)  6.67% 
D)  7.00% 
A)  5.71% 
B)  6.00% 
C)  6.67% 
D)  7.00%

Question 17

The holder of which one of these securities has first claim on the assets of a firm?

Accepted Answer

A)  senior debt 
B)  common stock 
C)  subordinated debt 
D)  preferred stock 
A)  senior debt 
B)  common stock 
C)  subordinated debt 
D)  preferred stock

Question 18

The coupon rate of a bond equals:

Accepted Answer

A)  its yield to maturity. 
B)  a defined percentage of its face value. 
C)  the yield to maturity when the bond sells at a discount. 
D)  the annual interest divided by the current market price. 
A)  its yield to maturity. 
B)  a defined percentage of its face value. 
C)  the yield to maturity when the bond sells at a discount. 
D)  the annual interest divided by the current market price.

Question 19

When the market interest rate exceeds the coupon rate,bonds sell for less than face value to provide enough compensation to investors.

Accepted Answer

A) True 
 B)False

Question 20

The existence of an upward-sloping yield curve suggests that:

Accepted Answer

A)  bonds should be selling at a discount to par value. 
B)  bonds will not return as much as common stocks. 
C)  interest rates will be increasing in the future. 
D)  real interest rates will be increasing soon. 
A)  bonds should be selling at a discount to par value. 
B)  bonds will not return as much as common stocks. 
C)  interest rates will be increasing in the future. 
D)  real interest rates will be increasing soon.

Exam 6: Valuing Bonds

As the coupon rate of a bond increases,the bond's:

What price will be paid for a Canadian Treasury bond with an ask price of 135.4062 if the face value is $100,000?

How much should you be prepared to pay for a $1,000 10-year bond with a 6% coupon,semiannual payments,and a yield of 7.5%,compounded semiannually?

Assume an investor purchased a fixed-coupon bond at a time when the bond's yield to maturity was 6.9%.Further assume the investor sold the bond prior to maturity and realized a total return of 7.1%.Which of these most likely occurred while the investor owned the bond?

By how much will a bond increase in price over the next year if it currently sells for $925.16,has 5 years until maturity,and an annual coupon rate of 7%? (Do not round intermediate calculations.)

When an investor purchases a $1,000 par value bond that was quoted at 97.162,the investor:

Which one of the following must be correct for a bond currently selling at a premium?

How much does the $1,000 to be received upon a bond's maturity in 4 years add to the bond's price if the appropriate discount rate is 6%?

Which of the following would not be associated with a zero-coupon bond?

A long-term investor would more likely be interested in a bond's current yield rather than its yield to maturity.

What is the yield to maturity for a bond paying $100 annually that has 6 years until maturity and sells for $1,000?

What is the rate of return for an investor who pays $1,054.47 for a 3-year bond with a coupon rate of 6.5% and sells the bond 1 year later for $1,037.19?

If a bond investor's rate of return for a particular period equaled the bond's coupon rate,then during that period,the bond's price:

T-bills are unlike most bonds in that their cash flows increase when the national rate of gross domestic product increases.

It is impossible for an investor to insure against the risk of bond default.

An investor buys a 10-year $1,000,7% coupon bond for $1,050,holds it for 1 year,and then sells it for $1,040.What was the investor's rate of return?

The holder of which one of these securities has first claim on the assets of a firm?

The coupon rate of a bond equals:

When the market interest rate exceeds the coupon rate,bonds sell for less than face value to provide enough compensation to investors.

The existence of an upward-sloping yield curve suggests that:

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt and Payout Policy

Leasing

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Long-Term Financial Planning

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