Question 1

You purchased a 6% annual coupon bond at par and sold it one year later for $1,015.16.What was your rate of return on this investment if the face value at maturity was $1,000?

Accepted Answer

A)  4.48% 
B)  6.15% 
C)  7.52% 
D)  6.07% 
A)  4.48% 
B)  6.15% 
C)  7.52% 
D)  6.07%

Question 2

Which of the following statements is correct for a 10% coupon bond that has a current yield of 7%?

Accepted Answer

A)  the face value of the bond has decreased. 
B)  the bond's maturity value exceeds the bond's price. 
C)  the bond's internal rate of return is 7%. 
D)  the bond's maturity value is lower than the bond's price. 
A)  the face value of the bond has decreased. 
B)  the bond's maturity value exceeds the bond's price. 
C)  the bond's internal rate of return is 7%. 
D)  the bond's maturity value is lower than the bond's price.

Question 3

Which one of the following bonds would be likely to exhibit a greater degree of interest rate risk?

Accepted Answer

A)  a zero-coupon bond with 20 years until maturity 
B)  a coupon-paying bond with 20 years until maturity 
C)  a floating-rate bond with 20 years until maturity 
D)  a zero-coupon bond with 30 years until maturity 
A)  a zero-coupon bond with 20 years until maturity 
B)  a coupon-paying bond with 20 years until maturity 
C)  a floating-rate bond with 20 years until maturity 
D)  a zero-coupon bond with 30 years until maturity

Question 4

If a 4-year bond with a 7% coupon and a 10% yield to maturity is currently worth $904.90,how much will it be worth 1 year from now if interest rates are constant?

Accepted Answer

A)  $904.90 
B)  $925.39 
C)  $947.93 
D)  $1,000.00 
A)  $904.90 
B)  $925.39 
C)  $947.93 
D)  $1,000.00

Question 5

Which one of the following is correct concerning real interest rates?

Accepted Answer

A)  real interest rates are constant. 
B)  real interest rates must be positive. 
C)  real interest rates must be less than nominal interest rates. 
D)  real interest rates, if positive, increase purchasing power over time. 
A)  real interest rates are constant. 
B)  real interest rates must be positive. 
C)  real interest rates must be less than nominal interest rates. 
D)  real interest rates, if positive, increase purchasing power over time.

Question 6

What causes bonds to sell for a premium?

Accepted Answer

A)  investment-quality ratings 
B)  long periods until maturity 
C)  coupon rates that exceed market rates 
D)  speculative-grade ratings 
A)  investment-quality ratings 
B)  long periods until maturity 
C)  coupon rates that exceed market rates 
D)  speculative-grade ratings

Question 7

What is the relationship between a bondholder's rate of return and the bond's yield to maturity if he does not hold the bond until it matures?

Accepted Answer

A)  the rate of return will be lower than the yield to maturity. 
B)  the rate of return will be higher than the yield to maturity. 
C)  the rate of return will equal the yield to maturity. 
D)  there is no predetermined relationship between the rate of return and the yield to maturity. 
A)  the rate of return will be lower than the yield to maturity. 
B)  the rate of return will be higher than the yield to maturity. 
C)  the rate of return will equal the yield to maturity. 
D)  there is no predetermined relationship between the rate of return and the yield to maturity.

Question 8

A bond's par value can also be called its:

Accepted Answer

A)  coupon payment. 
B)  present value. 
C)  market value. 
D)  face value. 
A)  coupon payment. 
B)  present value. 
C)  market value. 
D)  face value.

Question 9

Asked yields can be guaranteed only to investors who buy a bond and hold it until maturity.

Accepted Answer

A) True 
 B)False

Question 10

How does a bond dealer generate profits when trading bonds?

Accepted Answer

A)  by maintaining bid prices lower than ask prices 
B)  by maintaining bid prices higher than ask prices 
C)  by retaining the bond's next coupon payment 
D)  by lowering the bond's coupon rate upon resale 
A)  by maintaining bid prices lower than ask prices 
B)  by maintaining bid prices higher than ask prices 
C)  by retaining the bond's next coupon payment 
D)  by lowering the bond's coupon rate upon resale

Question 11

How much would an investor expect to pay for a $1,000 par value bond with a 9% annual coupon that matures in 5 years if the interest rate is 7%?

Accepted Answer

A)  $696.74 
B)  $1,075.82 
C)  $1,082.00 
D)  $1,123.01 
A)  $696.74 
B)  $1,075.82 
C)  $1,082.00 
D)  $1,123.01

Question 12

A bond's payment at maturity is referred to as its face value.

Accepted Answer

A) True 
 B)False

Question 13

Speculative-grade bonds have default risk; investment grade bonds do not.

Accepted Answer

A) True 
 B)False

Question 14

This morning,you purchased a bond.Which one of these should you expect to occur if you hold this bond during an inflationary period?

Accepted Answer

A)  the coupon payment will increase in real terms. 
B)  the maturity value will increase in nominal terms. 
C)  the market price will remain constant at par. 
D)  the market price will decrease. 
A)  the coupon payment will increase in real terms. 
B)  the maturity value will increase in nominal terms. 
C)  the market price will remain constant at par. 
D)  the market price will decrease.

Question 15

Investors who purchase bonds having lower credit ratings should expect:

Accepted Answer

A)  lower yields to maturity. 
B)  higher default possibilities. 
C)  lower coupon payments. 
D)  higher purchase prices. 
A)  lower yields to maturity. 
B)  higher default possibilities. 
C)  lower coupon payments. 
D)  higher purchase prices.

Question 16

A bond's yield to maturity takes into consideration:

Accepted Answer

A)  current yield but not any price changes. 
B)  price changes but not the current yield. 
C)  both the current yield and any price changes. 
D)  neither the current yield nor any price changes. 
A)  current yield but not any price changes. 
B)  price changes but not the current yield. 
C)  both the current yield and any price changes. 
D)  neither the current yield nor any price changes.

Question 17

Zero-coupon bonds are issued at prices below face value,and the investor's return comes from the difference between the purchase price and the payment of face value at maturity.

Accepted Answer

A) True 
 B)False

Question 18

What is the amount of the annual coupon payment for a bond that has 6 years until maturity,sells for $1,050,and has a yield to maturity of 9.37%?

Accepted Answer

A)  $98.64 
B)  $95.27 
C)  $101.38 
D)  $104.97 
A)  $98.64 
B)  $95.27 
C)  $101.38 
D)  $104.97

Question 19

Which one of these is included in the yield of a bond with a low credit rating but not included in a Canadian Treasury bond yield? Assume both bonds are selling at a premium.

Accepted Answer

A)  real rate of return 
B)  inflation premium 
C)  default premium 
D)  loss of premium 
A)  real rate of return 
B)  inflation premium 
C)  default premium 
D)  loss of premium

Question 20

Which one of the following bond values will change when interest rates change?

Accepted Answer

A)  the expected cash flows 
B)  the present value 
C)  the coupon payment 
D)  the maturity value 
A)  the expected cash flows 
B)  the present value 
C)  the coupon payment 
D)  the maturity value

Exam 6: Valuing Bonds

You purchased a 6% annual coupon bond at par and sold it one year later for $1,015.16.What was your rate of return on this investment if the face value at maturity was $1,000?

Which of the following statements is correct for a 10% coupon bond that has a current yield of 7%?

Which one of the following bonds would be likely to exhibit a greater degree of interest rate risk?

If a 4-year bond with a 7% coupon and a 10% yield to maturity is currently worth $904.90,how much will it be worth 1 year from now if interest rates are constant?

Which one of the following is correct concerning real interest rates?

What causes bonds to sell for a premium?

What is the relationship between a bondholder's rate of return and the bond's yield to maturity if he does not hold the bond until it matures?

A bond's par value can also be called its:

Asked yields can be guaranteed only to investors who buy a bond and hold it until maturity.

How does a bond dealer generate profits when trading bonds?

How much would an investor expect to pay for a $1,000 par value bond with a 9% annual coupon that matures in 5 years if the interest rate is 7%?

A bond's payment at maturity is referred to as its face value.

Speculative-grade bonds have default risk; investment grade bonds do not.

This morning,you purchased a bond.Which one of these should you expect to occur if you hold this bond during an inflationary period?

Investors who purchase bonds having lower credit ratings should expect:

A bond's yield to maturity takes into consideration:

Zero-coupon bonds are issued at prices below face value,and the investor's return comes from the difference between the purchase price and the payment of face value at maturity.

What is the amount of the annual coupon payment for a bond that has 6 years until maturity,sells for $1,050,and has a yield to maturity of 9.37%?

Which one of these is included in the yield of a bond with a low credit rating but not included in a Canadian Treasury bond yield? Assume both bonds are selling at a premium.

Which one of the following bond values will change when interest rates change?

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