Question 1

Nominal Canadian Treasury bond yields:

Accepted Answer

A)  are constant over time. 
B)  are equal to the real yields. 
C)  include a default premium. 
D)  include an inflation premium. 
A)  are constant over time. 
B)  are equal to the real yields. 
C)  include a default premium. 
D)  include an inflation premium.

Question 2

A bond's rate of return is equal to its coupon payment divided by the price paid for the bond.

Accepted Answer

A) True 
 B)False

Question 3

A bond has a coupon rate of 8%,pays interest semiannually,sells for $960,and matures in 3 years.What is its yield to maturity?

Accepted Answer

A)  4.78% 
B)  5.48% 
C)  9.57% 
D)  12.17% 
A)  4.78% 
B)  5.48% 
C)  9.57% 
D)  12.17%

Question 4

What are the conditions imposed on a debt issue that are designed to protect bondholders called?

Accepted Answer

A)  collateral agreements 
B)  common restrictions 
C)  protective covenants 
D)  default provisions 
A)  collateral agreements 
B)  common restrictions 
C)  protective covenants 
D)  default provisions

Question 5

Bonds rated Ba by Moody's have the same safety rating as the bonds rated BB by Standard & Poor's.

Accepted Answer

A) True 
 B)False

Question 6

Investors who buy which type of bond will be guaranteed a capital loss if they hold the bond to maturity?

Accepted Answer

A)  discount bond 
B)  premium bond 
C)  zero-coupon bond 
D)  junk bond 
A)  discount bond 
B)  premium bond 
C)  zero-coupon bond 
D)  junk bond

Question 7

If the coupon rate on an outstanding bond is lower than the relevant current interest rate,then the yield to maturity will be:

Accepted Answer

A)  lower than current interest rates. 
B)  equal to the coupon rate. 
C)  higher than the coupon rate. 
D)  lower than the coupon rate. 
A)  lower than current interest rates. 
B)  equal to the coupon rate. 
C)  higher than the coupon rate. 
D)  lower than the coupon rate.

Question 8

The current yield measures the bond's total rate of return.

Accepted Answer

A) True 
 B)False

Question 9

The purpose of a floating-rate bond is to:

Accepted Answer

A)  save interest expense for corporate issuers. 
B)  avoid making interest payments until maturity. 
C)  shift the yield curve. 
D)  offer rates that adjust to current market conditions. 
A)  save interest expense for corporate issuers. 
B)  avoid making interest payments until maturity. 
C)  shift the yield curve. 
D)  offer rates that adjust to current market conditions.

Question 10

An investor holds two bonds,one with 5 years until maturity and the other with 20 years until maturity.Which of the following is more likely if interest rates suddenly increase by 2%?

Accepted Answer

A)  the 5-year bond will decrease more in price. 
B)  the 20-year bond will decrease more in price. 
C)  both bonds will decrease in price similarly. 
D)  neither bond will decrease in price, but their yields will increase. 
A)  the 5-year bond will decrease more in price. 
B)  the 20-year bond will decrease more in price. 
C)  both bonds will decrease in price similarly. 
D)  neither bond will decrease in price, but their yields will increase.

Question 11

Consider a 3-year bond with a par value of $1,000 and an 8% annual coupon.If interest rates change from 8% to 6% the bond's price will:

Accepted Answer

A)  increase by $51.54. 
B)  decrease by $51.54. 
C)  increase by $53.46. 
D)  decrease by $53.46. 
A)  increase by $51.54. 
B)  decrease by $51.54. 
C)  increase by $53.46. 
D)  decrease by $53.46.

Question 12

When comparing a highly liquid bond with a comparable but less liquid bond,the highly liquid bond is most apt to have:

Accepted Answer

A)  a lower yield. 
B)  a shorter maturity. 
C)  a higher yield. 
D)  a longer maturity. 
A)  a lower yield. 
B)  a shorter maturity. 
C)  a higher yield. 
D)  a longer maturity.

Question 13

When a financial calculator or spreadsheet program finds a bond's yield to maturity,it uses a trial-and-error process.

Accepted Answer

A) True 
 B)False

Question 14

If you purchase a 3-year,9% annual coupon bond for $1,002.03,how much could it be sold for 2 years later if interest rates have remained stable (retain all decimal places in all intermediate steps)?

Accepted Answer

A)  $999.29 
B)  $1,001.74 
C)  $998.97 
D)  $1,000.00 
A)  $999.29 
B)  $1,001.74 
C)  $998.97 
D)  $1,000.00

Question 15

Two years ago bonds were issued at par with 10 years until maturity and a 7% annual coupon.If interest rates for that grade of bond are currently 8.25%,what will be the market price of these bonds?

Accepted Answer

A)  $917.06 
B)  $928.84 
C)  $987.50 
D)  $1,000.00 
A)  $917.06 
B)  $928.84 
C)  $987.50 
D)  $1,000.00

Question 16

Even when the yield curve is upward-sloping,investors might rationally stay away from long-term bonds.

Accepted Answer

A) True 
 B)False

Question 17

Periodic receipts of interest by the bondholder are known as:

Accepted Answer

A)  the coupon rate. 
B)  a zero-coupon. 
C)  coupon payments. 
D)  the default premium. 
A)  the coupon rate. 
B)  a zero-coupon. 
C)  coupon payments. 
D)  the default premium.

Question 18

When the yield curve is upward-sloping,then:

Accepted Answer

A)  short-maturity bonds offer the highest coupon rates. 
B)  long-maturity bonds are priced above par value. 
C)  short-maturity bonds yield less than long-maturity bonds. 
D)  long-maturity bonds increase in price when interest rates increase. 
A)  short-maturity bonds offer the highest coupon rates. 
B)  long-maturity bonds are priced above par value. 
C)  short-maturity bonds yield less than long-maturity bonds. 
D)  long-maturity bonds increase in price when interest rates increase.

Question 19

If you purchase a 5-year,zero-coupon bond for $691.72,how much could it be sold for 3 years later if interest rates have remained stable?

Accepted Answer

A)  $848.12 
B)  $923.50 
C)  $862.92 
D)  $911.15 
A)  $848.12 
B)  $923.50 
C)  $862.92 
D)  $911.15

Question 20

The discount rate that makes the present value of a bond's payments equal to its price is termed the:

Accepted Answer

A)  dividend yield. 
B)  yield to maturity. 
C)  current yield. 
D)  coupon rate. 
A)  dividend yield. 
B)  yield to maturity. 
C)  current yield. 
D)  coupon rate.

Exam 6: Valuing Bonds

Nominal Canadian Treasury bond yields:

A bond's rate of return is equal to its coupon payment divided by the price paid for the bond.

A bond has a coupon rate of 8%,pays interest semiannually,sells for $960,and matures in 3 years.What is its yield to maturity?

What are the conditions imposed on a debt issue that are designed to protect bondholders called?

Bonds rated Ba by Moody's have the same safety rating as the bonds rated BB by Standard & Poor's.

Investors who buy which type of bond will be guaranteed a capital loss if they hold the bond to maturity?

If the coupon rate on an outstanding bond is lower than the relevant current interest rate,then the yield to maturity will be:

The current yield measures the bond's total rate of return.

The purpose of a floating-rate bond is to:

An investor holds two bonds,one with 5 years until maturity and the other with 20 years until maturity.Which of the following is more likely if interest rates suddenly increase by 2%?

Consider a 3-year bond with a par value of $1,000 and an 8% annual coupon.If interest rates change from 8% to 6% the bond's price will:

When comparing a highly liquid bond with a comparable but less liquid bond,the highly liquid bond is most apt to have:

When a financial calculator or spreadsheet program finds a bond's yield to maturity,it uses a trial-and-error process.

If you purchase a 3-year,9% annual coupon bond for $1,002.03,how much could it be sold for 2 years later if interest rates have remained stable (retain all decimal places in all intermediate steps)?

Two years ago bonds were issued at par with 10 years until maturity and a 7% annual coupon.If interest rates for that grade of bond are currently 8.25%,what will be the market price of these bonds?

Even when the yield curve is upward-sloping,investors might rationally stay away from long-term bonds.

Periodic receipts of interest by the bondholder are known as:

When the yield curve is upward-sloping,then:

If you purchase a 5-year,zero-coupon bond for $691.72,how much could it be sold for 3 years later if interest rates have remained stable?

The discount rate that makes the present value of a bond's payments equal to its price is termed the:

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