Question 1

If the Globe and Mail shows a change in price of -12 on a $1,000 par-value bond, what we know of yield to maturity?

Accepted Answer

A) Yield to maturity fell 
B) Yield to maturity stayed the same 
C) The new yield pushed the nominal coupon payments up 
D) Yield to maturity rose 
A) Yield to maturity fell 
B) Yield to maturity stayed the same 
C) The new yield pushed the nominal coupon payments up 
D) Yield to maturity rose

Question 2

Which of the following statements is correct for a 10 percent coupon bond that has a current yield of 13 percent?

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 13 percent 
D) The bond has few years remaining until maturity 
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 13 percent 
D) The bond has few years remaining until maturity

Question 3

How much would an investor need to receive in nominal return if she desires a real return of 4 percent and the rate of inflation is 5 percent?

Accepted Answer

A) 4.20 percent 
B) 8.64 percent 
C) 9.00 percent 
D) 9.20 percent 1.04 = 1 + nominal return/1.05 
A) 4.20 percent 
B) 8.64 percent 
C) 9.00 percent 
D) 9.20 percent 1.04 = 1 + nominal return/1.05

Question 4

Zero-coupon bonds are issued at prices considerably 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 5

What is the yield to maturity of a bond with the following characteristics? Coupon rate is 8% with semi-annual payments, current price is $960, three years until maturity.

Accepted Answer

A) 4.78% 
B) 5.48% 
C) 9.57% 
D) 12.17% Using the BAII Plus calculator: 
A) 4.78% 
B) 5.48% 
C) 9.57% 
D) 12.17% Using the BAII Plus calculator:

Question 6

Canada bond yields do not contain a:

Accepted Answer

A) Coupon interest payment 
B) Nominal interest rate 
C) Default premium 
D) Yield to maturity 
A) Coupon interest payment 
B) Nominal interest rate 
C) Default premium 
D) Yield to maturity

Question 7

Suppose the prevailing market rate is 8 percent.A bond with a coupon rate of 6 percent will be sold at:

Accepted Answer

A) A premium 
B) A discount 
C) Par 
D) $1,000 
A) A premium 
B) A discount 
C) Par 
D) $1,000

Question 8

The face value of a bond is received by the bondholder:

Accepted Answer

A) At the time of purchase 
B) Annually 
C) Whenever coupon payments are made 
D) At maturity 
A) At the time of purchase 
B) Annually 
C) Whenever coupon payments are made 
D) At maturity

Question 9

Where does a "convertible bond" get its name?

Accepted Answer

A) The option of converting into shares of common stock 
B) The option of increasing its coupon payments when interest rates increase 
C) The option of converting from zero-coupon to coupon-paying bond 
D) The option of increasing yield without decreasing price 
A) The option of converting into shares of common stock 
B) The option of increasing its coupon payments when interest rates increase 
C) The option of converting from zero-coupon to coupon-paying bond 
D) The option of increasing yield without decreasing price

Question 10

If you purchase a five-year, zero-coupon bond for $500, how much could it be sold for three years later if interest rates have remained stable?

Accepted Answer

A) $650.00 
B) $723.05 
C) $757.86 
D) $800.00 500 = 1000/(1 + i)5
14)87% = i
Three years later
Price = 1000/(1.1487)2 
A) $650.00 
B) $723.05 
C) $757.86 
D) $800.00 500 = 1000/(1 + i)5
14)87% = i
Three years later
Price = 1000/(1.1487)2

Question 11

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

Accepted Answer

A) $696.74 
B) $1,075.82 
C) $1,082.00 
D) $1,123.01 Using the BAII Plus Calculator: 
A) $696.74 
B) $1,075.82 
C) $1,082.00 
D) $1,123.01 Using the BAII Plus Calculator:

Question 12

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 adjusted 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 adjusted to current market conditions

Question 13

A Treasury bond's bid price will be lower than the ask price.

Accepted Answer

A) True 
 B)False

Question 14

Explain why bond investors may be interested in Canada real return bonds rather than traditional bonds.

Accepted Answer

Government inflation-Indexed Securities

Question 15

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

Accepted Answer

A) 6.0% 
B) 8.5% 
C) 10.0% 
D) 12.5% Using the BAII Plus calculator: 
A) 6.0% 
B) 8.5% 
C) 10.0% 
D) 12.5% Using the BAII Plus calculator:

Question 16

Why might a bond's current yield offer an incomplete idea of what return the investor is receiving?

Accepted Answer

The current yield is only synonymous wit

Question 17

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 18

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 19

Capital losses will automatically be the case for bond investors who buy:

Accepted Answer

A) Discount bonds 
B) Premium bonds 
C) Zero-coupon bonds 
D) Junk bonds 
A) Discount bonds 
B) Premium bonds 
C) Zero-coupon bonds 
D) Junk bonds

Question 20

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

Accepted Answer

A) Coupon payment 
B) Present value 
C) Default value 
D) Par value 
A) Coupon payment 
B) Present value 
C) Default value 
D) Par value

Exam 6: Valuing Bonds

If the Globe and Mail shows a change in price of -12 on a $1,000 par-value bond, what we know of yield to maturity?

Which of the following statements is correct for a 10 percent coupon bond that has a current yield of 13 percent?

How much would an investor need to receive in nominal return if she desires a real return of 4 percent and the rate of inflation is 5 percent?

Zero-coupon bonds are issued at prices considerably 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 yield to maturity of a bond with the following characteristics? Coupon rate is 8% with semi-annual payments, current price is $960, three years until maturity.

Canada bond yields do not contain a:

Suppose the prevailing market rate is 8 percent.A bond with a coupon rate of 6 percent will be sold at:

The face value of a bond is received by the bondholder:

Where does a "convertible bond" get its name?

If you purchase a five-year, zero-coupon bond for $500, how much could it be sold for three years later if interest rates have remained stable?

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

The purpose of a floating-rate bond is to:

A Treasury bond's bid price will be lower than the ask price.

Explain why bond investors may be interested in Canada real return bonds rather than traditional bonds.

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

Why might a bond's current yield offer an incomplete idea of what return the investor is receiving?

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

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

Capital losses will automatically be the case for bond investors who buy:

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

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 Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Conclusion

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