Question 1

Why do bonds exhibit interest rate risk?

Accepted Answer

Bond prices are subject to int

Question 2

What happens to the coupon rate of a bond that pays $80 annually in interest if interest rates change from 9 percent to 10 percent?

Accepted Answer

A) The coupon rate increases to 10 percent 
B) The coupon rate remains at 9 percent 
C) The coupon rate remains at 8 percent 
D) The coupon rate decreases to 8 percent 
A) The coupon rate increases to 10 percent 
B) The coupon rate remains at 9 percent 
C) The coupon rate remains at 8 percent 
D) The coupon rate decreases to 8 percent

Question 3

A bond is currently trading at par, has an annual coupon of $100, and matures at a face value of $100.Therefore, the _________ is 10 percent.

Accepted Answer

A) Coupon rate 
B) Current yield 
C) Yield to maturity 
D) All of the above terms 
A) Coupon rate 
B) Current yield 
C) Yield to maturity 
D) All of the above terms

Question 4

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 5

What are the differences between the bond's coupon rate, current yield, and yield to maturity?

Accepted Answer

A bond is a long-term debt of a governme

Question 6

When market interest rates exceed a bond's coupon rate, the bond will:

Accepted Answer

A) Sell for less than par value 
B) Sell for more than par value 
C) Decrease its coupon rate 
D) Increase its coupon rate 
A) Sell for less than par value 
B) Sell for more than par value 
C) Decrease its coupon rate 
D) Increase its coupon rate

Question 7

What is the rate of return for an investor who pays $1,054.47 for a three-year bond with a 7 percent coupon and sells the bond one year later for $1,037.19?

Accepted Answer

A) 5.00 percent 
B) 5.33 percent 
C) 6.46 percent 
D) 7.00 percent Rate of Return = ($70.00 - $17.28)/$1,054.47
= $52.72/$1,054.47 
A) 5.00 percent 
B) 5.33 percent 
C) 6.46 percent 
D) 7.00 percent Rate of Return = ($70.00 - $17.28)/$1,054.47
= $52.72/$1,054.47

Question 8

Describe the process for calculating a yield to maturity for a bond, and tell what could cause the yield to maturity to change.

Accepted Answer

The yield to maturity for a bond is calc

Question 9

A bond with 10 years until maturity, an 8 percent coupon, and an 8 percent yield to maturity increased in price to $1,107.83 yesterday.What apparently happened to interest rates?

Accepted Answer

A) Rates increased by 2.0 percent 
B) Rates decreased by 2.0 percent 
C) Rates increased by .72 percent 
D) Rates decreased by 1.5 percent Using the BAII Plus calculator: 
A) Rates increased by 2.0 percent 
B) Rates decreased by 2.0 percent 
C) Rates increased by .72 percent 
D) Rates decreased by 1.5 percent Using the BAII Plus calculator:

Question 10

Which of the following is correct for a bond investor whose bond offers a 5 percent current yield and an 8 percent yield to maturity?

Accepted Answer

A) The bond is selling at a discount to par value 
B) The bond has a high default premium 
C) The promised yield is not likely to materialize 
D) The security must be a Canada bond 
A) The bond is selling at a discount to par value 
B) The bond has a high default premium 
C) The promised yield is not likely to materialize 
D) The security must be a Canada bond

Question 11

Longer-term bond prices are more sensitive to changes in interest rates than are short-term bond prices.

Accepted Answer

A) True 
 B)False

Question 12

How much should you be prepared to pay for a 10-year bond with a 6 percent coupon, semi-annual payments, and a semi-annually compounded yield of 7.5 percent?

Accepted Answer

A) $895.78 
B) $897.04 
C) $938.40 
D) $1,312.66 Using the BAII Plus calculator: 
A) $895.78 
B) $897.04 
C) $938.40 
D) $1,312.66 Using the BAII Plus calculator:

Question 13

We have a 7 percent annual-pay bond with a face value of $1,000 and a remaining life of 8 years.If this bond is currently trading at $942.53, what is the yield to maturity?

Accepted Answer

A) 6% 
B) 7% 
C) 8% 
D) 9% Using the BAII Plus calculator: 
A) 6% 
B) 7% 
C) 8% 
D) 9% Using the BAII Plus calculator:

Question 14

What happens when a bond's expected cash flows are discounted at a rate lower than the bond's coupon rate?

Accepted Answer

A) The price of the bond increases 
B) The coupon rate of the bond increases 
C) The par value of the bond decreases 
D) The coupon payments will be adjusted to the new discount rate 
A) The price of the bond increases 
B) The coupon rate of the bond increases 
C) The par value of the bond decreases 
D) The coupon payments will be adjusted to the new discount rate

Question 15

Determine the current yield, yield to maturity, and price of the following bond as of the date of purchase and on each anniversary date of its purchase until maturity: three-year bond with a 12 percent coupon and a purchase price of $1,100.

Accepted Answer

The answer of Determine the current yield, yield to maturity,...

Question 16

Which of the following factors will change when interest rates change?

Accepted Answer

A) The expected cash flows from a bond 
B) The present value of a bond's payments 
C) The coupon payment of a bond 
D) The maturity value of a bond 
A) The expected cash flows from a bond 
B) The present value of a bond's payments 
C) The coupon payment of a bond 
D) The maturity value of a bond

Question 17

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

Question 18

A long-term investor would more likely be interested in current yield than internal rate of return.

Accepted Answer

A) True 
 B)False

Question 19

What happens to the price of a three-year bond with an 8 percent coupon when interest rates change from 8 percent to 6 percent?

Accepted Answer

A) A price increase of $51.54 
B) A price decrease of $51.54 
C) A price increase of $53.47 
D) No change in price Using the BAII Plus Calculator: 
A) A price increase of $51.54 
B) A price decrease of $51.54 
C) A price increase of $53.47 
D) No change in price Using the BAII Plus Calculator:

Question 20

A bond's purchase price is referred to as its face value.

Accepted Answer

A) True 
 B)False

Exam 6: Valuing Bonds

Why do bonds exhibit interest rate risk?

What happens to the coupon rate of a bond that pays $80 annually in interest if interest rates change from 9 percent to 10 percent?

A bond is currently trading at par, has an annual coupon of $100, and matures at a face value of $100.Therefore, the _________ is 10 percent.

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

What are the differences between the bond's coupon rate, current yield, and yield to maturity?

When market interest rates exceed a bond's coupon rate, the bond will:

What is the rate of return for an investor who pays $1,054.47 for a three-year bond with a 7 percent coupon and sells the bond one year later for $1,037.19?

Describe the process for calculating a yield to maturity for a bond, and tell what could cause the yield to maturity to change.

A bond with 10 years until maturity, an 8 percent coupon, and an 8 percent yield to maturity increased in price to $1,107.83 yesterday.What apparently happened to interest rates?

Which of the following is correct for a bond investor whose bond offers a 5 percent current yield and an 8 percent yield to maturity?

Longer-term bond prices are more sensitive to changes in interest rates than are short-term bond prices.

How much should you be prepared to pay for a 10-year bond with a 6 percent coupon, semi-annual payments, and a semi-annually compounded yield of 7.5 percent?

We have a 7 percent annual-pay bond with a face value of $1,000 and a remaining life of 8 years.If this bond is currently trading at $942.53, what is the yield to maturity?

What happens when a bond's expected cash flows are discounted at a rate lower than the bond's coupon rate?

Determine the current yield, yield to maturity, and price of the following bond as of the date of purchase and on each anniversary date of its purchase until maturity: three-year bond with a 12 percent coupon and a purchase price of $1,100.

Which of the following factors will change when interest rates change?

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

A long-term investor would more likely be interested in current yield than internal rate of return.

What happens to the price of a three-year bond with an 8 percent coupon when interest rates change from 8 percent to 6 percent?

A bond's purchase price is referred to as its face value.

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

What We Do and Do Not Know About Finance

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