Question 1

Describe the shape of the current yield curve.Would you consider that to be fairly typical?

Accepted Answer

This question can provide a good introdu

Question 2

How much should you be prepared to pay for a 10-year bond with a 6 percent coupon and a yield to maturity to maturity of 7.5 percent?

Accepted Answer

A) $411.84 
B) $897.04 
C) $985.00 
D) $1,000.00 Using the BAII Plus calculator: 
A) $411.84 
B) $897.04 
C) $985.00 
D) $1,000.00 Using the BAII Plus calculator:

Question 3

The current yield tends to overstate a bond's total return when the bond sells for a premium because:

Accepted Answer

A) The bond's price will decline each year 
B) Coupon payments can change at any time 
C) Bonds selling for a premium have low default risk 
D) Taxes must be paid on the current yield 
A) The bond's price will decline each year 
B) Coupon payments can change at any time 
C) Bonds selling for a premium have low default risk 
D) Taxes must be paid on the current yield

Question 4

If you purchase a five-year, zero-coupon bond ($1,000 maturity value) 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 Using the BAII Plus calculator: 
A) $650.00 
B) $723.05 
C) $757.86 
D) $800.00 Using the BAII Plus calculator:

Question 5

Suppose the current market interest rate is 10.25 percent.What is the current market price of a 5-year bond with a face value of $1,000 that has a coupon rate of 14 percent with semi-annual coupon payments?

Accepted Answer

A) $878.73 
B) $1,072.25 
C) $1,154.43 
D) $1,435.75 Using the BAII Plus calculator 
A) $878.73 
B) $1,072.25 
C) $1,154.43 
D) $1,435.75 Using the BAII Plus calculator

Question 6

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

Accepted Answer

A) A coupon-paying bond with 5 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 coupon-paying bond with 5 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 7

Current yield overstates the return of premium bonds since investors who buy a bond at a premium face a capital loss over the life of the bond.

Accepted Answer

A) True 
 B)False

Question 8

Which one of the following will not happen for an investor who owns a Canada bond during a period of inflation?

Accepted Answer

A) The coupon payment will increase in nominal terms 
B) The maturity value will remain constant in nominal terms 
C) The investor's capital gain will rise 
D) The bond price will fall 
A) The coupon payment will increase in nominal terms 
B) The maturity value will remain constant in nominal terms 
C) The investor's capital gain will rise 
D) The bond price will fall

Question 9

The current yield of a bond can be calculated by:

Accepted Answer

A) Multiplying the price by the coupon rate 
B) Dividing the price by the annual coupon payments 
C) Dividing the price by the par value 
D) Dividing the annual coupon payments by the price 
A) Multiplying the price by the coupon rate 
B) Dividing the price by the annual coupon payments 
C) Dividing the price by the par value 
D) Dividing the annual coupon payments by the price

Question 10

Assume that a bond has been owned by four different investors during its 20-year history.Which of the following is not likely to have been shared by these different owners?

Accepted Answer

A) Coupon rate 
B) Cash flows 
C) Par value 
D) Yield to maturity 
A) Coupon rate 
B) Cash flows 
C) Par value 
D) Yield to maturity

Question 11

The value of a callable bond:

Accepted Answer

A) is unlimited 
B) Is limited by its face value 
C) Is limited by its call price 
D) Is limited by high interest rates 
A) is unlimited 
B) Is limited by its face value 
C) Is limited by its call price 
D) Is limited by high interest rates

Question 12

How much should you pay for a $1,000 bond with 10 percent coupon, annual payments, and five years to maturity if the interest rate is 12 percent?

Accepted Answer

A) $927.90 
B) $981.40 
C) $1,000.00 
D) $1,075.82 Using the BAII Plus Calculator: 
A) $927.90 
B) $981.40 
C) $1,000.00 
D) $1,075.82 Using the BAII Plus Calculator:

Question 13

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 
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

Question 14

What is the coupon rate for a bond with three years until maturity, a price of $1,053.46, and a yield to maturity of 6 percent?

Accepted Answer

A) 6 percent 
B) 8 percent 
C) 10 percent 
D) 11 percent Using the BAII Plus Calculator: 
A) 6 percent 
B) 8 percent 
C) 10 percent 
D) 11 percent Using the BAII Plus Calculator:

Question 15

Why should many investors be cautious when relying on yield to maturity?

Accepted Answer

Yield to maturity is an extremely popula

Question 16

Which of the following is correct for a bond priced at $1,100 that has ten years remaining until maturity, and a 10 percent coupon, with semi-annual payments?

Accepted Answer

A) Each payment of interest equals $50 
B) Each payment of interest equals $55 
C) Each payment of interest equals $100 
D) Each payment of interest equals $110 
A) Each payment of interest equals $50 
B) Each payment of interest equals $55 
C) Each payment of interest equals $100 
D) Each payment of interest equals $110

Question 17

How much would an investor lose if she purchased a 30-year zero-coupon bond with a $1,000 par value and 10% yield to maturity, only to see market interest rates increase to 12 percent one year later? (Hint: How much would the price change from a year earlier?)

Accepted Answer

A) $19.93 
B) $20.00 
C) $23.93 
D) $25.66 Using the BAII Plus calculator: 
A) $19.93 
B) $20.00 
C) $23.93 
D) $25.66 Using the BAII Plus calculator:

Question 18

Which 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, indicate increased purchasing power 
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, indicate increased purchasing power

Question 19

Bonds selling at a premium price offer a higher current yield than bonds selling at par value.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) $87.12 
B) $93.70 
C) $100.00 
D) $105.00 Using the BAII Plus calculator: 
A) $87.12 
B) $93.70 
C) $100.00 
D) $105.00 Using the BAII Plus calculator:

Exam 6: Valuing Bonds

Describe the shape of the current yield curve.Would you consider that to be fairly typical?

How much should you be prepared to pay for a 10-year bond with a 6 percent coupon and a yield to maturity to maturity of 7.5 percent?

The current yield tends to overstate a bond's total return when the bond sells for a premium because:

If you purchase a five-year, zero-coupon bond ($1,000 maturity value) for $500, how much could it be sold for three years later if interest rates have remained stable?

Suppose the current market interest rate is 10.25 percent.What is the current market price of a 5-year bond with a face value of $1,000 that has a coupon rate of 14 percent with semi-annual coupon payments?

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

Current yield overstates the return of premium bonds since investors who buy a bond at a premium face a capital loss over the life of the bond.

Which one of the following will not happen for an investor who owns a Canada bond during a period of inflation?

The current yield of a bond can be calculated by:

Assume that a bond has been owned by four different investors during its 20-year history.Which of the following is not likely to have been shared by these different owners?

The value of a callable bond:

How much should you pay for a $1,000 bond with 10 percent coupon, annual payments, and five years to maturity if the interest rate is 12 percent?

How does a bond dealer generate profits when trading bonds?

What is the coupon rate for a bond with three years until maturity, a price of $1,053.46, and a yield to maturity of 6 percent?

Why should many investors be cautious when relying on yield to maturity?

Which of the following is correct for a bond priced at $1,100 that has ten years remaining until maturity, and a 10 percent coupon, with semi-annual payments?

How much would an investor lose if she purchased a 30-year zero-coupon bond with a $1,000 par value and 10% yield to maturity, only to see market interest rates increase to 12 percent one year later? (Hint: How much would the price change from a year earlier?)

Which of the following is correct concerning real interest rates?

Bonds selling at a premium price offer a higher current yield than bonds selling at par value.

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

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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