Question 1

If you buy and hold a bond to maturity, its coupon rate is guaranteed when you purchase, assuming no default.

Accepted Answer

A) True 
 B)False

Question 2

Compare the price sensitivity to changes in interest rates for the following bonds: A five-year and a ten-year bond, both with a 7 percent coupon.Both bonds currently sell at par.How much will the price of each bond change if interest rates increase to 8 percent? Why is there a difference in the price change?

Accepted Answer

@#IMG-DLM& The five-year bond decreases

Question 3

Suppose a 30-year maturity bond currently selling for $1,040 is callable in 10 years at a call price of $1,060.If its yield to maturity is 8.14%, its yield to call is:

Accepted Answer

A) Less than 8.14% 
B) 8.14% 
C) More than 8.14% 
D) Cannot tell based on the information provided Using the BAII Plus calculator: 
A) Less than 8.14% 
B) 8.14% 
C) More than 8.14% 
D) Cannot tell based on the information provided Using the BAII Plus calculator:

Question 4

An investor buys a five-year, 9 percent coupon bond for $975, holds it for one year and then sells the bond for $985.What was the investor's rate of return?

Accepted Answer

A) 9.00 percent 
B) 9.23 percent 
C) 9.65 percent 
D) 10.26 percent 
A) 9.00 percent 
B) 9.23 percent 
C) 9.65 percent 
D) 10.26 percent

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

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 7

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

Accepted Answer

A) The five-year bond will increase more in price 
B) The 20-year bond will increase more in price 
C) Both bonds will increase in price similarly 
D) Neither bond will increase in price, but yields will decrease 
A) The five-year bond will increase more in price 
B) The 20-year bond will increase more in price 
C) Both bonds will increase in price similarly 
D) Neither bond will increase in price, but yields will decrease

Question 8

Which of the following is fixed (e.g., cannot change) for the life of a given bond?

Accepted Answer

A) Current price 
B) Current yield 
C) Yield to maturity 
D) Coupon payment 
A) Current price 
B) Current yield 
C) Yield to maturity 
D) Coupon payment

Question 9

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:

Question 10

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% 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 Price = 1,000/(1.10)30 = 57.31
New Price = 1,000/(1.12)29= 37.38 
A) $19.93 
B) $20.00 
C) $23.93 
D) $25.66 Price = 1,000/(1.10)30 = 57.31
New Price = 1,000/(1.12)29= 37.38

Question 11

Changes in interest rates also change coupon payments for already-issued bonds.

Accepted Answer

A) True 
 B)False

Question 12

What is the total return to an investor who buys a bond for $1,100 when the bond has a 9 percent coupon rate and five years remaining until maturity, then sells the bond after one year for $1,085?

Accepted Answer

A) 6.82 percent 
B) 6.91 percent 
C) 7.64 percent 
D) 9.00 percent 
A) 6.82 percent 
B) 6.91 percent 
C) 7.64 percent 
D) 9.00 percent

Question 13

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

Accepted Answer

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

Question 14

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

Accepted Answer

A) Increases in interest rates will increase the current yield 
B) The bond's price will increase each year 
C) Current yields only show nominal returns 
D) The bond may have a higher face value 
A) Increases in interest rates will increase the current yield 
B) The bond's price will increase each year 
C) Current yields only show nominal returns 
D) The bond may have a higher face value

Question 15

By how much will a bond increase in price over the next year if it currently sells for $925, has five years until maturity, and an annual coupon rate of 7%?

Accepted Answer

A) $8.26 
B) $8.92 
C) $12.55 
D) $15.00 Using the BAII Plus calculator: 
A) $8.26 
B) $8.92 
C) $12.55 
D) $15.00 Using the BAII Plus calculator:

Question 16

Why do investors pay attention to bond ratings and demand a higher interest rate for bonds with low ratings?

Accepted Answer

Investors demand higher promised yields

Question 17

When the yield curve is upward-sloping, then:

Accepted Answer

A) Short-maturity bonds offer high 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 high 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 18

When an investor purchases a $1,000 par value bond that was quoted at 97.16, the investor:

Accepted Answer

A) Receives 97.5 percent of the stated coupon payments 
B) Receives $975 upon the maturity date of the bond 
C) Pays 97.5 percent of face value for the bond 
D) Pays $1,025 for the bond 
A) Receives 97.5 percent of the stated coupon payments 
B) Receives $975 upon the maturity date of the bond 
C) Pays 97.5 percent of face value for the bond 
D) Pays $1,025 for the bond

Question 19

Which of the following is likely to be correct for a CCC-rated bond, compared to a BBB-rated bond?

Accepted Answer

A) The CCC bond will sell for a higher price 
B) The CCC bond will sell for a lower price 
C) The CCC bond will offer a higher promised yield to maturity 
D) The CCC bond will offer a lower promised yield to maturity. 
A) The CCC bond will sell for a higher price 
B) The CCC bond will sell for a lower price 
C) The CCC bond will offer a higher promised yield to maturity 
D) The CCC bond will offer a lower promised yield to maturity.

Question 20

What is the relationship between an investment's rate of return and its yield to maturity for an investor that does not hold a bond until maturity?

Accepted Answer

A) Rate of return is lower than yield to maturity 
B) Rate of return is higher than yield to maturity 
C) Rate of return equals yield to maturity 
D) There is no predetermined relationship 
A) Rate of return is lower than yield to maturity 
B) Rate of return is higher than yield to maturity 
C) Rate of return equals yield to maturity 
D) There is no predetermined relationship

Exam 6: Valuing Bonds

If you buy and hold a bond to maturity, its coupon rate is guaranteed when you purchase, assuming no default.

Suppose a 30-year maturity bond currently selling for $1,040 is callable in 10 years at a call price of $1,060.If its yield to maturity is 8.14%, its yield to call is:

An investor buys a five-year, 9 percent coupon bond for $975, holds it for one year and then sells the bond for $985.What was the investor's rate of return?

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

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

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

Which of the following is fixed (e.g., cannot change) for the life of a given bond?

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%?

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% one year later? (Hint: How much would the price change from a year earlier?)

Changes in interest rates also change coupon payments for already-issued bonds.

What is the total return to an investor who buys a bond for $1,100 when the bond has a 9 percent coupon rate and five years remaining until maturity, then sells the bond after one year for $1,085?

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

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

By how much will a bond increase in price over the next year if it currently sells for $925, has five years until maturity, and an annual coupon rate of 7%?

Why do investors pay attention to bond ratings and demand a higher interest rate for bonds with low ratings?

When the yield curve is upward-sloping, then:

When an investor purchases a $1,000 par value bond that was quoted at 97.16, the investor:

Which of the following is likely to be correct for a CCC-rated bond, compared to a BBB-rated bond?

What is the relationship between an investment's rate of return and its yield to maturity for an investor that does not hold a bond until maturity?

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

Filters