Question 1

The process of retiring high-coupon debt and issuing new bonds at a lower coupon to reduce interest payments is called

Accepted Answer

A)  deferral. 
B)  reissue. 
C)  repurchase. 
D)  refunding. 
E)  none of these. 
A)  deferral. 
B)  reissue. 
C)  repurchase. 
D)  refunding. 
E)  none of these.

Question 2

Using semiannual compounding,a 15-year zero coupon bond that has a par value of $1,000 and a required return of 8% would be priced at approximately ______.

Accepted Answer

A)  $308 
B)  $315 
C)  $464 
D)  $555 
E)  none of these 
A)  $308 
B)  $315 
C)  $464 
D)  $555 
E)  none of these

Question 3

A coupon bond that pays interest of $100 annually has a par value of $1,000,matures in 5 years,and is selling today at a $72 discount from par value.The yield to maturity on this bond is __________.

Accepted Answer

A)  6.00% 
B)  8.33% 
C)  12.00% 
D)  60.00% 
E)  none of these 
A)  6.00% 
B)  8.33% 
C)  12.00% 
D)  60.00% 
E)  none of these

Question 4

A Treasury bond due in one year has a yield of 6.2%;a Treasury bond due in 5 years has a yield of 6.7%.A bond issued by General Motors due in 5 years has a yield of 7.9%;a bond issued by Exxon due in one year has a yield of 7.2%.The default risk premiums on the bonds issued by Exxon and General Motors,respectively,are

Accepted Answer

A)  1.0% and 1.2% 
B)  0.5% and .7% 
C)  1.2% and 1.0% 
D)  0.7% and 0.5% 
E)  none of these 
A)  1.0% and 1.2% 
B)  0.5% and .7% 
C)  1.2% and 1.0% 
D)  0.7% and 0.5% 
E)  none of these

Question 5

A coupon bond that pays interest semi-annually has a par value of $1,000,matures in 5 years,and has a yield to maturity of 10%.The intrinsic value of the bond today will be _________ if the coupon rate is 8%.

Accepted Answer

A)  $922.78 
B)  $924.16 
C)  $1,075.80 
D)  $1,077.20 
E)  none of these 
A)  $922.78 
B)  $924.16 
C)  $1,075.80 
D)  $1,077.20 
E)  none of these

Question 6

Discuss the bond property known a convexity.State the meaning of convexity in words and then illustrate the property with a graph.Use specific numbers to show an example for a $1,000 face value,6.3% coupon bond that pays interest annually and has 20 years to maturity.Assume that the existing yield to maturity is 5.8% and describe what would happen if the yield changed by 1%.Show your numbers on a graph.

Accepted Answer

Convexity means that when interest rates

Question 7

A Treasury bill with a par value of $100,000 due three months from now is selling today for $97,087,with an effective annual yield of _________.

Accepted Answer

A)  12.40% 
B)  12.55% 
C)  12.62% 
D)  12.68% 
E)  none of these 
A)  12.40% 
B)  12.55% 
C)  12.62% 
D)  12.68% 
E)  none of these

Question 8

A zero-coupon bond has a yield to maturity of 9% and a par value of $1,000.If the bond matures in 8 years,the bond should sell for a price of _______ today.

Accepted Answer

A)  $422.41 
B)  $501.87 
C)  $513.16 
D)  $483.49 
E)  none of these 
A)  $422.41 
B)  $501.87 
C)  $513.16 
D)  $483.49 
E)  none of these

Question 9

A bond with a 12% coupon,10 years to maturity and selling at 88 has a yield to maturity of _______.

Accepted Answer

A)  over 14% 
B)  between 13% and 14% 
C)  between 12% and 13% 
D)  between 10% and 12% 
E)  less than 12% 
A)  over 14% 
B)  between 13% and 14% 
C)  between 12% and 13% 
D)  between 10% and 12% 
E)  less than 12%

Question 10

Ceteris paribus,the price and yield on a bond are

Accepted Answer

A)  positively related. 
B)  negatively related. 
C)  sometimes positively and sometimes negatively related. 
D)  not related. 
E)  indefinitely related. 
A)  positively related. 
B)  negatively related. 
C)  sometimes positively and sometimes negatively related. 
D)  not related. 
E)  indefinitely related.

Question 11

Most preferred stock
I.pays a fixed dividend.
II.pays a floating-rate dividend.
III.is held by corporations.
IV.is held by individuals.

Accepted Answer

A)  I and III are true. 
B)  I and IV are true. 
C)  II and III are true. 
D)  II and IV are true. 
E)  only II is true. 
A)  I and III are true. 
B)  I and IV are true. 
C)  II and III are true. 
D)  II and IV are true. 
E)  only II is true.

Question 12

A coupon bond that pays interest annually has a par value of $1,000,matures in 6 years,and has a yield to maturity of 11%.The intrinsic value of the bond today will be ______ if the coupon rate is 7.5%.

Accepted Answer

A)  $712.99 
B)  $851.93 
C)  $1,123.01 
D)  $886.28 
E)  $1,000.00 
A)  $712.99 
B)  $851.93 
C)  $1,123.01 
D)  $886.28 
E)  $1,000.00

Question 13

A zero-coupon bond has a yield to maturity of 12% and a par value of $1,000.If the bond matures in 18 years,the bond should sell for a price of _______ today.

Accepted Answer

A)  422.41 
B)  $501.87 
C)  $513.16 
D)  $130.04 
E)  None of these is correct. 
A)  422.41 
B)  $501.87 
C)  $513.16 
D)  $130.04 
E)  None of these is correct.

Question 14

The yield to maturity on a bond is ________.

Accepted Answer

A)  below the coupon rate when the bond sells at a discount,and equal to the coupon rate when the bond sells at a premium. 
B)  the discount rate that will set the present value of the payments equal to the bond price. 
C)  based on the assumption that any payments received are reinvested at the coupon rate. 
D)  none of these. 
E)  a,b,and c. 
A)  below the coupon rate when the bond sells at a discount,and equal to the coupon rate when the bond sells at a premium. 
B)  the discount rate that will set the present value of the payments equal to the bond price. 
C)  based on the assumption that any payments received are reinvested at the coupon rate. 
D)  none of these. 
E)  a,b,and c.

Question 15

At issue,coupon bonds typically sell ________.

Accepted Answer

A)  above par value 
B)  at or near par value 
C)  below par 
D)  at a value unrelated to par 
E)  none of these 
A)  above par value 
B)  at or near par value 
C)  below par 
D)  at a value unrelated to par 
E)  none of these

Question 16

The ______ is a measure of the average rate of return an investor will earn if the investor buys the bond now and holds until maturity.

Accepted Answer

A)  current yield 
B)  dividend yield 
C)  P/E ratio 
D)  yield to maturity 
E)  discount yield 
A)  current yield 
B)  dividend yield 
C)  P/E ratio 
D)  yield to maturity 
E)  discount yield

Question 17

A coupon bond pays annual interest,has a par value of $1,000,matures in 4 years,has a coupon rate of 10%,and has a yield to maturity of 12%.The current yield on this bond is ___________.

Accepted Answer

A)  9.39% 
B)  10.00% 
C)  10.65% 
D)  12.00% 
E)  none of these 
A)  9.39% 
B)  10.00% 
C)  10.65% 
D)  12.00% 
E)  none of these

Question 18

Swingin' Soiree,Inc.is a firm that has its main office on the Right Bank in Paris.The firm just issued bonds with a final payment amount that depends on whether the Seine River floods.This type of bond is known as

Accepted Answer

A)  a contingency bond 
B)  a catastrophe bond 
C)  an emergency bond 
D)  an incident bond 
E)  an eventuality bond 
A)  a contingency bond 
B)  a catastrophe bond 
C)  an emergency bond 
D)  an incident bond 
E)  an eventuality bond

Question 19

Consider a $1,000 par value 20-year zero coupon bond issued at a yield to maturity of 10%.If you buy that bond when it is issued and continue to hold the bond as yields decline to 9%,the imputed interest income for the first year of that bond is

Accepted Answer

A)  zero. 
B)  $14.87. 
C)  $45.85. 
D)  $7.44. 
E)  none of these. 
A)  zero. 
B)  $14.87. 
C)  $45.85. 
D)  $7.44. 
E)  none of these.

Question 20

Callable bonds

Accepted Answer

A)  are called when interest rates decline appreciably. 
B)  have a call price that declines as time passes. 
C)  are called when interest rates increase appreciably. 
D)  a and b. 
E)  b and c. 
A)  are called when interest rates decline appreciably. 
B)  have a call price that declines as time passes. 
C)  are called when interest rates increase appreciably. 
D)  a and b. 
E)  b and c.

Exam 12: Macroeconomic and Industry Analysis

The process of retiring high-coupon debt and issuing new bonds at a lower coupon to reduce interest payments is called

Using semiannual compounding,a 15-year zero coupon bond that has a par value of $1,000 and a required return of 8% would be priced at approximately ______.

A coupon bond that pays interest of $100 annually has a par value of $1,000,matures in 5 years,and is selling today at a $72 discount from par value.The yield to maturity on this bond is __________.

A coupon bond that pays interest semi-annually has a par value of $1,000,matures in 5 years,and has a yield to maturity of 10%.The intrinsic value of the bond today will be _________ if the coupon rate is 8%.

A Treasury bill with a par value of $100,000 due three months from now is selling today for $97,087,with an effective annual yield of _________.

A zero-coupon bond has a yield to maturity of 9% and a par value of $1,000.If the bond matures in 8 years,the bond should sell for a price of _______ today.

A bond with a 12% coupon,10 years to maturity and selling at 88 has a yield to maturity of _______.

Ceteris paribus,the price and yield on a bond are

Most preferred stock I.pays a fixed dividend. II.pays a floating-rate dividend. III.is held by corporations. IV.is held by individuals.

A coupon bond that pays interest annually has a par value of $1,000,matures in 6 years,and has a yield to maturity of 11%.The intrinsic value of the bond today will be ______ if the coupon rate is 7.5%.

A zero-coupon bond has a yield to maturity of 12% and a par value of $1,000.If the bond matures in 18 years,the bond should sell for a price of _______ today.

The yield to maturity on a bond is ________.

At issue,coupon bonds typically sell ________.

The ______ is a measure of the average rate of return an investor will earn if the investor buys the bond now and holds until maturity.

A coupon bond pays annual interest,has a par value of $1,000,matures in 4 years,has a coupon rate of 10%,and has a yield to maturity of 12%.The current yield on this bond is ___________.

Swingin' Soiree,Inc.is a firm that has its main office on the Right Bank in Paris.The firm just issued bonds with a final payment amount that depends on whether the Seine River floods.This type of bond is known as

Consider a $1,000 par value 20-year zero coupon bond issued at a yield to maturity of 10%.If you buy that bond when it is issued and continue to hold the bond as yields decline to 9%,the imputed interest income for the first year of that bond is

Callable bonds

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