Question 1

A bond with both a face value and a market value of $1,000 is called a ________ bond.

Accepted Answer

A) par value 
B) premium 
C) discount 
D) zero coupon 
E) floating rate 
A) par value 
B) premium 
C) discount 
D) zero coupon 
E) floating rate

Question 2

Assume a bond yields a real rate of return of 3.6 percent during a time when inflation is 1.87 percent.What would the actual nominal rate of return be?

Accepted Answer

A) 5.61% 
B) 5.47% 
C) 5.49% 
D) 5.54% 
E) 5.57% 
A) 5.61% 
B) 5.47% 
C) 5.49% 
D) 5.54% 
E) 5.57%

Question 3

Westover Company needs $1.8 million to expand its business.To accomplish this,the firm plans to sell 25-year,$1,000 face value zero-coupon bonds.The bonds will be priced to yield 7.15 percent with interest compounded semiannually.What is the minimum number of bonds the company must sell? Ignore all issue costs.

Accepted Answer

A) 10,424 bonds 
B) 11,429 bonds 
C) 10,333 bonds 
D) 10,118 bonds 
E) 11,410 bonds 
A) 10,424 bonds 
B) 11,429 bonds 
C) 10,333 bonds 
D) 10,118 bonds 
E) 11,410 bonds

Question 4

The term structure of interest rates reflects the

Accepted Answer

A) pure time value of money for various lengths of time. 
B) actual risk premium being paid for corporate bonds of varying maturities. 
C) pure inflation adjustment applied to bonds of various maturities. 
D) interest rate risk premium applicable to bonds of varying maturities. 
E) nominal interest rates applicable to coupon bonds of varying maturities. 
A) pure time value of money for various lengths of time. 
B) actual risk premium being paid for corporate bonds of varying maturities. 
C) pure inflation adjustment applied to bonds of various maturities. 
D) interest rate risk premium applicable to bonds of varying maturities. 
E) nominal interest rates applicable to coupon bonds of varying maturities.

Question 5

The upper and lower limits on the coupon rate of a floating-rate bond are referred to as the bond's

Accepted Answer

A) put. 
B) "make-whole" provision. 
C) call. 
D) income limit. 
E) collar. 
A) put. 
B) "make-whole" provision. 
C) call. 
D) income limit. 
E) collar.

Question 6

Taylor Bros.bonds have a face value of $5,000,a current market price of $5,248.50,and a coupon rate of 5.3 percent,compounded semiannually.What is the current yield on these bonds?

Accepted Answer

A) 5.38% 
B) 5.05% 
C) 5.17% 
D) 5.30% 
E) 5.41% 
A) 5.38% 
B) 5.05% 
C) 5.17% 
D) 5.30% 
E) 5.41%

Question 7

The 12-year bonds issued by Golf Companies have a quoted yield to maturity of 7.9 percent,a coupon rate of 8 percent,and semiannual payments.What is the effective annual yield on these bonds?

Accepted Answer

A) 7.90% 
B) 7.97% 
C) 8.06% 
D) 8.00% 
E) 8.16% 
A) 7.90% 
B) 7.97% 
C) 8.06% 
D) 8.00% 
E) 8.16%

Question 8

Debt securities

Accepted Answer

A) increase a firm's cost of doing business. 
B) pay tax-deductible dividends. 
C) are treated the same as equity securities in a bankruptcy proceeding. 
D) represent a minority ownership interest in the issuer. 
E) are considered a liability only at the time payment is actually due. 
A) increase a firm's cost of doing business. 
B) pay tax-deductible dividends. 
C) are treated the same as equity securities in a bankruptcy proceeding. 
D) represent a minority ownership interest in the issuer. 
E) are considered a liability only at the time payment is actually due.

Question 9

According to the Fisher effect,a decrease in the rate of inflation will

Accepted Answer

A) increase the real rate but not affect the nominal rate. 
B) decrease the nominal rate but not affect the real rate. 
C) not affect either the real or the nominal rate. 
D) decrease both the nominal and the real rate. 
E) increase the nominal rate but not affect the real rate. 
A) increase the real rate but not affect the nominal rate. 
B) decrease the nominal rate but not affect the real rate. 
C) not affect either the real or the nominal rate. 
D) decrease both the nominal and the real rate. 
E) increase the nominal rate but not affect the real rate.

Question 10

Gugenheim offers 12-year coupon bonds with semiannual payments.The yield to maturity is 6.23 percent,and the bonds sell at 101 percent of par.What is the coupon rate?

Accepted Answer

A) 3.09% 
B) 3.18% 
C) 3.31% 
D) 6.35% 
E) 6.61% 
A) 3.09% 
B) 3.18% 
C) 3.31% 
D) 6.35% 
E) 6.61%

Question 11

Delray bonds offer a coupon rate of 4.6 percent and currently sell at 99.2 percent of face value.What is the current yield on these bonds?

Accepted Answer

A) 4.60% 
B) 4.57% 
C) 4.62% 
D) 4.55% 
E) 4.64% 
A) 4.60% 
B) 4.57% 
C) 4.62% 
D) 4.55% 
E) 4.64%

Question 12

Delta bonds are priced at $989.64,have a yield to maturity of 7.18 percent,pay semiannual payments,have a face value of $1,000,and have 6.5 years to maturity.What is the coupon rate?

Accepted Answer

A) 6.98% 
B) 7.15% 
C) 7.23% 
D) 7.06% 
E) 7.20% 
A) 6.98% 
B) 7.15% 
C) 7.23% 
D) 7.06% 
E) 7.20%

Question 13

The ________ premium is that portion of a nominal interest rate or bond yield that represents compensation for the possibility of nonpayment by the bond issuer.

Accepted Answer

A) interest rate risk 
B) taxability 
C) liquidity 
D) inflation 
E) default risk 
A) interest rate risk 
B) taxability 
C) liquidity 
D) inflation 
E) default risk

Question 14

Assume a taxable bond yields 6.38 percent and a comparable municipal bond yields 4.27 percent.At what tax rate would an investor be indifferent between the bonds?

Accepted Answer

A) 66.93% 
B) 33.07% 
C) 51.49% 
D) 48.51% 
E) 57.03% 
A) 66.93% 
B) 33.07% 
C) 51.49% 
D) 48.51% 
E) 57.03%

Question 15

Autos and More offers a zero coupon bond with a yield to maturity of 9.3 percent.The bond matures in 11 years and has a face value of $1,000.What is this bond worth today? Assume semiannual compounding.

Accepted Answer

A) $367.91 
B) $372.08 
C) $375.99 
D) $369.04 
E) $374.17 
A) $367.91 
B) $372.08 
C) $375.99 
D) $369.04 
E) $374.17

Question 16

What is the market price of a bond with a $5,000 face value if the price quote is 101.1629?

Accepted Answer

A) $4,942.52 
B) $5,058.15 
C) $5,581.45 
D) $4,938.08 
E) $5,116.29 
A) $4,942.52 
B) $5,058.15 
C) $5,581.45 
D) $4,938.08 
E) $5,116.29

Question 17

Floating-rate bonds generally have

Accepted Answer

A) an unlimited variable rate of interest. 
B) a fixed coupon rate and a variable principal balance. 
C) both a call and a put provision. 
D) both a put provision and a collar. 
E) a collar only on the bond's principal. 
A) an unlimited variable rate of interest. 
B) a fixed coupon rate and a variable principal balance. 
C) both a call and a put provision. 
D) both a put provision and a collar. 
E) a collar only on the bond's principal.

Question 18

All else constant,a coupon bond that is selling at a premium,must have

Accepted Answer

A) a yield to maturity that is less than the coupon rate. 
B) a coupon rate that is equal to the yield to maturity. 
C) a market price that is less than par value. 
D) semiannual interest payments. 
E) a coupon rate that is less than the yield to maturity. 
A) a yield to maturity that is less than the coupon rate. 
B) a coupon rate that is equal to the yield to maturity. 
C) a market price that is less than par value. 
D) semiannual interest payments. 
E) a coupon rate that is less than the yield to maturity.

Question 19

Interest rate risk ________ as the time to maturity increases.

Accepted Answer

A) increases at an increasing rate 
B) increases at a decreasing rate 
C) increases at a constant rate 
D) decreases at an increasing rate 
E) decreases at a decreasing rate 
A) increases at an increasing rate 
B) increases at a decreasing rate 
C) increases at a constant rate 
D) decreases at an increasing rate 
E) decreases at a decreasing rate

Question 20

A convertible bond can be exchanged for

Accepted Answer

A) cash equal to par value at any time. 
B) shares of company stock. 
C) any other outstanding bond. 
D) a newly issued bond if it carries a higher coupon rate. 
E) a new bond if the current bond's rating falls to low-grade. 
A) cash equal to par value at any time. 
B) shares of company stock. 
C) any other outstanding bond. 
D) a newly issued bond if it carries a higher coupon rate. 
E) a new bond if the current bond's rating falls to low-grade.

A bond with both a face value and a market value of $1,000 is called a ________ bond.

Assume a bond yields a real rate of return of 3.6 percent during a time when inflation is 1.87 percent.What would the actual nominal rate of return be?

The term structure of interest rates reflects the

The upper and lower limits on the coupon rate of a floating-rate bond are referred to as the bond's

Taylor Bros.bonds have a face value of $5,000,a current market price of $5,248.50,and a coupon rate of 5.3 percent,compounded semiannually.What is the current yield on these bonds?

The 12-year bonds issued by Golf Companies have a quoted yield to maturity of 7.9 percent,a coupon rate of 8 percent,and semiannual payments.What is the effective annual yield on these bonds?

Debt securities

According to the Fisher effect,a decrease in the rate of inflation will

Gugenheim offers 12-year coupon bonds with semiannual payments.The yield to maturity is 6.23 percent,and the bonds sell at 101 percent of par.What is the coupon rate?

Delray bonds offer a coupon rate of 4.6 percent and currently sell at 99.2 percent of face value.What is the current yield on these bonds?

Delta bonds are priced at $989.64,have a yield to maturity of 7.18 percent,pay semiannual payments,have a face value of $1,000,and have 6.5 years to maturity.What is the coupon rate?

The ________ premium is that portion of a nominal interest rate or bond yield that represents compensation for the possibility of nonpayment by the bond issuer.

Assume a taxable bond yields 6.38 percent and a comparable municipal bond yields 4.27 percent.At what tax rate would an investor be indifferent between the bonds?

Autos and More offers a zero coupon bond with a yield to maturity of 9.3 percent.The bond matures in 11 years and has a face value of $1,000.What is this bond worth today? Assume semiannual compounding.

What is the market price of a bond with a $5,000 face value if the price quote is 101.1629?

Floating-rate bonds generally have

All else constant,a coupon bond that is selling at a premium,must have

Interest rate risk ________ as the time to maturity increases.

A convertible bond can be exchanged for

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

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Exam 5: Interest Rates and Bond Valuation

A bond with both a face value and a market value of $1,000 is called a ________ bond.

Assume a bond yields a real rate of return of 3.6 percent during a time when inflation is 1.87 percent.What would the actual nominal rate of return be?

The term structure of interest rates reflects the

The upper and lower limits on the coupon rate of a floating-rate bond are referred to as the bond's

Taylor Bros.bonds have a face value of $5,000,a current market price of $5,248.50,and a coupon rate of 5.3 percent,compounded semiannually.What is the current yield on these bonds?

The 12-year bonds issued by Golf Companies have a quoted yield to maturity of 7.9 percent,a coupon rate of 8 percent,and semiannual payments.What is the effective annual yield on these bonds?

Debt securities

According to the Fisher effect,a decrease in the rate of inflation will

Gugenheim offers 12-year coupon bonds with semiannual payments.The yield to maturity is 6.23 percent,and the bonds sell at 101 percent of par.What is the coupon rate?

Delray bonds offer a coupon rate of 4.6 percent and currently sell at 99.2 percent of face value.What is the current yield on these bonds?

Delta bonds are priced at $989.64,have a yield to maturity of 7.18 percent,pay semiannual payments,have a face value of $1,000,and have 6.5 years to maturity.What is the coupon rate?

The ________ premium is that portion of a nominal interest rate or bond yield that represents compensation for the possibility of nonpayment by the bond issuer.

Assume a taxable bond yields 6.38 percent and a comparable municipal bond yields 4.27 percent.At what tax rate would an investor be indifferent between the bonds?

Autos and More offers a zero coupon bond with a yield to maturity of 9.3 percent.The bond matures in 11 years and has a face value of $1,000.What is this bond worth today? Assume semiannual compounding.

What is the market price of a bond with a $5,000 face value if the price quote is 101.1629?

Floating-rate bonds generally have

All else constant,a coupon bond that is selling at a premium,must have

Interest rate risk ________ as the time to maturity increases.

A convertible bond can be exchanged for

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

Mergers and Acquisitions Web Only

Filters