Question 1

Which of the following was the catalyst for the recent financial crisis?

Accepted Answer

A)  Corruption in the investment banking industry. 
B)  Widespread layoffs due to illegal alien hiring. 
C)  Defaults on subprime mortgages. 
D)  All of these. 
A)  Corruption in the investment banking industry. 
B)  Widespread layoffs due to illegal alien hiring. 
C)  Defaults on subprime mortgages. 
D)  All of these.

Question 2

Bond Prices and Interest Rate Changes A 5.5 percent coupon bond with 18 years left to maturity is priced to offer a 6.25 percent yield to maturity. You believe that in one year, the yield to maturity will be 5.75 percent. What is the change in price the bond will experience in dollars? (Assume semi-annual interest payments and $1,000 par value.)

Accepted Answer

A)  $25.00 
B)  $26.89 
C)  $53.48 
D)  $80.37 
A)  $25.00 
B)  $26.89 
C)  $53.48 
D)  $80.37

Question 3

Compute Bond Price Compute the price of a 6 percent coupon bond with 10 years left to maturity and a market interest rate of 8.75 percent. (Assume interest payments are semi-annual and par value is $1,000.) Is this a discount or premium bond?

Accepted Answer

A)  discount 
B)  premium N = 20, I = 4.375, PMT = 30, FV = 1000 CPT PV = -819.19
Since this is less than $1,000, it is a discount bond. 
A)  discount 
B)  premium N = 20, I = 4.375, PMT = 30, FV = 1000 CPT PV = -819.19
Since this is less than $1,000, it is a discount bond.

Question 4

Consider a 4.5% TIPS with an issue CPI reference of 187.2. At the beginning of this year, the CPI was 199.5 and was 213.7 at the end of the year. What was the capital gain of the TIPS in dollars?

Accepted Answer

A)  $32.73 
B)  $46.92 
C)  $62.49 
D)  $75.85 
A)  $32.73 
B)  $46.92 
C)  $62.49 
D)  $75.85

Question 5

Bond Ratings and Prices A corporate bond with a 5.75 percent coupon has 10 years left to maturity. It has had a credit rating of BBB and a yield to maturity of 6.25 percent. The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BB. The new appropriate discount rate will be 6.75 percent. What will be the change in the bond's price in dollars and percentage terms? (Assume interest payments are paid semi-annually and a par value of $1,000.)

Accepted Answer

Compute the current bond price:
N = 20,

Question 6

Which of the following statements is correct?

Accepted Answer

A)  Bonds with short-term maturities will have very little interest rate risk. 
B)  Bonds with large coupon payments will have very little interest rate risk. 
C)  Bonds with higher credit ratings will have very little interest rate risk. 
D)  All of these statements are correct. 
A)  Bonds with short-term maturities will have very little interest rate risk. 
B)  Bonds with large coupon payments will have very little interest rate risk. 
C)  Bonds with higher credit ratings will have very little interest rate risk. 
D)  All of these statements are correct.

Question 7

Rank from highest credit risk to lowest credit risk the following bonds, with the same time to maturity, by their yield to maturity: Treasury bond with yield of 6.55%, IBM bond with yield of 10.95%, Trump Casino bond with a yield of 9.15%, and Banc Ono bond with a yield of 9.46%.

Accepted Answer

A)  Treasury, Trump Casino, Banc Ono, IBM 
B)  Banc Ono, Trump Casino, IBM, Treasury 
C)  Trump Casino, Treasury, Banc Ono, IBM 
D)  IBM, Banc Ono, Trump Casino, Treasury 
A)  Treasury, Trump Casino, Banc Ono, IBM 
B)  Banc Ono, Trump Casino, IBM, Treasury 
C)  Trump Casino, Treasury, Banc Ono, IBM 
D)  IBM, Banc Ono, Trump Casino, Treasury

Question 8

A 5.5% coupon municipal bond has 16 years left to maturity and has a price quote of 92.55. The bond can be called in 9 years. The call premium is one year of coupon payments. Compute the bond's current yield. Assume interest payments are paid semi-annually and a par value of $5,000.

Accepted Answer

A)  5.94% 
B)  11.89% 
C)  12.19% 
D)  13.14% 
A)  5.94% 
B)  11.89% 
C)  12.19% 
D)  13.14%

Question 9

Consider the following bond quote: a municipal bond quoted at 101.25. If the municipal bond has a par value of $5,000, what is the price of the bond in dollars?

Accepted Answer

A)  $5,089.06 
B)  $5,050.19 
C)  $5,062.50 
D)  $5,109.75 
A)  $5,089.06 
B)  $5,050.19 
C)  $5,062.50 
D)  $5,109.75

Question 10

Call Premium A 6 percent corporate coupon bond is callable in ten years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?

Accepted Answer

A)  $60 
B)  $600 
C)  $1000 
D)  $1060 
A)  $60 
B)  $600 
C)  $1000 
D)  $1060

Question 11

Yield to Maturity A 4.25 percent coupon bond with 8 years left to maturity is offered for sale at $983.36. What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually and par value is $1,000.)

Accepted Answer

A)  2.25% 
B)  2.36% 
C)  4.25% 
D)  4.50% 
A)  2.25% 
B)  2.36% 
C)  4.25% 
D)  4.50%

Question 12

Yields of a Bond A 3.25 percent coupon municipal bond has 12 years left to maturity and has a price quote of 98.75. The bond can be called in 5 years. The call premium is one year of coupon payments. What is the bond's taxable equivalent yield for an investor in the 35 percent marginal tax bracket? (Assume interest payments are paid semi-annually and a par value of $5,000.)

Accepted Answer

A)  3.38% 
B)  5.00% 
C)  5.20% 
D)  10.12% 
A)  3.38% 
B)  5.00% 
C)  5.20% 
D)  10.12%

Question 13

Current Yield What's the current yield of a 6 percent coupon corporate bond quoted at a price of 101.70?

Accepted Answer

A)  5.9% 
B)  6.0% 
C)  6.1% 
D)  10.2% 
A)  5.9% 
B)  6.0% 
C)  6.1% 
D)  10.2%

Question 14

To increase the liquidity for the home mortgage market, Fannie Mae and Freddie Mac purchased home mortgages from banks and other lenders. They combined the mortgages into diversified portfolios of loans and issued ______________.

Accepted Answer

A)  Trust securities 
B)  Mortgage-backed securities 
C)  Current yield securities 
D)  Treasury Inflation Protected Securities 
A)  Trust securities 
B)  Mortgage-backed securities 
C)  Current yield securities 
D)  Treasury Inflation Protected Securities

Question 15

Taxable Equivalent Yield What's the taxable equivalent yield on a municipal bond with a yield to maturity of 3.9 percent for an investor in the 35 percent marginal tax bracket?

Accepted Answer

A)  1.09% 
B)  3.90% 
C)  6.00% 
D)  11.14% 
A)  1.09% 
B)  3.90% 
C)  6.00% 
D)  11.14%

Question 16

Which of these statements answers why bonds are known as fixed income securities?

Accepted Answer

A)  Many investors on fixed incomes buy them. 
B)  Investors know how much they will receive in interest payments. 
C)  Investors will not receive their principal when the bond's term is up. 
D)  All of these 
A)  Many investors on fixed incomes buy them. 
B)  Investors know how much they will receive in interest payments. 
C)  Investors will not receive their principal when the bond's term is up. 
D)  All of these

Question 17

Compute Bond Price Compute the price of a 4.75 percent coupon bond with 15 years left to maturity and a market interest rate of 6.25 percent. (Assume interest payments are semi-annual and par value is $1,000.) Is this a discount or premium bond?

Accepted Answer

A)  discount 
B)  premium N = 30, I = 3.125, PMT = 23.75, FV = 1000 CPT PV = -855.34
Since this is less than $1,000, it is a discount bond. 
A)  discount 
B)  premium N = 30, I = 3.125, PMT = 23.75, FV = 1000 CPT PV = -855.34
Since this is less than $1,000, it is a discount bond.

Question 18

Which of following are backed only by the reputation and financial stability of the corporation?

Accepted Answer

A)  Debentures 
B)  Unsecured bonds 
C)  Both a and b 
D)  None of these. 
A)  Debentures 
B)  Unsecured bonds 
C)  Both a and b 
D)  None of these.

Question 19

A bond with 14 years to maturity is selling for $1070 and has a yield to maturity of 10.06%. If this bond pays its coupon payments semi-annually and par value is $1,000, what is the bond's annual coupon rate?

Accepted Answer

A)  5.50% 
B)  8.19% 
C)  9.57% 
D)  11.00% 
A)  5.50% 
B)  8.19% 
C)  9.57% 
D)  11.00%

Question 20

Regarding a bond's characteristics, which of the following is the principal loan amount that the borrower must repay?

Accepted Answer

A)  call premium 
B)  maturity date 
C)  par or face value 
D)  time to maturity value 
A)  call premium 
B)  maturity date 
C)  par or face value 
D)  time to maturity value

Which of the following was the catalyst for the recent financial crisis?

Compute Bond Price Compute the price of a 6 percent coupon bond with 10 years left to maturity and a market interest rate of 8.75 percent. (Assume interest payments are semi-annual and par value is $1,000.) Is this a discount or premium bond?

Consider a 4.5% TIPS with an issue CPI reference of 187.2. At the beginning of this year, the CPI was 199.5 and was 213.7 at the end of the year. What was the capital gain of the TIPS in dollars?

Which of the following statements is correct?

Rank from highest credit risk to lowest credit risk the following bonds, with the same time to maturity, by their yield to maturity: Treasury bond with yield of 6.55%, IBM bond with yield of 10.95%, Trump Casino bond with a yield of 9.15%, and Banc Ono bond with a yield of 9.46%.

A 5.5% coupon municipal bond has 16 years left to maturity and has a price quote of 92.55. The bond can be called in 9 years. The call premium is one year of coupon payments. Compute the bond's current yield. Assume interest payments are paid semi-annually and a par value of $5,000.

Consider the following bond quote: a municipal bond quoted at 101.25. If the municipal bond has a par value of $5,000, what is the price of the bond in dollars?

Call Premium A 6 percent corporate coupon bond is callable in ten years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?

Yield to Maturity A 4.25 percent coupon bond with 8 years left to maturity is offered for sale at $983.36. What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually and par value is $1,000.)

Current Yield What's the current yield of a 6 percent coupon corporate bond quoted at a price of 101.70?

To increase the liquidity for the home mortgage market, Fannie Mae and Freddie Mac purchased home mortgages from banks and other lenders. They combined the mortgages into diversified portfolios of loans and issued ______________.

Taxable Equivalent Yield What's the taxable equivalent yield on a municipal bond with a yield to maturity of 3.9 percent for an investor in the 35 percent marginal tax bracket?

Which of these statements answers why bonds are known as fixed income securities?

Compute Bond Price Compute the price of a 4.75 percent coupon bond with 15 years left to maturity and a market interest rate of 6.25 percent. (Assume interest payments are semi-annual and par value is $1,000.) Is this a discount or premium bond?

Which of following are backed only by the reputation and financial stability of the corporation?

A bond with 14 years to maturity is selling for $1070 and has a yield to maturity of 10.06%. If this bond pays its coupon payments semi-annually and par value is $1,000, what is the bond's annual coupon rate?

Regarding a bond's characteristics, which of the following is the principal loan amount that the borrower must repay?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 7: Valuing Bonds

Which of the following was the catalyst for the recent financial crisis?

Compute Bond Price Compute the price of a 6 percent coupon bond with 10 years left to maturity and a market interest rate of 8.75 percent. (Assume interest payments are semi-annual and par value is $1,000.) Is this a discount or premium bond?

Consider a 4.5% TIPS with an issue CPI reference of 187.2. At the beginning of this year, the CPI was 199.5 and was 213.7 at the end of the year. What was the capital gain of the TIPS in dollars?

Which of the following statements is correct?

Rank from highest credit risk to lowest credit risk the following bonds, with the same time to maturity, by their yield to maturity: Treasury bond with yield of 6.55%, IBM bond with yield of 10.95%, Trump Casino bond with a yield of 9.15%, and Banc Ono bond with a yield of 9.46%.

A 5.5% coupon municipal bond has 16 years left to maturity and has a price quote of 92.55. The bond can be called in 9 years. The call premium is one year of coupon payments. Compute the bond's current yield. Assume interest payments are paid semi-annually and a par value of $5,000.

Consider the following bond quote: a municipal bond quoted at 101.25. If the municipal bond has a par value of $5,000, what is the price of the bond in dollars?

Call Premium A 6 percent corporate coupon bond is callable in ten years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?

Yield to Maturity A 4.25 percent coupon bond with 8 years left to maturity is offered for sale at $983.36. What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually and par value is $1,000.)

Current Yield What's the current yield of a 6 percent coupon corporate bond quoted at a price of 101.70?

To increase the liquidity for the home mortgage market, Fannie Mae and Freddie Mac purchased home mortgages from banks and other lenders. They combined the mortgages into diversified portfolios of loans and issued ______________.

Taxable Equivalent Yield What's the taxable equivalent yield on a municipal bond with a yield to maturity of 3.9 percent for an investor in the 35 percent marginal tax bracket?

Which of these statements answers why bonds are known as fixed income securities?

Compute Bond Price Compute the price of a 4.75 percent coupon bond with 15 years left to maturity and a market interest rate of 6.25 percent. (Assume interest payments are semi-annual and par value is $1,000.) Is this a discount or premium bond?

Which of following are backed only by the reputation and financial stability of the corporation?

A bond with 14 years to maturity is selling for $1070 and has a yield to maturity of 10.06%. If this bond pays its coupon payments semi-annually and par value is $1,000, what is the bond's annual coupon rate?

Regarding a bond's characteristics, which of the following is the principal loan amount that the borrower must repay?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, Equity, and Capital Structure

Sharing Firm Wealth: Dividends, Share Repurchases, and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters