Question 1

Current Yield What's the current yield of an 8.15 percent coupon corporate bond quoted at a price of 94.30?

Accepted Answer

A)  4.30% 
B)  8.01% 
C)  8.15% 
D)  8.64% 
A)  4.30% 
B)  8.01% 
C)  8.15% 
D)  8.64%

Question 2

TIPS Capital Return Consider a 3.25% TIPS with an issue CPI reference of 186.7. At the beginning of this year, the CPI was 197.5 and was at 202.4 at the end of the year. What was the capital gain of the TIPS in dollars? (Assume semi-annual interest payments and $1,000 par value.)

Accepted Answer

A)  $4.90 
B)  $10.80 
C)  $15.70 
D)  $26.25 
A)  $4.90 
B)  $10.80 
C)  $15.70 
D)  $26.25

Question 3

To compensate the bondholders for getting the bond called, the issuer pays which of the following?

Accepted Answer

A)  call feature 
B)  call premium 
C)  coupon rate 
D)  original issue premium 
A)  call feature 
B)  call premium 
C)  coupon rate 
D)  original issue premium

Question 4

Comparing Bond Yields A client in the 35 percent marginal tax bracket is comparing a municipal bond that offers a 4.25 percent yield to maturity and a similar-risk corporate bond that offers a 5.10 percent yield. Which bond will give the client more profit after taxes?

Accepted Answer

A)  the municipal bond 
B)  the corporate bond 
C)  Both give the client equal profits after taxes. 
D)  There is not enough information given to determine answer. 
A)  the municipal bond 
B)  the corporate bond 
C)  Both give the client equal profits after taxes. 
D)  There is not enough information given to determine answer.

Question 5

Current Yield What's the current yield of a 5.75 percent coupon corporate bond quoted at a price of 103.05?

Accepted Answer

A)  5.58% 
B)  5.75% 
C)  5.93% 
D)  17.54% 
A)  5.58% 
B)  5.75% 
C)  5.93% 
D)  17.54%

Question 6

Which of the following is a debt security whose payments originate from other loans, such as credit card debt, auto loans, and home equity loans?

Accepted Answer

A)  asset-backed securities 
B)  credit quality securities 
C)  debentures 
D)  junk bonds 
A)  asset-backed securities 
B)  credit quality securities 
C)  debentures 
D)  junk bonds

Question 7

Possible shapes for the yield curve include all of the following except ___________.

Accepted Answer

A)  Upward sloping 
B)  Humped 
C)  Horizontal line 
D)  Vertical line 
A)  Upward sloping 
B)  Humped 
C)  Horizontal line 
D)  Vertical line

Question 8

Calculate the price of a zero coupon bond that matures in 20 years if the market interest rate is 8.5%. (Assume annual compounding and a par value of $1,000.)

Accepted Answer

A)  $90.29 
B)  $195.62 
C)  $1,195.62 
D)  $995.62 
A)  $90.29 
B)  $195.62 
C)  $1,195.62 
D)  $995.62

Question 9

Under which conditions will an investor demand a larger return (yield) on a bond?

Accepted Answer

A)  The bond issue is upgraded from A to AA. 
B)  The bond issue is downgraded from A to BBB. 
C)  Interest rates decrease due to decline in inflation. 
D)  None of these conditions will cause an increase in the bond's yield. 
A)  The bond issue is upgraded from A to AA. 
B)  The bond issue is downgraded from A to BBB. 
C)  Interest rates decrease due to decline in inflation. 
D)  None of these conditions will cause an increase in the bond's yield.

Question 10

Which of the following bonds carry significant risk that the issuer will not make current or future payments?

Accepted Answer

A)  credit quality risk bonds 
B)  interest rate risk bonds 
C)  liquidity rate risk bonds 
D)  junk bonds 
A)  credit quality risk bonds 
B)  interest rate risk bonds 
C)  liquidity rate risk bonds 
D)  junk bonds

Question 11

Rank the following bonds, from highest to lowest interest rate risk: 2-year zero coupon, 2-year 5% coupon bond, 30-year 5% coupon bond, 30-year, zero coupon bond.

Accepted Answer

A)  30-year, zero coupon bond, 30-year 5% coupon bond, 2-year 5% coupon bond, 2-year zero coupon bond 
B)  2-year 5% coupon bond, 2-year zero coupon bond, 30-year 5% coupon bond, 30-year zero coupon bond 
C)  30-year, zero coupon bond, 30-year 5% coupon bond, 2-year zero coupon bond, 2-year 5% coupon bond 
D)  30-year, 5% coupon bond, 30-year zero coupon bond, 2-year 5% coupon bond, 2-year zero coupon bond 
A)  30-year, zero coupon bond, 30-year 5% coupon bond, 2-year 5% coupon bond, 2-year zero coupon bond 
B)  2-year 5% coupon bond, 2-year zero coupon bond, 30-year 5% coupon bond, 30-year zero coupon bond 
C)  30-year, zero coupon bond, 30-year 5% coupon bond, 2-year zero coupon bond, 2-year 5% coupon bond 
D)  30-year, 5% coupon bond, 30-year zero coupon bond, 2-year 5% coupon bond, 2-year zero coupon bond

Question 12

If a bond is selling at par value, which of the following statements is correct?

Accepted Answer

A)  The current yield must equal the coupon rate. 
B)  The current yield must equal the yield to maturity. 
C)  Both of these statements are correct. 
D)  None of these statements is correct. 
A)  The current yield must equal the coupon rate. 
B)  The current yield must equal the yield to maturity. 
C)  Both of these statements are correct. 
D)  None of these statements is correct.

Question 13

A 30-year bond with an 8% coupon has a yield to maturity of 6%. The bond could be called in 7 years and if called would generate a yield to call of 5.75%. What is this bond's call premium? Assume the coupon payments are made annually and par value is $1,000.

Accepted Answer

A)  $219.73 
B)  $152.64 
C)  $106.29 
D)  $301.76 
A)  $219.73 
B)  $152.64 
C)  $106.29 
D)  $301.76

Question 14

Which of the following is true regarding U.S. Government Agency Securities?

Accepted Answer

A)  They carry the federal government's full faith and credit guarantee. 
B)  They do not carry the federal government's full faith and credit guarantee. 
C)  They are insured by the FDIC. 
D)  They are treated the same as U.S. Treasury bonds with regard to the federal government's full faith and credit guarantee. 
A)  They carry the federal government's full faith and credit guarantee. 
B)  They do not carry the federal government's full faith and credit guarantee. 
C)  They are insured by the FDIC. 
D)  They are treated the same as U.S. Treasury bonds with regard to the federal government's full faith and credit guarantee.

Question 15

A 5% coupon bond has 10 years to maturity and could be called in 2 years. If the bond is called, investors will earn 6.2%. The call premium is one year of coupon payments. If coupon payments are made semi-annually and par value is $1,000, what is the bond's yield to maturity?

Accepted Answer

A)  2.36% 
B)  4.72% 
C)  5.18% 
D)  6.49% 
A)  2.36% 
B)  4.72% 
C)  5.18% 
D)  6.49%

Question 16

All else equal, which bond's price is more affected by a change in interest rates, a bond with a large coupon or a small coupon? Why?

Accepted Answer

The price of the bond with the small cou

Question 17

Zero Coupon Bond Price Calculate the price of a zero coupon bond that matures in 5 years if the market interest rate is 7.50 percent. (Assume semi-annual compounding and $1,000 par value.)

Accepted Answer

A)  $692.02 
B)  $696.57 
C)  $962.50 
D)  $1000.00 
A)  $692.02 
B)  $696.57 
C)  $962.50 
D)  $1000.00

Question 18

This determines the dollar amount of interest paid to bondholders.

Accepted Answer

A)  original issue discount 
B)  call premium 
C)  coupon rate 
D)  market rate 
A)  original issue discount 
B)  call premium 
C)  coupon rate 
D)  market rate

Question 19

Which of the following statements is correct?

Accepted Answer

A)  Long-term bonds have more reinvestment rate risk than short-term bonds. 
B)  Long-term bonds have more interest rate risk than short-term bonds. 
C)  Short-term bonds with high coupons have high interest rate risk. 
D)  Zero coupon bonds do not have interest rate risk. 
A)  Long-term bonds have more reinvestment rate risk than short-term bonds. 
B)  Long-term bonds have more interest rate risk than short-term bonds. 
C)  Short-term bonds with high coupons have high interest rate risk. 
D)  Zero coupon bonds do not have interest rate risk.

Question 20

An 8% coupon bond with 15 years to maturity is priced to offer a 9% yield to maturity. You believe that in one year, the yield to maturity will be 6.5%. What is the change in price the bond will experience in dollars? (Assume annual interest payments and par value is $1,000.)

Accepted Answer

A)  $163.92 
B)  $176.15 
C)  $198.45 
D)  $215.82 
A)  $163.92 
B)  $176.15 
C)  $198.45 
D)  $215.82

Current Yield What's the current yield of an 8.15 percent coupon corporate bond quoted at a price of 94.30?

TIPS Capital Return Consider a 3.25% TIPS with an issue CPI reference of 186.7. At the beginning of this year, the CPI was 197.5 and was at 202.4 at the end of the year. What was the capital gain of the TIPS in dollars? (Assume semi-annual interest payments and $1,000 par value.)

To compensate the bondholders for getting the bond called, the issuer pays which of the following?

Comparing Bond Yields A client in the 35 percent marginal tax bracket is comparing a municipal bond that offers a 4.25 percent yield to maturity and a similar-risk corporate bond that offers a 5.10 percent yield. Which bond will give the client more profit after taxes?

Current Yield What's the current yield of a 5.75 percent coupon corporate bond quoted at a price of 103.05?

Which of the following is a debt security whose payments originate from other loans, such as credit card debt, auto loans, and home equity loans?

Possible shapes for the yield curve include all of the following except ___________.

Calculate the price of a zero coupon bond that matures in 20 years if the market interest rate is 8.5%. (Assume annual compounding and a par value of $1,000.)

Under which conditions will an investor demand a larger return (yield) on a bond?

Which of the following bonds carry significant risk that the issuer will not make current or future payments?

Rank the following bonds, from highest to lowest interest rate risk: 2-year zero coupon, 2-year 5% coupon bond, 30-year 5% coupon bond, 30-year, zero coupon bond.

If a bond is selling at par value, which of the following statements is correct?

A 30-year bond with an 8% coupon has a yield to maturity of 6%. The bond could be called in 7 years and if called would generate a yield to call of 5.75%. What is this bond's call premium? Assume the coupon payments are made annually and par value is $1,000.

Which of the following is true regarding U.S. Government Agency Securities?

A 5% coupon bond has 10 years to maturity and could be called in 2 years. If the bond is called, investors will earn 6.2%. The call premium is one year of coupon payments. If coupon payments are made semi-annually and par value is $1,000, what is the bond's yield to maturity?

All else equal, which bond's price is more affected by a change in interest rates, a bond with a large coupon or a small coupon? Why?

Zero Coupon Bond Price Calculate the price of a zero coupon bond that matures in 5 years if the market interest rate is 7.50 percent. (Assume semi-annual compounding and $1,000 par value.)

This determines the dollar amount of interest paid to bondholders.

Which of the following statements is correct?

An 8% coupon bond with 15 years to maturity is priced to offer a 9% yield to maturity. You believe that in one year, the yield to maturity will be 6.5%. What is the change in price the bond will experience in dollars? (Assume annual interest payments and par value is $1,000.)

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

Current Yield What's the current yield of an 8.15 percent coupon corporate bond quoted at a price of 94.30?

TIPS Capital Return Consider a 3.25% TIPS with an issue CPI reference of 186.7. At the beginning of this year, the CPI was 197.5 and was at 202.4 at the end of the year. What was the capital gain of the TIPS in dollars? (Assume semi-annual interest payments and $1,000 par value.)

To compensate the bondholders for getting the bond called, the issuer pays which of the following?

Comparing Bond Yields A client in the 35 percent marginal tax bracket is comparing a municipal bond that offers a 4.25 percent yield to maturity and a similar-risk corporate bond that offers a 5.10 percent yield. Which bond will give the client more profit after taxes?

Current Yield What's the current yield of a 5.75 percent coupon corporate bond quoted at a price of 103.05?

Which of the following is a debt security whose payments originate from other loans, such as credit card debt, auto loans, and home equity loans?

Possible shapes for the yield curve include all of the following except ___________.

Calculate the price of a zero coupon bond that matures in 20 years if the market interest rate is 8.5%. (Assume annual compounding and a par value of $1,000.)

Under which conditions will an investor demand a larger return (yield) on a bond?

Which of the following bonds carry significant risk that the issuer will not make current or future payments?

Rank the following bonds, from highest to lowest interest rate risk: 2-year zero coupon, 2-year 5% coupon bond, 30-year 5% coupon bond, 30-year, zero coupon bond.

If a bond is selling at par value, which of the following statements is correct?

A 30-year bond with an 8% coupon has a yield to maturity of 6%. The bond could be called in 7 years and if called would generate a yield to call of 5.75%. What is this bond's call premium? Assume the coupon payments are made annually and par value is $1,000.

Which of the following is true regarding U.S. Government Agency Securities?

A 5% coupon bond has 10 years to maturity and could be called in 2 years. If the bond is called, investors will earn 6.2%. The call premium is one year of coupon payments. If coupon payments are made semi-annually and par value is $1,000, what is the bond's yield to maturity?

All else equal, which bond's price is more affected by a change in interest rates, a bond with a large coupon or a small coupon? Why?

Zero Coupon Bond Price Calculate the price of a zero coupon bond that matures in 5 years if the market interest rate is 7.50 percent. (Assume semi-annual compounding and $1,000 par value.)

This determines the dollar amount of interest paid to bondholders.

Which of the following statements is correct?

An 8% coupon bond with 15 years to maturity is priced to offer a 9% yield to maturity. You believe that in one year, the yield to maturity will be 6.5%. What is the change in price the bond will experience in dollars? (Assume annual interest payments and par value is $1,000.)

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