Question 1

A bond's current yield is defined as

Accepted Answer

A)  the bond's annual coupon rate divided by the bond's par value. 
B)  the bond's annual coupon rate divided by the market interest rate. 
C)  the bond's annual coupon rate divided by the bond's current market price. 
D)  the bond's annual coupon rate divided by the bond's original issue price. 
A)  the bond's annual coupon rate divided by the bond's par value. 
B)  the bond's annual coupon rate divided by the market interest rate. 
C)  the bond's annual coupon rate divided by the bond's current market price. 
D)  the bond's annual coupon rate divided by the bond's original issue price.

Question 2

Bond Quotes Consider the following three bond quotes; a Treasury note quoted at 87:25, and a corporate bond quoted at 102.42, and a municipal bond quoted at 101.45. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000, what is the price of these three bonds in dollars?

Accepted Answer

A)  $872.50, $1000, $1000, respectively 
B)  $1000, $1000, $1000, respectively 
C)  $877.81, $1024.20, $5072.50, respectively 
D)  $1000, $1024.20, $1001.45, respectively 
A)  $872.50, $1000, $1000, respectively 
B)  $1000, $1000, $1000, respectively 
C)  $877.81, $1024.20, $5072.50, respectively 
D)  $1000, $1024.20, $1001.45, respectively

Question 3

Which of the following is a true statement?

Accepted Answer

A)  If interest rates fall, U.S. Treasury bonds will have decreasing values. 
B)  If interest rates fall, corporate bonds will have decreasing values. 
C)  If interest rates fall, no bonds will enjoy rising values. 
D)  If interest rates fall, all bonds will enjoy rising values. 
A)  If interest rates fall, U.S. Treasury bonds will have decreasing values. 
B)  If interest rates fall, corporate bonds will have decreasing values. 
C)  If interest rates fall, no bonds will enjoy rising values. 
D)  If interest rates fall, all bonds will enjoy rising values.

Question 4

Which of the following terms is the chance that the bond issuer will not be able to make timely payments?

Accepted Answer

A)  credit quality risk 
B)  interest rate risk 
C)  liquidity of interest rate risk 
D)  term structure of interest rates 
A)  credit quality risk 
B)  interest rate risk 
C)  liquidity of interest rate risk 
D)  term structure of interest rates

Question 5

Bond Prices and Interest Rate Changes A 6.75 percent coupon bond with 10 years left to maturity is priced to offer a 6.5 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.65 percent. If this occurs, what would be the total return of the bond in percent? (Assume semi-annual interest payments and $1,000 par value.)

Accepted Answer

A)  5.5% 
B)  5.6% 
C)  6.6% 
D)  6.7% 
A)  5.5% 
B)  5.6% 
C)  6.6% 
D)  6.7%

Question 6

Yield to Maturity A 5.75 percent coupon bond with 12 years left to maturity is offered for sale at $978.83. What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually and par value is $1,000.)

Accepted Answer

A)  3.00% 
B)  3.09% 
C)  5.75% 
D)  6.00% 
A)  3.00% 
B)  3.09% 
C)  5.75% 
D)  6.00%

Question 7

Interest Payments Determine the interest payment for the following three bonds: 2½ percent coupon corporate bond (paid semi-annually), 3.15 percent coupon Treasury note, and a corporate zero coupon bond maturing in 10 years. (Assume a $1,000 par value.)

Accepted Answer

A)  $2.50, $3.15, $0, respectively 
B)  $12.50, $15.75, $0, respectively 
C)  $12.50, $15.75, $100, respectively 
D)  $25.00, $31.50, $0, respectively 
A)  $2.50, $3.15, $0, respectively 
B)  $12.50, $15.75, $0, respectively 
C)  $12.50, $15.75, $100, respectively 
D)  $25.00, $31.50, $0, respectively

Question 8

Describe the relationship between interest rate changes and bond prices.

Accepted Answer

The relationship is one of opp

Question 9

Comparing Bond Yields A client in the 33 percent marginal tax bracket is comparing a municipal bond that offers a 5 percent yield to maturity and a similar-risk corporate bond that offers a 6.25 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. 
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.

Question 10

Describe reasons that the U.S. Government and corporations would issue bonds.

Accepted Answer

The federal government issues

Question 11

Which of the following statements is correct?

Accepted Answer

A)  Yield spreads between bonds of different quality remain static over time. 
B)  Yield spreads are set by the Securities Exchange Commission. 
C)  Yield spreads between bonds of different quality change over time. 
D)  None of these statements is correct. 
A)  Yield spreads between bonds of different quality remain static over time. 
B)  Yield spreads are set by the Securities Exchange Commission. 
C)  Yield spreads between bonds of different quality change over time. 
D)  None of these statements is correct.

A bond's current yield is defined as

Which of the following is a true statement?

Which of the following terms is the chance that the bond issuer will not be able to make timely payments?

Yield to Maturity A 5.75 percent coupon bond with 12 years left to maturity is offered for sale at $978.83. What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually and par value is $1,000.)

Interest Payments Determine the interest payment for the following three bonds: 2½ percent coupon corporate bond (paid semi-annually), 3.15 percent coupon Treasury note, and a corporate zero coupon bond maturing in 10 years. (Assume a $1,000 par value.)

Describe the relationship between interest rate changes and bond prices.

Comparing Bond Yields A client in the 33 percent marginal tax bracket is comparing a municipal bond that offers a 5 percent yield to maturity and a similar-risk corporate bond that offers a 6.25 percent yield. Which bond will give the client more profit after taxes?

Describe reasons that the U.S. Government and corporations would issue bonds.

Which of the following statements is correct?

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

A bond's current yield is defined as

Which of the following is a true statement?

Which of the following terms is the chance that the bond issuer will not be able to make timely payments?

Yield to Maturity A 5.75 percent coupon bond with 12 years left to maturity is offered for sale at $978.83. What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually and par value is $1,000.)

Interest Payments Determine the interest payment for the following three bonds: 2½ percent coupon corporate bond (paid semi-annually), 3.15 percent coupon Treasury note, and a corporate zero coupon bond maturing in 10 years. (Assume a $1,000 par value.)

Describe the relationship between interest rate changes and bond prices.

Comparing Bond Yields A client in the 33 percent marginal tax bracket is comparing a municipal bond that offers a 5 percent yield to maturity and a similar-risk corporate bond that offers a 6.25 percent yield. Which bond will give the client more profit after taxes?

Describe reasons that the U.S. Government and corporations would issue bonds.

Which of the following statements is correct?

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