Question 1

Most corporate bonds are traded

Accepted Answer

A) on a formal exchange operated by the New York Stock Exchange. 
B) by the issuing corporation. 
C) over the counter by bond dealers linked by a computer quotation system. 
D) on a formal exchange operated by the American Stock Exchange. 
E) on a formal exchange operated by the Philadelphia Stock Exchange. 
A) on a formal exchange operated by the New York Stock Exchange. 
B) by the issuing corporation. 
C) over the counter by bond dealers linked by a computer quotation system. 
D) on a formal exchange operated by the American Stock Exchange. 
E) on a formal exchange operated by the Philadelphia Stock Exchange. C

Question 2

You purchased an annual interest coupon bond one year ago that now has 18 years remaining until maturity.The coupon rate of interest was 11% and par value was $1,000.At the time you purchased the bond, the yield to maturity was 10%.The amount you paid for this bond one year ago was

Accepted Answer

A) $1,057.50. 
B) $1,075.50. 
C) $1,083.65. 
D) $1.092.46. 
E) $1,104.13. 
A) $1,057.50. 
B) $1,075.50. 
C) $1,083.65. 
D) $1.092.46. 
E) $1,104.13. C

Question 3

A zero-coupon bond has a yield to maturity of 9% and a par value of $1,000.If the bond matures in eight 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 the options 
A) 422.41 
B) $501.87 
C) $513.16 
D) $483.49 
E) None of the options B

Question 4

A coupon bond that pays interest annually, has a par value of $1,000, matures in five years, and has a yield to maturity of 10%.The intrinsic value of the bond today will be _________ if the coupon rate is 12%.

Accepted Answer

A) $922.77 
B) $924.16 
C) $1,075.82 
D) $1,077.20 
E) None of the options 
A) $922.77 
B) $924.16 
C) $1,075.82 
D) $1,077.20 
E) None of the options

Question 5

A coupon bond that pays interest of $100 annually has a par value of $1,000, matures in five 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 the options 
A) 6.00%. 
B) 8.33%. 
C) 12.00%. 
D) 60.00%. 
E) None of the options

Question 6

SIVs raise funds by ______ and then use the proceeds to ______.

Accepted Answer

A) issuing short-term commercial paper; retire other forms of their debt 
B) issuing short-term commercial paper; buy other forms of debt such as mortgages 
C) issuing long-term bonds; retire other forms of their debt 
D) issuing long-term bonds; buy other forms of debt such as mortgages 
A) issuing short-term commercial paper; retire other forms of their debt 
B) issuing short-term commercial paper; buy other forms of debt such as mortgages 
C) issuing long-term bonds; retire other forms of their debt 
D) issuing long-term bonds; buy other forms of debt such as mortgages

Question 7

A Treasury bill with a par value of $100,000 due one month from now is selling today for $99,010.The effective annual yield is

Accepted Answer

A) 12.40%. 
B) 12.55%. 
C) 12.62%. 
D) 12.68%. 
E) None of the options 
A) 12.40%. 
B) 12.55%. 
C) 12.62%. 
D) 12.68%. 
E) None of the options

Question 8

A zero-coupon bond is one that

Accepted Answer

A) effectively has a zero percent coupon rate. 
B) pays interest to the investor based on the general level of interest rates, rather than at a specified coupon rate. 
C) pays interest to the investor without requiring the actual coupon to be mailed to the corporation. 
D) is issued by state governments because they don't have to pay interest. 
E) is analyzed primarily by focusing ("zeroing in") on the coupon rate. 
A) effectively has a zero percent coupon rate. 
B) pays interest to the investor based on the general level of interest rates, rather than at a specified coupon rate. 
C) pays interest to the investor without requiring the actual coupon to be mailed to the corporation. 
D) is issued by state governments because they don't have to pay interest. 
E) is analyzed primarily by focusing ("zeroing in") on the coupon rate.

Question 9

TIPS are

Accepted Answer

A) securities formed from the coupon payments only of government bonds. 
B) securities formed from the principal payments only of government bonds. 
C) government bonds with par value linked to the general level of prices. 
D) government bonds with coupon rate linked to the general level of prices. 
E) zero-coupon government bonds. 
A) securities formed from the coupon payments only of government bonds. 
B) securities formed from the principal payments only of government bonds. 
C) government bonds with par value linked to the general level of prices. 
D) government bonds with coupon rate linked to the general level of prices. 
E) zero-coupon government bonds.

Question 10

If a 7.5% coupon bond that pays interest every 182 days paid interest 62 days ago, the accrued interest would be

Accepted Answer

A) 11.67. 
B) 12.35. 
C) 12.77. 
D) 11.98. 
E) 12.15. 
A) 11.67. 
B) 12.35. 
C) 12.77. 
D) 11.98. 
E) 12.15.

Question 11

Mortgage-backed CDOs were a disaster in 2007 because

Accepted Answer

A) they were formed by pooling high quality fixed-rated loans with low interest rates. 
B) they were formed by pooling subprime mortgages. 
C) home prices stalled. 
D) the mortgages were variable rate loans and interest rates increased. 
E) they were formed by pooling subprime mortgages, home prices stalled, and the mortgages were variable rate loans and interest rates increased. 
A) they were formed by pooling high quality fixed-rated loans with low interest rates. 
B) they were formed by pooling subprime mortgages. 
C) home prices stalled. 
D) the mortgages were variable rate loans and interest rates increased. 
E) they were formed by pooling subprime mortgages, home prices stalled, and the mortgages were variable rate loans and interest rates increased.

Question 12

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 
A) 422.41 
B) $501.87 
C) $513.16 
D) $130.04

Question 13

A coupon bond that pays interest annually has a par value of $1,000, matures in five years, and has a yield to maturity of 10%.The intrinsic value of the bond today will be ______ if the coupon rate is 7%.

Accepted Answer

A) $712.99 
B) $620.92 
C) $1,123.01 
D) $886.28 
E) $1,000.00 
A) $712.99 
B) $620.92 
C) $1,123.01 
D) $886.28 
E) $1,000.00

Question 14

If a 7.25% coupon bond is trading for $982.00, it has a current yield of

Accepted Answer

A) 7.38%. 
B) 6.53%. 
C) 7.25%. 
D) 8.53%. 
E) 7.18%. 
A) 7.38%. 
B) 6.53%. 
C) 7.25%. 
D) 8.53%. 
E) 7.18%.

Question 15

Of the following four investments, ________ is considered the least risky.

Accepted Answer

A) Treasury bills 
B) corporate bonds 
C) U.S.agency issues 
D) Treasury bonds 
E) commercial paper 
A) Treasury bills 
B) corporate bonds 
C) U.S.agency issues 
D) Treasury bonds 
E) commercial paper

Question 16

A 10% coupon bond, annual payments, 10 years to maturity is callable in three years at a call price of $1,100.If the bond is selling today for $975, the yield to call is

Accepted Answer

A) 10.26%. 
B) 10.00%. 
C) 9.25%. 
D) 13.98%. 
E) None of the options 
A) 10.26%. 
B) 10.00%. 
C) 9.25%. 
D) 13.98%. 
E) None of the options

Question 17

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) are called when interest rates decline appreciably and have a call price that declines as time passes. 
E) have a call price that declines as time passes and are called when interest rates increase appreciably. 
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) are called when interest rates decline appreciably and have a call price that declines as time passes. 
E) have a call price that declines as time passes and are called when interest rates increase appreciably.

Question 18

A zero-coupon bond has a yield to maturity of 11% and a par value of $1,000.If the bond matures in 27 years, the bond should sell for a price of _______ today.

Accepted Answer

A) $59.74 
B) $501.87 
C) $513.16 
D) $483.49 
A) $59.74 
B) $501.87 
C) $513.16 
D) $483.49

Question 19

A Treasury bond due in one year has a yield of 6.2%; a Treasury bond due in five years has a yield of 6.7%.A bond issued by Xerox due in five 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 Xerox, 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 the options 
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 the options

Question 20

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in seven years, and has a yield to maturity of 9.3%.The intrinsic value of the bond today will be ________ if the coupon rate is 9.5%.

Accepted Answer

A) $922.77 
B) $1,010.12 
C) $1,075.80 
D) $1,077.22 
E) None of the options 
A) $922.77 
B) $1,010.12 
C) $1,075.80 
D) $1,077.22 
E) None of the options

Exam 14: Bond Prices and Yields

Most corporate bonds are traded

You purchased an annual interest coupon bond one year ago that now has 18 years remaining until maturity.The coupon rate of interest was 11% and par value was $1,000.At the time you purchased the bond, the yield to maturity was 10%.The amount you paid for this bond one year ago was

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

A coupon bond that pays interest annually, has a par value of $1,000, matures in five years, and has a yield to maturity of 10%.The intrinsic value of the bond today will be _________ if the coupon rate is 12%.

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

SIVs raise funds by ______ and then use the proceeds to ______.

A Treasury bill with a par value of $100,000 due one month from now is selling today for $99,010.The effective annual yield is

A zero-coupon bond is one that

TIPS are

If a 7.5% coupon bond that pays interest every 182 days paid interest 62 days ago, the accrued interest would be

Mortgage-backed CDOs were a disaster in 2007 because

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.

A coupon bond that pays interest annually has a par value of $1,000, matures in five years, and has a yield to maturity of 10%.The intrinsic value of the bond today will be ______ if the coupon rate is 7%.

If a 7.25% coupon bond is trading for $982.00, it has a current yield of

Of the following four investments, ________ is considered the least risky.

A 10% coupon bond, annual payments, 10 years to maturity is callable in three years at a call price of $1,100.If the bond is selling today for $975, the yield to call is

Callable bonds

A zero-coupon bond has a yield to maturity of 11% and a par value of $1,000.If the bond matures in 27 years, the bond should sell for a price of _______ today.

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in seven years, and has a yield to maturity of 9.3%.The intrinsic value of the bond today will be ________ if the coupon rate is 9.5%.

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

SIVs raise funds by and then use the proceeds to .