Question 1

How much should you pay for a $1,000 bond with 10% coupon,annual payments,and 5 years to maturity if the interest rate is 12%?

Accepted Answer

A)  $927.90 
B)  $981.40 
C)  $1,000.00 
D)  $1,075.82 
A)  $927.90 
B)  $981.40 
C)  $1,000.00 
D)  $1,075.82

Question 2

What is the amount of the annual coupon payment for a bond that has 6 years until maturity,sells for $1,050,and has a yield to maturity of 9.37%?

Accepted Answer

A)  $87.12 
B)  $93.70 
C)  $100.00 
D)  $105.00 
A)  $87.12 
B)  $93.70 
C)  $100.00 
D)  $105.00

Question 3

Compare the price sensitivity to changes in interest rates for the following bonds: a 5-year and a 10-year bond,each with a 7% coupon.Both bonds currently sell at par.How much will the price of each bond change if interest rates increase to 8%? Why is there a difference in the price change?

Accepted Answer

@#IMG-DLM& The 5-year bond decreases $39

Question 4

What price was quoted to an investor who paid $982.50 for a $1,000 par value bond?

Accepted Answer

A)  82:50 
B)  97:25 
C)  98:08 
D)  98:25 
A)  82:50 
B)  97:25 
C)  98:08 
D)  98:25

Question 5

Asked yields can be guaranteed only to investors who buy a bond and hold it until maturity.

Accepted Answer

A) True 
 B)False

Question 6

Bonds rated Ba by Moody's have the same safety rating as the bonds rated BB by Standard & Poor's.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is correct when a bond investor's rate of return for a particular period equals the bond's coupon rate?

Accepted Answer

A)  The bond increased in price during the period. 
B)  The bond decreased in price during the period. 
C)  The coupon payment increased during the period. 
D)  The bond price remained unchanged during the period. 
A)  The bond increased in price during the period. 
B)  The bond decreased in price during the period. 
C)  The coupon payment increased during the period. 
D)  The bond price remained unchanged during the period.

Question 8

When the market interest rate exceeds the coupon rate,bonds sell for less than face value to provide enough compensation to investors.

Accepted Answer

A) True 
 B)False

Question 9

Investors who own bonds having lower credit ratings should expect:

Accepted Answer

A)  lower yields to maturity. 
B)  higher default possibilities. 
C)  lower coupon payments. 
D)  higher present value of cash flows. 
A)  lower yields to maturity. 
B)  higher default possibilities. 
C)  lower coupon payments. 
D)  higher present value of cash flows.

Question 10

What is the rate of return for an investor who pays $1,054.47 for a 3-year bond with a 7% coupon and sells the bond 1 year later for $1,037.19?

Accepted Answer

A)  5.00% 
B)  5.33% 
C)  6.46% 
D)  7.00% 
A)  5.00% 
B)  5.33% 
C)  6.46% 
D)  7.00%

Question 11

Which of the following will not happen for an investor who owns TIPS during a period of inflation?

Accepted Answer

A)  The coupon payment will increase in real terms. 
B)  The maturity value will increase in nominal terms. 
C)  The investor's real rate of return is guaranteed. 
D)  Payments will increase depending on the level of the CPI. 
A)  The coupon payment will increase in real terms. 
B)  The maturity value will increase in nominal terms. 
C)  The investor's real rate of return is guaranteed. 
D)  Payments will increase depending on the level of the CPI.

Question 12

How much would an investor need to receive in nominal return if he desires a real return of 4% and the rate of inflation is 5%?

Accepted Answer

A)  4.20% 
B)  8.64% 
C)  9.00% 
D)  9.20% 
A)  4.20% 
B)  8.64% 
C)  9.00% 
D)  9.20%

Question 13

What is the yield to maturity of a bond with the following characteristics? Coupon rate is 8% with semiannual payments,current price is $960,3 years until maturity.

Accepted Answer

A)  4.78% 
B)  5.48% 
C)  9.57% 
D)  12.17% 
A)  4.78% 
B)  5.48% 
C)  9.57% 
D)  12.17%

Question 14

TIPS are unlike most bonds in that their cash flows increase when the national unemployment rate increases.

Accepted Answer

A) True 
 B)False

Question 15

If the 7s of 2005 are offered at 102:23,then the price of a $1,000 bond would be:

Accepted Answer

A)  $1,020.23. 
B)  $1,022.30. 
C)  $1,025.00. 
D)  $1,027.19. 
A)  $1,020.23. 
B)  $1,022.30. 
C)  $1,025.00. 
D)  $1,027.19.

Question 16

How much should you be prepared to pay for a 10-year bond with a 6% coupon,semiannual payments,and a semiannually compounded yield of 7.5%?

Accepted Answer

A)  $895.78 
B)  $897.04 
C)  $938.40 
D)  $1,312.66 
A)  $895.78 
B)  $897.04 
C)  $938.40 
D)  $1,312.66

Question 17

It is impossible for an investor to insure against the risk of bond default.

Accepted Answer

A) True 
 B)False

Question 18

If a 4-year bond with a 7% coupon and a 10% yield to maturity is currently worth $904.90,how much will it be worth 1 year from now if interest rates are constant?

Accepted Answer

A)  $904.90 
B)  $925.39 
C)  $947.93 
D)  $1,000.00 
A)  $904.90 
B)  $925.39 
C)  $947.93 
D)  $1,000.00

Question 19

What are some new types of bonds? List and describe at least two of them.

Accepted Answer

Bond issuers are always trying to invent

Question 20

Speculative-grade bonds have default risk; investment grade bonds do not.

Accepted Answer

A) True 
 B)False

Exam 6: Valuing Bonds

How much should you pay for a $1,000 bond with 10% coupon,annual payments,and 5 years to maturity if the interest rate is 12%?

What is the amount of the annual coupon payment for a bond that has 6 years until maturity,sells for $1,050,and has a yield to maturity of 9.37%?

Compare the price sensitivity to changes in interest rates for the following bonds: a 5-year and a 10-year bond,each with a 7% coupon.Both bonds currently sell at par.How much will the price of each bond change if interest rates increase to 8%? Why is there a difference in the price change?

What price was quoted to an investor who paid $982.50 for a $1,000 par value bond?

Asked yields can be guaranteed only to investors who buy a bond and hold it until maturity.

Bonds rated Ba by Moody's have the same safety rating as the bonds rated BB by Standard & Poor's.

Which of the following is correct when a bond investor's rate of return for a particular period equals the bond's coupon rate?

When the market interest rate exceeds the coupon rate,bonds sell for less than face value to provide enough compensation to investors.

Investors who own bonds having lower credit ratings should expect:

What is the rate of return for an investor who pays $1,054.47 for a 3-year bond with a 7% coupon and sells the bond 1 year later for $1,037.19?

Which of the following will not happen for an investor who owns TIPS during a period of inflation?

How much would an investor need to receive in nominal return if he desires a real return of 4% and the rate of inflation is 5%?

What is the yield to maturity of a bond with the following characteristics? Coupon rate is 8% with semiannual payments,current price is $960,3 years until maturity.

TIPS are unlike most bonds in that their cash flows increase when the national unemployment rate increases.

If the 7s of 2005 are offered at 102:23,then the price of a $1,000 bond would be:

How much should you be prepared to pay for a 10-year bond with a 6% coupon,semiannual payments,and a semiannually compounded yield of 7.5%?

It is impossible for an investor to insure against the risk of bond default.

If a 4-year bond with a 7% coupon and a 10% yield to maturity is currently worth $904.90,how much will it be worth 1 year from now if interest rates are constant?

What are some new types of bonds? List and describe at least two of them.

Speculative-grade bonds have default risk; investment grade bonds do not.

Goals and Governance of the Corporation

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk,Return,and the Opportunity Cost of Capital

Risk,Return,and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Risk, Return, and Capital Budgeting

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters