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

An 8% coupon municipal bond has 15 years left to maturity and has a price quote of 102.0. The bond can be called in 6 years. The call premium is one year of coupon payments. Compute the bond's yield to call and determine if the bond will be called. Assume interest payments are paid semiannually and a par value of $5,000.

Accepted Answer

A) 4.31%; Yes, the bond will be called. 
B) 8.62%; Yes, the bond will be called. 
C) 8.62%; No, the bond will not be called. 
D) 11.21%; No the bond will not be called.Step 1: N = 12; PMT = 200; PV = 5100; FV = 5400; => I = 4.31; YTC = 2 * 4.31 = 8.62. 
A) 4.31%; Yes, the bond will be called. 
B) 8.62%; Yes, the bond will be called. 
C) 8.62%; No, the bond will not be called. 
D) 11.21%; No the bond will not be called.Step 1: N = 12; PMT = 200; PV = 5100; FV = 5400; => I = 4.31; YTC = 2 * 4.31 = 8.62.

Question 3

Calculate the price of a zero-coupon bond that matures in five years if the market interest rate is 7.50 percent. (Assume semiannual compounding and $1,000 par value.)

Accepted Answer

A) $692.02 
B) $696.57 
C) $962.50 
D) $1,000.00 
A) $692.02 
B) $696.57 
C) $962.50 
D) $1,000.00

Question 4

A 10 percent coupon bond has 15 years to maturity and could be called in two years. If the bond is called, investors will earn 4 percent. The call premium is one year of coupon payments. If coupon payments are made annually and par value is $1,000, what is the bond's yield to maturity?

Accepted Answer

A) 6.19 percent 
B) 6.82 percent 
C) 7.65 percent 
D) 7.98 percent 
A) 6.19 percent 
B) 6.82 percent 
C) 7.65 percent 
D) 7.98 percent

Question 5

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 semiannual 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 
A) discount 
B) premium N = 20, I = 4.375, PMT = 30, FV = 1000, CPT PV = -819.19

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

A bond issued by a corporation on October 1, 2007, is scheduled to mature on October 1, 3007. If today is October 2, 2009, what is this bond's time to maturity? (Assume annual interest payments.)

Accepted Answer

A) 2 years 
B) 50 years 
C) 998 years 
D) 100 years 
A) 2 years 
B) 50 years 
C) 998 years 
D) 100 years

Question 8

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 choices are correct. 
A) corruption in the investment banking industry 
B) widespread layoffs due to illegal alien hiring 
C) defaults on subprime mortgages 
D) All of these choices are correct.

Question 9

A bond with 14 years to maturity is selling for $1,070 and has a yield to maturity of 10.06 percent. If this bond pays its coupon payments semiannually and par value is $1,000, what is the bond's annual coupon rate?

Accepted Answer

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

Question 10

Calculate the price of a 6.5% coupon bond with 17 years left to maturity and a market interest rate of 10.5%. (Assume interest rates are semiannual and par value is $1,000.) Is this a discount or premium bond?

Accepted Answer

A) $685.93; discount 
B) $791.03; discount 
C) $1,051.83; premium 
D) $1,176.31; premium 
A) $685.93; discount 
B) $791.03; discount 
C) $1,051.83; premium 
D) $1,176.31; premium

Question 11

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 12

A 4.25 percent coupon municipal bond has 10 years left to maturity and has a price quote of 108.75. The bond can be called in five years. The call premium is one year of coupon payments. What is the bond's taxable equivalent yield for an investor in the 28 percent marginal tax bracket? (Assume interest payments are paid semiannually and a par value of $1,000.)

Accepted Answer

A) 2.24 percent 
B) 4.47 percent 
C) 5.75 percent 
D) 5.90 percent 
A) 2.24 percent 
B) 4.47 percent 
C) 5.75 percent 
D) 5.90 percent

Question 13

Rank the following bonds in order from lowest credit risk to highest risk all with the same time to maturity, by their yield to maturity: JM Corporate bond with yield of 12.25 percent, IB Corporate bond with yield of 4.49 percent, TC Corporate bond with yield of 8.76 percent, and B&O Corporate bond with a yield of 5.99 percent.

Accepted Answer

A) JM bond, TC bond, B&O bond, IB bond 
B) IB bond, B&O bond, TC bond, JM bond 
C) TC bond, B&O bond, IB bond, JM bond 
D) JM bond, IB bond, B&O bond, TC bond 
A) JM bond, TC bond, B&O bond, IB bond 
B) IB bond, B&O bond, TC bond, JM bond 
C) TC bond, B&O bond, IB bond, JM bond 
D) JM bond, IB bond, B&O bond, TC bond

Question 14

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 five 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 semiannually and a par value of $5,000.)

Accepted Answer

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

Question 15

Which of the following statements is true?

Accepted Answer

A) Interest payments paid to U.S. Treasury bondholders are not taxed at the federal level. 
B) Interest payments paid to corporate bondholders are not taxed at the federal level. 
C) Interest payments paid to corporate bondholders are not taxed at the state level. 
D) Interest payments paid to municipal bondholders are not taxed at the federal level, or by the state for which the bond is issued. 
A) Interest payments paid to U.S. Treasury bondholders are not taxed at the federal level. 
B) Interest payments paid to corporate bondholders are not taxed at the federal level. 
C) Interest payments paid to corporate bondholders are not taxed at the state level. 
D) Interest payments paid to municipal bondholders are not taxed at the federal level, or by the state for which the bond is issued.

Question 16

A 15-year bond with a 10 percent coupon has a yield to maturity of 8 percent. The bond could be called in four years and if called would generate a yield to call of 6 percent. What is this bond's call premium? Assume the coupon payments are made semiannually and par value is $1,000.

Accepted Answer

A) $19.73 
B) $81.87 
C) $41.20 
D) $66.03 
A) $19.73 
B) $81.87 
C) $41.20 
D) $66.03

Question 17

Consider a 3.25 percent 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 18

The bond's annual coupon rate divided by its market price is referred to as the

Accepted Answer

A) yield to call. 
B) yield to maturity. 
C) current yield. 
D) term structure of interest rates. 
A) yield to call. 
B) yield to maturity. 
C) current yield. 
D) term structure of interest rates.

Question 19

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.First determine the ETY: 
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.First determine the ETY:

Question 20

Bond prices are quoted in terms of which of the following?

Accepted Answer

A) original issue discount 
B) percent of par value 
C) coupon rate in dollars 
D) market rate in dollars 
A) original issue discount 
B) percent of par value 
C) coupon rate in dollars 
D) market rate in dollars

A bond's current yield is defined as

Calculate the price of a zero-coupon bond that matures in five years if the market interest rate is 7.50 percent. (Assume semiannual compounding and $1,000 par value.)

A 10 percent coupon bond has 15 years to maturity and could be called in two years. If the bond is called, investors will earn 4 percent. The call premium is one year of coupon payments. If coupon payments are made annually and par value is $1,000, what is the bond's yield to maturity?

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 semiannual and par value is $1,000.) Is this a discount or premium bond?

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?

A bond issued by a corporation on October 1, 2007, is scheduled to mature on October 1, 3007. If today is October 2, 2009, what is this bond's time to maturity? (Assume annual interest payments.)

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

A bond with 14 years to maturity is selling for $1,070 and has a yield to maturity of 10.06 percent. If this bond pays its coupon payments semiannually and par value is $1,000, what is the bond's annual coupon rate?

Calculate the price of a 6.5% coupon bond with 17 years left to maturity and a market interest rate of 10.5%. (Assume interest rates are semiannual and par value is $1,000.) Is this a discount or premium bond?

Possible shapes for the yield curve include all of the following EXCEPT

Which of the following statements is true?

A 15-year bond with a 10 percent coupon has a yield to maturity of 8 percent. The bond could be called in four years and if called would generate a yield to call of 6 percent. What is this bond's call premium? Assume the coupon payments are made semiannually and par value is $1,000.

Consider a 3.25 percent 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.)

The bond's annual coupon rate divided by its market price is referred to as the

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?

Bond prices are quoted in terms of which of the following?

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

Calculate the price of a zero-coupon bond that matures in five years if the market interest rate is 7.50 percent. (Assume semiannual compounding and $1,000 par value.)

A 10 percent coupon bond has 15 years to maturity and could be called in two years. If the bond is called, investors will earn 4 percent. The call premium is one year of coupon payments. If coupon payments are made annually and par value is $1,000, what is the bond's yield to maturity?

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 semiannual and par value is $1,000.) Is this a discount or premium bond?

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?

A bond issued by a corporation on October 1, 2007, is scheduled to mature on October 1, 3007. If today is October 2, 2009, what is this bond's time to maturity? (Assume annual interest payments.)

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

A bond with 14 years to maturity is selling for $1,070 and has a yield to maturity of 10.06 percent. If this bond pays its coupon payments semiannually and par value is $1,000, what is the bond's annual coupon rate?

Calculate the price of a 6.5% coupon bond with 17 years left to maturity and a market interest rate of 10.5%. (Assume interest rates are semiannual and par value is $1,000.) Is this a discount or premium bond?

Possible shapes for the yield curve include all of the following EXCEPT

Which of the following statements is true?

A 15-year bond with a 10 percent coupon has a yield to maturity of 8 percent. The bond could be called in four years and if called would generate a yield to call of 6 percent. What is this bond's call premium? Assume the coupon payments are made semiannually and par value is $1,000.

Consider a 3.25 percent 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.)

The bond's annual coupon rate divided by its market price is referred to as the

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?

Bond prices are quoted in terms of which of the following?

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