Question 1

Bonds are issued by which of the following?

Accepted Answer

A) corporations 
B) federal government or its agencies 
C) state and local governments 
D) All of these choices are correct. 
A) corporations 
B) federal government or its agencies 
C) state and local governments 
D) All of these choices are correct.

Question 2

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 semiannually and par value is $1,000.)

Accepted Answer

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

Question 3

Which of the following is another name for junk bonds?

Accepted Answer

A) high-risk bonds 
B) high-price bonds 
C) high-yield bonds 
D) None of these choices are correct. 
A) high-risk bonds 
B) high-price bonds 
C) high-yield bonds 
D) None of these choices are correct.

Question 4

A 6.75 percent coupon bond with 13 years left to maturity can be called in two years. The call premium is one year of coupon payments. It is offered for sale at $919.75. What is the yield to call of the bond? Assume interest payments are paid semiannually and par value is $1,000.

Accepted Answer

A) 12.14 percent 
B) 7.27 percent 
C) 14.54 percent 
D) 8.29 percent 
A) 12.14 percent 
B) 7.27 percent 
C) 14.54 percent 
D) 8.29 percent

Question 5

What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4 percent for an investor in the 28 percent tax bracket?

Accepted Answer

A) 2.88 percent 
B) 3.87 percent 
C) 4.51 percent 
D) 5.56 percent 
A) 2.88 percent 
B) 3.87 percent 
C) 4.51 percent 
D) 5.56 percent

Question 6

A 2.5 percent TIPS has an original reference CPI of 170.4. If the current CPI is 205.7, what is the current interest payment and par value of the TIPS? (Assume semiannual interest payments and $1,000 par value.)

Accepted Answer

A) $1,000, $7.16, respectively 
B) $1,000, $15.09, respectively 
C) $1,207.16, $7.16, respectively 
D) $1,207.16, $15.09, respectively 
A) $1,000, $7.16, respectively 
B) $1,000, $15.09, respectively 
C) $1,207.16, $7.16, respectively 
D) $1,207.16, $15.09, respectively

Question 7

A 4.15 percent TIPS has an original reference CPI of 182.1. If the current CPI is 188.3, what is the par value of the TIPS?

Accepted Answer

A) $1,034.05 
B) $1,004.75 
C) $1,000.00 
D) $967.07 
A) $1,034.05 
B) $1,004.75 
C) $1,000.00 
D) $967.07

Question 8

A 7.5 percent coupon bond with 16 years left to maturity is offered for sale at $834.92. What yield to maturity is the bond offering? (Assume interest payments are paid semiannually and par value is $1,000.)

Accepted Answer

A) 4.77 percent 
B) 7.5 percent 
C) 9.54 percent 
D) 10.34 percent 
A) 4.77 percent 
B) 7.5 percent 
C) 9.54 percent 
D) 10.34 percent

Question 9

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 10

Which of the following bonds will have the largest percentage increase in value if interest rates decrease by 1 percent?

Accepted Answer

A) 2-year, 5 percent coupon bond 
B) 30-year, 10 percent coupon bond 
C) 10-year, zero-coupon 
D) 30-year, zero-coupon 
A) 2-year, 5 percent coupon bond 
B) 30-year, 10 percent coupon bond 
C) 10-year, zero-coupon 
D) 30-year, zero-coupon

Question 11

An 8 percent coupon municipal bond has 15 years left to maturity and has a price quote of 98.5. The bond can be called in six 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) 4.68 percent; Yes, the bond will be called. 
B) 9.36 percent; Yes, the bond will be called. 
C) 9.36 percent; No, the bond will not be called. 
D) 10.71 percent; No, the bond will not be called.Step 1: N = 12; PMT = 200; PV = 4925; FV = 5400; => I = 4.68; YTC = 2 * 4.68 = 9.36. 
A) 4.68 percent; Yes, the bond will be called. 
B) 9.36 percent; Yes, the bond will be called. 
C) 9.36 percent; No, the bond will not be called. 
D) 10.71 percent; No, the bond will not be called.Step 1: N = 12; PMT = 200; PV = 4925; FV = 5400; => I = 4.68; YTC = 2 * 4.68 = 9.36.

Question 12

Which of the following statements is correct?

Accepted Answer

A) Bonds with short-term maturities will have very little interest rate risk. 
B) Bonds with large coupon payments will have very little interest rate risk. 
C) Bonds with higher credit ratings will have very little interest rate risk. 
D) All of these choices are correct. 
A) Bonds with short-term maturities will have very little interest rate risk. 
B) Bonds with large coupon payments will have very little interest rate risk. 
C) Bonds with higher credit ratings will have very little interest rate risk. 
D) All of these choices are correct.

Question 13

A 4.25 percent coupon bond with eight years left to maturity is offered for sale at $983.36. What yield to maturity is the bond offering? (Assume interest payments are paid semiannually and par value is $1,000.)

Accepted Answer

A) 2.25 percent 
B) 2.36 percent 
C) 4.25 percent 
D) 4.50 percent 
A) 2.25 percent 
B) 2.36 percent 
C) 4.25 percent 
D) 4.50 percent

Question 14

A 7 percent coupon bond has 10 years to maturity and could be called in three years. If the bond is called, investors will earn 5.5 percent. The call premium is one year of coupon payments. If coupon payments are made semiannually and par value is $1,000, what is the bond's yield to maturity?

Accepted Answer

A) 2.84 percent 
B) 3.17 percent 
C) 5.38 percent 
D) 5.67 percent 
A) 2.84 percent 
B) 3.17 percent 
C) 5.38 percent 
D) 5.67 percent

Question 15

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 16

Reconsider a 3.25 percent TIPS that was issued with CPI reference of 186.7. The bond is purchased at the beginning of the year (after the interest payment), when the CPI was 197.5. For the interest in the middle of the year, the CPI was 201.1. Now, at the end of the year, the CPI is 202.4 and the interest payment has been made. What is the total return of the TIPS in percentage terms for the year? (Assume semiannual interest payments and $1,000 par value.)

Accepted Answer

A) 1.6 percent 
B) 2.4 percent 
C) 5.8 percent 
D) 9.1 percent 
A) 1.6 percent 
B) 2.4 percent 
C) 5.8 percent 
D) 9.1 percent

Question 17

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 18

Consider a 3.75 percent TIPS with an issue CPI reference of 183.5. At the beginning of this year, the CPI was 190.6 and was at 199.4 at the end of the year. What was the capital gain of the TIPS in percentage terms? (Assume semiannual interest payments and $1,000 par value.)

Accepted Answer

A) 3.75 percent 
B) 4.62 percent 
C) 7.10 percent 
D) 8.80 percent 
A) 3.75 percent 
B) 4.62 percent 
C) 7.10 percent 
D) 8.80 percent

Question 19

To increase the liquidity for the home mortgage market, Fannie Mae and Freddie Mac purchased home mortgages from banks and other lenders. They combined the mortgages into diversified portfolios of loans and issued

Accepted Answer

A) trust securities. 
B) mortgage-backed securities. 
C) current yield securities. 
D) treasury inflation-protected securities. 
A) trust securities. 
B) mortgage-backed securities. 
C) current yield securities. 
D) treasury inflation-protected securities.

Question 20

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.

Bonds are issued by which of the following?

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 semiannually and par value is $1,000.)

Which of the following is another name for junk bonds?

A 6.75 percent coupon bond with 13 years left to maturity can be called in two years. The call premium is one year of coupon payments. It is offered for sale at $919.75. What is the yield to call of the bond? Assume interest payments are paid semiannually and par value is $1,000.

What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4 percent for an investor in the 28 percent tax bracket?

A 2.5 percent TIPS has an original reference CPI of 170.4. If the current CPI is 205.7, what is the current interest payment and par value of the TIPS? (Assume semiannual interest payments and $1,000 par value.)

A 4.15 percent TIPS has an original reference CPI of 182.1. If the current CPI is 188.3, what is the par value of the TIPS?

A 7.5 percent coupon bond with 16 years left to maturity is offered for sale at $834.92. What yield to maturity is the bond offering? (Assume interest payments are paid semiannually and par value is $1,000.)

Which of the following statements is correct?

Which of the following bonds will have the largest percentage increase in value if interest rates decrease by 1 percent?

Which of the following statements is correct?

A 4.25 percent coupon bond with eight years left to maturity is offered for sale at $983.36. What yield to maturity is the bond offering? (Assume interest payments are paid semiannually and par value is $1,000.)

A 7 percent coupon bond has 10 years to maturity and could be called in three years. If the bond is called, investors will earn 5.5 percent. The call premium is one year of coupon payments. If coupon payments are made semiannually and par value is $1,000, what is the bond's yield to maturity?

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

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

Consider a 3.75 percent TIPS with an issue CPI reference of 183.5. At the beginning of this year, the CPI was 190.6 and was at 199.4 at the end of the year. What was the capital gain of the TIPS in percentage terms? (Assume semiannual interest payments and $1,000 par value.)

To increase the liquidity for the home mortgage market, Fannie Mae and Freddie Mac purchased home mortgages from banks and other lenders. They combined the mortgages into diversified portfolios of loans and issued

Which of the following is a true statement?

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

Bonds are issued by which of the following?

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 semiannually and par value is $1,000.)

Which of the following is another name for junk bonds?

A 6.75 percent coupon bond with 13 years left to maturity can be called in two years. The call premium is one year of coupon payments. It is offered for sale at $919.75. What is the yield to call of the bond? Assume interest payments are paid semiannually and par value is $1,000.

What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4 percent for an investor in the 28 percent tax bracket?

A 2.5 percent TIPS has an original reference CPI of 170.4. If the current CPI is 205.7, what is the current interest payment and par value of the TIPS? (Assume semiannual interest payments and $1,000 par value.)

A 4.15 percent TIPS has an original reference CPI of 182.1. If the current CPI is 188.3, what is the par value of the TIPS?

A 7.5 percent coupon bond with 16 years left to maturity is offered for sale at $834.92. What yield to maturity is the bond offering? (Assume interest payments are paid semiannually and par value is $1,000.)

Which of the following statements is correct?

Which of the following bonds will have the largest percentage increase in value if interest rates decrease by 1 percent?

Which of the following statements is correct?

A 4.25 percent coupon bond with eight years left to maturity is offered for sale at $983.36. What yield to maturity is the bond offering? (Assume interest payments are paid semiannually and par value is $1,000.)

A 7 percent coupon bond has 10 years to maturity and could be called in three years. If the bond is called, investors will earn 5.5 percent. The call premium is one year of coupon payments. If coupon payments are made semiannually and par value is $1,000, what is the bond's yield to maturity?

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

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

Consider a 3.75 percent TIPS with an issue CPI reference of 183.5. At the beginning of this year, the CPI was 190.6 and was at 199.4 at the end of the year. What was the capital gain of the TIPS in percentage terms? (Assume semiannual interest payments and $1,000 par value.)

To increase the liquidity for the home mortgage market, Fannie Mae and Freddie Mac purchased home mortgages from banks and other lenders. They combined the mortgages into diversified portfolios of loans and issued

Which of the following is a true statement?

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