Question 1

Bonds rated BB or above by Standard & Poor's are called investment grade.

Accepted Answer

A) True 
 B)False  False

Question 2

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

Accepted Answer

A) True 
 B)False  False

Question 3

Which one of these is included in the yield of a bond with a low credit rating but not included in a U.S.Treasury bond yield? Assume both bonds are selling at a premium.

Accepted Answer

A)  Real rate of return 
B)  Inflation premium 
C)  Default premium 
D)  Loss of premium 
A)  Real rate of return 
B)  Inflation premium 
C)  Default premium 
D)  Loss of premium C

Question 4

An investor buys a 10-year annual coupon bond at a yield of 8.7% and sells it 2 years later when it still yields 8.7%.What is his rate of return over this period?

Accepted Answer

A)  zero. 
B)  8.7%. 
C)  Can't say without knowing the coupon. 
D)  17.4%. 
A)  zero. 
B)  8.7%. 
C)  Can't say without knowing the coupon. 
D)  17.4%.

Question 5

A bond has a coupon rate of 8%,pays interest semiannually,sells for $960,and matures in 3 years.What is its yield to 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 6

Investors who purchase bonds having lower credit ratings should expect:

Accepted Answer

A)  lower yields to maturity. 
B)  higher default possibilities. 
C)  lower coupon payments. 
D)  higher purchase prices. 
A)  lower yields to maturity. 
B)  higher default possibilities. 
C)  lower coupon payments. 
D)  higher purchase prices.

Question 7

An investor buys a 5-year,9% coupon bond for $975,holds it for 1 year,and then sells the bond for $985.What was the investor's rate of return?

Accepted Answer

A)  9.00% 
B)  9.23% 
C)  9.65% 
D)  10.26% 
A)  9.00% 
B)  9.23% 
C)  9.65% 
D)  10.26%

Question 8

The current yield of a bond can be calculated by:

Accepted Answer

A)  multiplying the price by the coupon rate. 
B)  dividing the price by the annual coupon payments. 
C)  dividing the price by the par value. 
D)  dividing the annual coupon payments by the price. 
A)  multiplying the price by the coupon rate. 
B)  dividing the price by the annual coupon payments. 
C)  dividing the price by the par value. 
D)  dividing the annual coupon payments by the price.

Question 9

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)  $98.64 
B)  $95.27 
C)  $101.38 
D)  $104.97 
A)  $98.64 
B)  $95.27 
C)  $101.38 
D)  $104.97

Question 10

If a bond investor's yield for a particular period does not change,then during that period,the bond's return :

Accepted Answer

A)  is zero. 
B)  increases. 
C)  equals the yield. 
D)  is indeterminate. 
A)  is zero. 
B)  increases. 
C)  equals the yield. 
D)  is indeterminate.

Question 11

As the coupon rate of a bond increases,the bond's:

Accepted Answer

A)  face value increases. 
B)  current price decreases. 
C)  interest payments increase. 
D)  maturity date is extended. 
A)  face value increases. 
B)  current price decreases. 
C)  interest payments increase. 
D)  maturity date is extended.

Question 12

What price will be paid for a U.S.Treasury bond with an ask price of 135.4062 if the face value is $100,000?

Accepted Answer

A)  $100,135.41 
B)  $135,000.41 
C)  $136,269.38 
D)  $135,406.20 
A)  $100,135.41 
B)  $135,000.41 
C)  $136,269.38 
D)  $135,406.20

Question 13

Rosita purchased a bond for $989 that had a 7% coupon and semiannual interest payments.She sold the bond after 6 months and earned a total return of 4.8% on this investment.At what price,did she sell the bond?

Accepted Answer

A)  $1,001.47 
B)  $974.28 
C)  $981.06 
D)  $1,003.18 
A)  $1,001.47 
B)  $974.28 
C)  $981.06 
D)  $1,003.18

Question 14

What causes bonds to sell for a premium?

Accepted Answer

A)  Investment-quality ratings 
B)  Long periods until maturity 
C)  Coupon rates that exceed market rates 
D)  Speculative-grade ratings 
A)  Investment-quality ratings 
B)  Long periods until maturity 
C)  Coupon rates that exceed market rates 
D)  Speculative-grade ratings

Question 15

What is the current yield of a bond with a 6% coupon,4 years until maturity,and a price quote of 84?

Accepted Answer

A)  6.00% 
B)  7.14% 
C)  5.04% 
D)  6.38% 
A)  6.00% 
B)  7.14% 
C)  5.04% 
D)  6.38%

Question 16

When the yield curve is upward-sloping,then:

Accepted Answer

A)  short-maturity bonds offer the highest coupon rates. 
B)  long-maturity bonds are priced above par value. 
C)  short-maturity bonds yield less than long-maturity bonds. 
D)  long-maturity bonds increase in price when interest rates increase. 
A)  short-maturity bonds offer the highest coupon rates. 
B)  long-maturity bonds are priced above par value. 
C)  short-maturity bonds yield less than long-maturity bonds. 
D)  long-maturity bonds increase in price when interest rates increase.

Question 17

How much does the $1,000 to be received upon a bond's maturity in 4 years add to the bond's price if the appropriate discount rate is 6%?

Accepted Answer

A)  $209.91 
B)  $260.00 
C)  $760.00 
D)  $792.09 
A)  $209.91 
B)  $260.00 
C)  $760.00 
D)  $792.09

Question 18

When comparing a highly liquid bond with a comparable but less liquid bond,the highly liquid bond is most apt to have:

Accepted Answer

A)  a lower yield. 
B)  a shorter maturity. 
C)  a higher yield. 
D)  a longer maturity. 
A)  a lower yield. 
B)  a shorter maturity. 
C)  a higher yield. 
D)  a longer maturity.

Question 19

Indexed bonds in the United States are known as Treasury Interest-Paid Securities,or TIPS.

Accepted Answer

A) True 
 B)False

Question 20

If a bond is priced at par value,then:

Accepted Answer

A)  it has a very low level of default risk. 
B)  its coupon rate equals its yield to maturity. 
C)  it must be a zero-coupon bond. 
D)  the bond is quite close to maturity. 
A)  it has a very low level of default risk. 
B)  its coupon rate equals its yield to maturity. 
C)  it must be a zero-coupon bond. 
D)  the bond is quite close to maturity.

Exam 6: Valuing Bonds

Bonds rated BB or above by Standard & Poor's are called investment grade.

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

Which one of these is included in the yield of a bond with a low credit rating but not included in a U.S.Treasury bond yield? Assume both bonds are selling at a premium.

An investor buys a 10-year annual coupon bond at a yield of 8.7% and sells it 2 years later when it still yields 8.7%.What is his rate of return over this period?

A bond has a coupon rate of 8%,pays interest semiannually,sells for $960,and matures in 3 years.What is its yield to maturity?

Investors who purchase bonds having lower credit ratings should expect:

An investor buys a 5-year,9% coupon bond for $975,holds it for 1 year,and then sells the bond for $985.What was the investor's rate of return?

The current yield of a bond can be calculated by:

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%?

If a bond investor's yield for a particular period does not change,then during that period,the bond's return :

As the coupon rate of a bond increases,the bond's:

What price will be paid for a U.S.Treasury bond with an ask price of 135.4062 if the face value is $100,000?

Rosita purchased a bond for $989 that had a 7% coupon and semiannual interest payments.She sold the bond after 6 months and earned a total return of 4.8% on this investment.At what price,did she sell the bond?

What causes bonds to sell for a premium?

What is the current yield of a bond with a 6% coupon,4 years until maturity,and a price quote of 84?

When the yield curve is upward-sloping,then:

How much does the $1,000 to be received upon a bond's maturity in 4 years add to the bond's price if the appropriate discount rate is 6%?

When comparing a highly liquid bond with a comparable but less liquid bond,the highly liquid bond is most apt to have:

Indexed bonds in the United States are known as Treasury Interest-Paid Securities,or TIPS.

If a bond is priced at par value,then:

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