Question 1

When a financial calculator or spreadsheet program finds a bond's yield to maturity,it uses a trial-and-error process.

Accepted Answer

A) True 
 B)False

Question 2

Bond ratings measure a bond's credit risk.

Accepted Answer

A) True 
 B)False

Question 3

What is the total return to an investor who buys a bond for $1,100 when the bond has a 9% annual coupon and 5 years until maturity,then sells the bond after 1 year for $1,085?

Accepted Answer

A)  6.82% 
B)  6.91% 
C)  7.64% 
D)  9.00% 
A)  6.82% 
B)  6.91% 
C)  7.64% 
D)  9.00%

Question 4

Even when the yield curve is upward-sloping,investors might rationally stay away from long-term bonds.

Accepted Answer

A) True 
 B)False

Question 5

How much should you be prepared to pay for a 10-year bond with an annual coupon of 6% and a yield to maturity of 7.5%?

Accepted Answer

A)  $411.84 
B)  $897.04 
C)  $985.00 
D)  $1,000.00 
A)  $411.84 
B)  $897.04 
C)  $985.00 
D)  $1,000.00

Question 6

Nominal U.S.Treasury bond yields:

Accepted Answer

A)  are constant over time. 
B)  are equal to the real yields. 
C)  include a default premium. 
D)  include an inflation premium. 
A)  are constant over time. 
B)  are equal to the real yields. 
C)  include a default premium. 
D)  include an inflation premium.

Question 7

Bonds with a rating of Ba or below by Moody's are referred to as speculative grade,high-yield,or junk bonds.

Accepted Answer

A) True 
 B)False

Question 8

A bond's rate of return is equal to its coupon payment divided by the price paid for the bond.

Accepted Answer

A) True 
 B)False

Question 9

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 10

Which of the following would not be associated with a zero-coupon bond?

Accepted Answer

A)  Yield to maturity 
B)  Discount bond 
C)  Current yield 
D)  Interest-rate risk 
A)  Yield to maturity 
B)  Discount bond 
C)  Current yield 
D)  Interest-rate risk

Question 11

A bond has a face value of $1,000,has 5 years until maturity,and an annual coupon rate of 7%? It yields 5% currently.By how much will the price change over the next year if the yield remains constant?

Accepted Answer

A)  zero 
B)  decline by $86.59 
C)  decline by $15.67 
D)  rise by $15.67 
A)  zero 
B)  decline by $86.59 
C)  decline by $15.67 
D)  rise by $15.67

Question 12

Which one of the following must be correct for a bond currently selling at a premium?

Accepted Answer

A)  Its coupon rate is variable. 
B)  Its current yield is lower than its coupon rate. 
C)  Its yield to maturity is higher than its coupon rate. 
D)  Its coupon rate is lower than the current market rate on similar bonds. 
A)  Its coupon rate is variable. 
B)  Its current yield is lower than its coupon rate. 
C)  Its yield to maturity is higher than its coupon rate. 
D)  Its coupon rate is lower than the current market rate on similar bonds.

Question 13

A bond has an ask quote of 99.5625 and a bid quote of 99.5475.How much will the bond dealer make on the purchase and resale of a $100,000 bond?

Accepted Answer

A)  $150 
B)  $1,500 
C)  $15 
D)  $1.50 
A)  $150 
B)  $1,500 
C)  $15 
D)  $1.50

Question 14

If a bond offers a current yield of 5% and a yield to maturity of 5.45%,then the:

Accepted Answer

A)  bond is selling at a discount. 
B)  bond has a high default premium. 
C)  promised yield is not likely to materialize. 
D)  bond must be a Treasury Inflation-Protected Security. 
A)  bond is selling at a discount. 
B)  bond has a high default premium. 
C)  promised yield is not likely to materialize. 
D)  bond must be a Treasury Inflation-Protected Security.

Question 15

TIPS are unlike most bonds in that their cash flows increase when the national rate of gross domestic product increases.

Accepted Answer

A) True 
 B)False

Question 16

How does a bond dealer generate profits when trading bonds?

Accepted Answer

A)  By maintaining bid prices lower than ask prices 
B)  By maintaining bid prices higher than ask prices 
C)  By retaining the bond's next coupon payment 
D)  By lowering the bond's coupon rate upon resale 
A)  By maintaining bid prices lower than ask prices 
B)  By maintaining bid prices higher than ask prices 
C)  By retaining the bond's next coupon payment 
D)  By lowering the bond's coupon rate upon resale

Question 17

How much would an investor lose the first year if she purchased a 30-year zero-coupon bond with a $1,000 par value and a 10% yield to maturity,only to see market interest rates increase to 12% one year later?

Accepted Answer

A)  $19.93 
B)  $20.00 
C)  $23.93 
D)  $25.66 
A)  $19.93 
B)  $20.00 
C)  $23.93 
D)  $25.66

Question 18

Which one of the following is correct concerning real interest rates?

Accepted Answer

A)  Real interest rates are constant. 
B)  Real interest rates must be positive. 
C)  Real interest rates must be less than nominal interest rates. 
D)  Real interest rates, if positive, increase purchasing power over time. 
A)  Real interest rates are constant. 
B)  Real interest rates must be positive. 
C)  Real interest rates must be less than nominal interest rates. 
D)  Real interest rates, if positive, increase purchasing power over time.

Question 19

The holder of which one of these securities has first claim on the assets of a firm?

Accepted Answer

A)  Senior debt 
B)  Common stock 
C)  Subordinated debt 
D)  Preferred stock 
A)  Senior debt 
B)  Common stock 
C)  Subordinated debt 
D)  Preferred stock

Question 20

The market price of a bond with 12 years until maturity and an annual coupon rate of 8% increased yesterday.Which one of these may have caused this price increase?

Accepted Answer

A)  The bond's rating was downgraded. 
B)  The issuing firm announced the next interest payment. 
C)  The issuing firm announced that its annual earnings met investor expectations. 
D)  Market interest rates decreased. 
A)  The bond's rating was downgraded. 
B)  The issuing firm announced the next interest payment. 
C)  The issuing firm announced that its annual earnings met investor expectations. 
D)  Market interest rates decreased.

Exam 6: Valuing Bonds

When a financial calculator or spreadsheet program finds a bond's yield to maturity,it uses a trial-and-error process.

Bond ratings measure a bond's credit risk.

What is the total return to an investor who buys a bond for $1,100 when the bond has a 9% annual coupon and 5 years until maturity,then sells the bond after 1 year for $1,085?

Even when the yield curve is upward-sloping,investors might rationally stay away from long-term bonds.

How much should you be prepared to pay for a 10-year bond with an annual coupon of 6% and a yield to maturity of 7.5%?

Nominal U.S.Treasury bond yields:

Bonds with a rating of Ba or below by Moody's are referred to as speculative grade,high-yield,or junk bonds.

A bond's rate of return is equal to its coupon payment divided by the price paid for the bond.

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%?

Which of the following would not be associated with a zero-coupon bond?

A bond has a face value of $1,000,has 5 years until maturity,and an annual coupon rate of 7%? It yields 5% currently.By how much will the price change over the next year if the yield remains constant?

Which one of the following must be correct for a bond currently selling at a premium?

A bond has an ask quote of 99.5625 and a bid quote of 99.5475.How much will the bond dealer make on the purchase and resale of a $100,000 bond?

If a bond offers a current yield of 5% and a yield to maturity of 5.45%,then the:

TIPS are unlike most bonds in that their cash flows increase when the national rate of gross domestic product increases.

How does a bond dealer generate profits when trading bonds?

How much would an investor lose the first year if she purchased a 30-year zero-coupon bond with a $1,000 par value and a 10% yield to maturity,only to see market interest rates increase to 12% one year later?

Which one of the following is correct concerning real interest rates?

The holder of which one of these securities has first claim on the assets of a firm?

The market price of a bond with 12 years until maturity and an annual coupon rate of 8% increased yesterday.Which one of these may have caused this price increase?

Goals and Governance of the Firm

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 and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt Policy

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Long-Term Financial Planning

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Mergers,Acquisitions,and Corporate Control

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