Question 1

A bond is priced at $1,100,has 10 years remaining until maturity,and has a 10% coupon,paid semiannually.What is the amount of the next interest payment?

Accepted Answer

A)  $50 
B)  $55 
C)  $100 
D)  $110 
A)  $50 
B)  $55 
C)  $100 
D)  $110

Question 2

You purchased a 6% annual coupon bond at face value and sold it one year later for $1,015.16.What was your rate of return on this investment if the face value at maturity was $1,000?

Accepted Answer

A)  4.48% 
B)  6.15% 
C)  7.52% 
D)  6.07% 
A)  4.48% 
B)  6.15% 
C)  7.52% 
D)  6.07%

Question 3

When a bond matures,the issuer repays the bond's face value.

Accepted Answer

A) True 
 B)False

Question 4

This morning,you purchased a TIPS.Which one of these should you expect to occur if you hold this bond during an inflationary period?

Accepted Answer

A)  The coupon payment will increase in real terms. 
B)  The maturity value will increase in nominal terms. 
C)  The market price will remain constant at par. 
D)  The market price will decrease. 
A)  The coupon payment will increase in real terms. 
B)  The maturity value will increase in nominal terms. 
C)  The market price will remain constant at par. 
D)  The market price will decrease.

Question 5

The purpose of a floating-rate bond is to:

Accepted Answer

A)  save interest expense for corporate issuers. 
B)  avoid making interest payments until maturity. 
C)  shift the yield curve. 
D)  offer rates that adjust to current market conditions. 
A)  save interest expense for corporate issuers. 
B)  avoid making interest payments until maturity. 
C)  shift the yield curve. 
D)  offer rates that adjust to current market conditions.

Question 6

If the coupon rate on an outstanding bond is lower than the relevant current interest rate,then the yield to maturity will be:

Accepted Answer

A)  lower than current interest rates. 
B)  equal to the coupon rate. 
C)  higher than the coupon rate. 
D)  lower than the coupon rate. 
A)  lower than current interest rates. 
B)  equal to the coupon rate. 
C)  higher than the coupon rate. 
D)  lower than the coupon rate.

Question 7

Many investors may be drawn to municipal bonds because of the bonds':

Accepted Answer

A)  speculative grade ratings. 
B)  high coupon payments. 
C)  long periods until maturity. 
D)  income exemption from federal taxes. 
A)  speculative grade ratings. 
B)  high coupon payments. 
C)  long periods until maturity. 
D)  income exemption from federal taxes.

Question 8

The current yield tends to understate a bond's total return when the bond sells for a discount because:

Accepted Answer

A)  increases in interest rates will increase the current yield. 
B)  the bond's price will increase each year. 
C)  current yields show only nominal returns. 
D)  the bond may have a higher face value. 
A)  increases in interest rates will increase the current yield. 
B)  the bond's price will increase each year. 
C)  current yields show only nominal returns. 
D)  the bond may have a higher face value.

Question 9

A bond's yield to maturity takes into consideration:

Accepted Answer

A)  current yield but not any price changes. 
B)  price changes but not the current yield. 
C)  both the current yield and any price changes. 
D)  neither the current yield nor any price changes. 
A)  current yield but not any price changes. 
B)  price changes but not the current yield. 
C)  both the current yield and any price changes. 
D)  neither the current yield nor any price changes.

Question 10

What happens to the coupon rate of a $1,000 face value bond that pays $80 annually in interest if market interest rates change from 9% to 10%?

Accepted Answer

A)  The coupon rate increases to 10%. 
B)  The coupon rate remains at 9%. 
C)  The coupon rate remains at 8%. 
D)  The coupon rate decreases to 8%. 
A)  The coupon rate increases to 10%. 
B)  The coupon rate remains at 9%. 
C)  The coupon rate remains at 8%. 
D)  The coupon rate decreases to 8%.

Question 11

What nominal return would an investor need to receive 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 12

If you purchase a 5-year,zero-coupon bond for $691.72,how much could it be sold for 3 years later if interest rates have remained stable?

Accepted Answer

A)  $848.12 
B)  $923.50 
C)  $862.92 
D)  $911.15 
A)  $848.12 
B)  $923.50 
C)  $862.92 
D)  $911.15

Question 13

Which type of bond is certain to provide a capital loss if held to maturity?

Accepted Answer

A)  Discount bond 
B)  Premium bond 
C)  Zero-coupon bond 
D)  Junk bond 
A)  Discount bond 
B)  Premium bond 
C)  Zero-coupon bond 
D)  Junk bond

Question 14

The discount rate that makes the present value of a bond's payments equal to its price is termed the:

Accepted Answer

A)  dividend yield. 
B)  yield to maturity. 
C)  current yield. 
D)  coupon rate. 
A)  dividend yield. 
B)  yield to maturity. 
C)  current yield. 
D)  coupon rate.

Question 15

An investor purchased a fixed-coupon bond at a time when the bond's yield to maturity was 6.9%.The investor sold the bond prior to maturity and realized a total return of 7.1%.Which of these most likely occurred while the investor owned the bond?

Accepted Answer

A)  The bond's current yield increased above the bond's coupon rate. 
B)  The inflation rate increased. 
C)  Market interest rates declined. 
D)  Market interest rates increased. 
A)  The bond's current yield increased above the bond's coupon rate. 
B)  The inflation rate increased. 
C)  Market interest rates declined. 
D)  Market interest rates increased.

Question 16

Zero-coupon bonds are issued at prices below face value,and the investor's return comes from the difference between the purchase price and the payment of face value at maturity.

Accepted Answer

A) True 
 B)False

Question 17

Which one of these statements is not correct?

Accepted Answer

A)  When a foreign government borrows dollars, investors worry that in some future crisis the government will not have sufficient dollars to repay the debt. 
B)  When the Japanese government borrows yen, investors worry that in some future crisis the government will not have sufficient yen to repay the debt. 
C)  When a Eurozone government borrows euros, investors worry that in some future crisis the government will not have sufficient euros to repay the debt. 
D)  When the U.S. government issues Treasury bonds, investors never need to worry that they will not be paid back. 
A)  When a foreign government borrows dollars, investors worry that in some future crisis the government will not have sufficient dollars to repay the debt. 
B)  When the Japanese government borrows yen, investors worry that in some future crisis the government will not have sufficient yen to repay the debt. 
C)  When a Eurozone government borrows euros, investors worry that in some future crisis the government will not have sufficient euros to repay the debt. 
D)  When the U.S. government issues Treasury bonds, investors never need to worry that they will not be paid back.

Question 18

When market interest rates exceed a bond's coupon rate,the bond will:

Accepted Answer

A)  sell for less than par value. 
B)  sell for more than par value. 
C)  decrease its coupon rate. 
D)  increase its coupon rate. 
A)  sell for less than par value. 
B)  sell for more than par value. 
C)  decrease its coupon rate. 
D)  increase its coupon rate.

Question 19

What is the coupon rate for a bond with 3 years until maturity,a price of $1,053.46,and a yield to maturity of 6%? Interest is paid annually.

Accepted Answer

A)  6% 
B)  8% 
C)  10% 
D)  11% 
A)  6% 
B)  8% 
C)  10% 
D)  11%

Question 20

A bond's bid price will be lower than the ask price.

Accepted Answer

A) True 
 B)False

Exam 6: Valuing Bonds

A bond is priced at $1,100,has 10 years remaining until maturity,and has a 10% coupon,paid semiannually.What is the amount of the next interest payment?

You purchased a 6% annual coupon bond at face value and sold it one year later for $1,015.16.What was your rate of return on this investment if the face value at maturity was $1,000?

When a bond matures,the issuer repays the bond's face value.

This morning,you purchased a TIPS.Which one of these should you expect to occur if you hold this bond during an inflationary period?

The purpose of a floating-rate bond is to:

If the coupon rate on an outstanding bond is lower than the relevant current interest rate,then the yield to maturity will be:

Many investors may be drawn to municipal bonds because of the bonds':

The current yield tends to understate a bond's total return when the bond sells for a discount because:

A bond's yield to maturity takes into consideration:

What happens to the coupon rate of a $1,000 face value bond that pays $80 annually in interest if market interest rates change from 9% to 10%?

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

If you purchase a 5-year,zero-coupon bond for $691.72,how much could it be sold for 3 years later if interest rates have remained stable?

Which type of bond is certain to provide a capital loss if held to maturity?

The discount rate that makes the present value of a bond's payments equal to its price is termed the:

An investor purchased a fixed-coupon bond at a time when the bond's yield to maturity was 6.9%.The investor sold the bond prior to maturity and realized a total return of 7.1%.Which of these most likely occurred while the investor owned the bond?

Zero-coupon bonds are issued at prices below face value,and the investor's return comes from the difference between the purchase price and the payment of face value at maturity.

Which one of these statements is not correct?

When market interest rates exceed a bond's coupon rate,the bond will:

What is the coupon rate for a bond with 3 years until maturity,a price of $1,053.46,and a yield to maturity of 6%? Interest is paid annually.

A bond's bid price will be lower than the ask price.

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

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers,Acquisitions,and Corporate Control

International Financial Management

Options

Risk Management

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