Question 1

A dedicated portfolio is a bond portfolio created to:

Accepted Answer

A) maximize current interest income. 
B) provide an increasing steady stream of income. 
C) maximize the return given declining interest rates. 
D) fund a future cash outlay. 
E) avoid taxation. 
A) maximize current interest income. 
B) provide an increasing steady stream of income. 
C) maximize the return given declining interest rates. 
D) fund a future cash outlay. 
E) avoid taxation. D

Question 2

Which one of the following statements applies to a par value bond?

Accepted Answer

A) The current yield is less than the coupon rate. 
B) The yield-to-maturity equals the risk-free, or Treasury bill, rate. 
C) The par value exceeds the market price. 
D) The current yield, coupon rate, and yield-to-maturity are equal. 
E) The dirty price equals the clean price. 
A) The current yield is less than the coupon rate. 
B) The yield-to-maturity equals the risk-free, or Treasury bill, rate. 
C) The par value exceeds the market price. 
D) The current yield, coupon rate, and yield-to-maturity are equal. 
E) The dirty price equals the clean price. D

Question 3

Price risk is the risk that:

Accepted Answer

A) coupon payments will be reinvested at a rate that is less than the bond's yield-to-maturity. 
B) the bond principal will not be paid in full or on time. 
C) the bonds in a dedicated portfolio will decrease in value in response to an increase in interest rates. 
D) market prices increase due to market interest rate changes making bonds more expensive to purchase. 
E) the yield-to-maturity will be less than the inflation risk causing the real rate of return to be negative. 
A) coupon payments will be reinvested at a rate that is less than the bond's yield-to-maturity. 
B) the bond principal will not be paid in full or on time. 
C) the bonds in a dedicated portfolio will decrease in value in response to an increase in interest rates. 
D) market prices increase due to market interest rate changes making bonds more expensive to purchase. 
E) the yield-to-maturity will be less than the inflation risk causing the real rate of return to be negative. C

Question 4

The rate of return an investor actually earns from owning a bond is called which one of the following?

Accepted Answer

A) market return 
B) realized yield 
C) annualized coupon yield 
D) maturity yield 
E) call yield 
A) market return 
B) realized yield 
C) annualized coupon yield 
D) maturity yield 
E) call yield

Question 5

To immunize your portfolio,you should:

Accepted Answer

A) avoid callable bonds. 
B) match bond maturity dates to your target dates. 
C) match bond durations to your target dates. 
D) purchase only par value bonds. 
E) purchase only high-coupon bonds. 
A) avoid callable bonds. 
B) match bond maturity dates to your target dates. 
C) match bond durations to your target dates. 
D) purchase only par value bonds. 
E) purchase only high-coupon bonds.

Question 6

What is the annual interest divided by the market price of a bond called?

Accepted Answer

A) coupon rate 
B) effective annual yield 
C) current yield 
D) yield to maturity 
E) yield to market 
A) coupon rate 
B) effective annual yield 
C) current yield 
D) yield to maturity 
E) yield to market

Question 7

Which one of the following prices is equal to the present value of a bond's future cash flows and is paid when a bond is redeemed prior to maturity?

Accepted Answer

A) call protected 
B) face value 
C) make-whole call 
D) tender-offer 
E) deferred 
A) call protected 
B) face value 
C) make-whole call 
D) tender-offer 
E) deferred

Question 8

You own a 6.5 percent,semiannual coupon bond that matures in 7 years.The par value is $1,000 and the current yield to maturity is 6.8 percent.What will the percentage change in the price of your bond be if the yield to maturity suddenly increases by 75 basis points?

Accepted Answer

A) -4.05 percent 
B) -4.19 percent 
C) -4.24 percent 
D) -4.31 percent 
E) -4.47 percent 
A) -4.05 percent 
B) -4.19 percent 
C) -4.24 percent 
D) -4.31 percent 
E) -4.47 percent

Question 9

A bond has a par value of $1,000 and a coupon rate of 6.5 percent.What is the dollar amount of each semiannual interest payment if you own 8 of these bonds?

Accepted Answer

A) $180 
B) $260 
C) $320 
D) $420 
E) $840 
A) $180 
B) $260 
C) $320 
D) $420 
E) $840

Question 10

You are buying a bond at a quoted price of $892.The bond has a 7.5 percent coupon and pays interest semiannually on February 1 and August 1.What is the dirty price of this bond if today is April 1? Assume a 360-day year.

Accepted Answer

A) $896.17 
B) $904.50 
C) $913.67 
D) $938.50 
E) $942.00 
A) $896.17 
B) $904.50 
C) $913.67 
D) $938.50 
E) $942.00

Question 11

A bond pays semiannual interest payments of $42.50.What is the coupon rate if the par value is $1,000?

Accepted Answer

A) 5.75 percent 
B) 6.50 percent 
C) 7.80 percent 
D) 8.50 percent 
E) 9.38 percent 
A) 5.75 percent 
B) 6.50 percent 
C) 7.80 percent 
D) 8.50 percent 
E) 9.38 percent

Question 12

A discount bond:

Accepted Answer

A) pays a variable coupon payment. 
B) has a market price in excess of face value. 
C) has a duration that is less than that required by an investor. 
D) has a par value that is less than $1,000. 
E) has a face value that exceeds the market value. 
A) pays a variable coupon payment. 
B) has a market price in excess of face value. 
C) has a duration that is less than that required by an investor. 
D) has a par value that is less than $1,000. 
E) has a face value that exceeds the market value.

Question 13

Which one of the following is the correct definition of a coupon rate?

Accepted Answer

A) semi-annual interest payment/par value 
B) annual interest/par value 
C) annual interest/market value 
D) semi-annual coupon/bond price 
E) annual coupon/bond price 
A) semi-annual interest payment/par value 
B) annual interest/par value 
C) annual interest/market value 
D) semi-annual coupon/bond price 
E) annual coupon/bond price

Question 14

Ferrous Metals has bonds outstanding which it is calling today under the make-whole call provision.The bonds mature in 6 years,have a 10 percent coupon,pay interest semiannually,and have a par value of $1,000.What is today's call price given that the applicable discount rate is 7.20 percent?

Accepted Answer

A) $879.12 
B) $968.35 
C) $1,015.55 
D) $1,134.49 
E) $1,172.71 
A) $879.12 
B) $968.35 
C) $1,015.55 
D) $1,134.49 
E) $1,172.71

Question 15

Which one of the following does an issuer pay to redeem a bond prior to maturity?

Accepted Answer

A) par value 
B) face value 
C) put price 
D) call price 
E) discounted price 
A) par value 
B) face value 
C) put price 
D) call price 
E) discounted price

Question 16

Davis Industrial bonds have a current market price of $990 and a 6 percent coupon.The bonds pay interest semi-annually on March 1 and September 1.Assume today is January 1.How many months of accrued interest are included in the dirty price of these bonds?

Accepted Answer

A) zero 
B) two 
C) three 
D) four 
E) five 
A) zero 
B) two 
C) three 
D) four 
E) five

Question 17

The dirty price of a bond is the:

Accepted Answer

A) invoice price. 
B) quoted price. 
C) issue price. 
D) average of the bid and asked prices. 
E) dealer purchase price. 
A) invoice price. 
B) quoted price. 
C) issue price. 
D) average of the bid and asked prices. 
E) dealer purchase price.

Question 18

A $1,000 face value bond matures in 11 years,pays interest semiannually,and has a 6.5 percent coupon.The bond currently sells for $1,025.What is the yield to maturity?

Accepted Answer

A) 6.17 percent 
B) 6.18 percent 
C) 6.28 percent 
D) 6.34 percent 
E) 6.37 percent 
A) 6.17 percent 
B) 6.18 percent 
C) 6.28 percent 
D) 6.34 percent 
E) 6.37 percent

Question 19

A basic bond that has a face value of $1,000 and pays regular semiannual coupon payments is referred to as which one of the following?

Accepted Answer

A) pure discount bond 
B) premium bond 
C) inflation bond 
D) straight bond 
E) conversion bond 
A) pure discount bond 
B) premium bond 
C) inflation bond 
D) straight bond 
E) conversion bond

Question 20

A zero-coupon bond has a par value of $1,000 and matures in 4.5 years.The yield to maturity is 6.4 percent.What is the Macaulay duration?

Accepted Answer

A) 3.67 years 
B) 3.81 years 
C) 3.92 years 
D) 4.26 years 
E) 4.50 years 
A) 3.67 years 
B) 3.81 years 
C) 3.92 years 
D) 4.26 years 
E) 4.50 years

A dedicated portfolio is a bond portfolio created to:

Which one of the following statements applies to a par value bond?

Price risk is the risk that:

The rate of return an investor actually earns from owning a bond is called which one of the following?

To immunize your portfolio,you should:

What is the annual interest divided by the market price of a bond called?

Which one of the following prices is equal to the present value of a bond's future cash flows and is paid when a bond is redeemed prior to maturity?

You own a 6.5 percent,semiannual coupon bond that matures in 7 years.The par value is $1,000 and the current yield to maturity is 6.8 percent.What will the percentage change in the price of your bond be if the yield to maturity suddenly increases by 75 basis points?

A bond has a par value of $1,000 and a coupon rate of 6.5 percent.What is the dollar amount of each semiannual interest payment if you own 8 of these bonds?

You are buying a bond at a quoted price of $892.The bond has a 7.5 percent coupon and pays interest semiannually on February 1 and August 1.What is the dirty price of this bond if today is April 1? Assume a 360-day year.

A bond pays semiannual interest payments of $42.50.What is the coupon rate if the par value is $1,000?

A discount bond:

Which one of the following is the correct definition of a coupon rate?

Ferrous Metals has bonds outstanding which it is calling today under the make-whole call provision.The bonds mature in 6 years,have a 10 percent coupon,pay interest semiannually,and have a par value of $1,000.What is today's call price given that the applicable discount rate is 7.20 percent?

Which one of the following does an issuer pay to redeem a bond prior to maturity?

Davis Industrial bonds have a current market price of $990 and a 6 percent coupon.The bonds pay interest semi-annually on March 1 and September 1.Assume today is January 1.How many months of accrued interest are included in the dirty price of these bonds?

The dirty price of a bond is the:

A $1,000 face value bond matures in 11 years,pays interest semiannually,and has a 6.5 percent coupon.The bond currently sells for $1,025.What is the yield to maturity?

A basic bond that has a face value of $1,000 and pays regular semiannual coupon payments is referred to as which one of the following?

A zero-coupon bond has a par value of $1,000 and matures in 4.5 years.The yield to maturity is 6.4 percent.What is the Macaulay duration?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 10: Bond Prices and Yields

A dedicated portfolio is a bond portfolio created to:

Which one of the following statements applies to a par value bond?

Price risk is the risk that:

The rate of return an investor actually earns from owning a bond is called which one of the following?

To immunize your portfolio,you should:

What is the annual interest divided by the market price of a bond called?

Which one of the following prices is equal to the present value of a bond's future cash flows and is paid when a bond is redeemed prior to maturity?

You own a 6.5 percent,semiannual coupon bond that matures in 7 years.The par value is $1,000 and the current yield to maturity is 6.8 percent.What will the percentage change in the price of your bond be if the yield to maturity suddenly increases by 75 basis points?

A bond has a par value of $1,000 and a coupon rate of 6.5 percent.What is the dollar amount of each semiannual interest payment if you own 8 of these bonds?

You are buying a bond at a quoted price of $892.The bond has a 7.5 percent coupon and pays interest semiannually on February 1 and August 1.What is the dirty price of this bond if today is April 1? Assume a 360-day year.

A bond pays semiannual interest payments of $42.50.What is the coupon rate if the par value is $1,000?

A discount bond:

Which one of the following is the correct definition of a coupon rate?

Ferrous Metals has bonds outstanding which it is calling today under the make-whole call provision.The bonds mature in 6 years,have a 10 percent coupon,pay interest semiannually,and have a par value of $1,000.What is today's call price given that the applicable discount rate is 7.20 percent?

Which one of the following does an issuer pay to redeem a bond prior to maturity?

Davis Industrial bonds have a current market price of $990 and a 6 percent coupon.The bonds pay interest semi-annually on March 1 and September 1.Assume today is January 1.How many months of accrued interest are included in the dirty price of these bonds?

The dirty price of a bond is the:

A $1,000 face value bond matures in 11 years,pays interest semiannually,and has a 6.5 percent coupon.The bond currently sells for $1,025.What is the yield to maturity?

A basic bond that has a face value of $1,000 and pays regular semiannual coupon payments is referred to as which one of the following?

A zero-coupon bond has a par value of $1,000 and matures in 4.5 years.The yield to maturity is 6.4 percent.What is the Macaulay duration?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters