Question 1

The invoice price of a bond is the ________.

Accepted Answer

A) stated or flat price in a quote sheet plus accrued interest 
B) stated or flat price in a quote sheet minus accrued interest 
C) bid price 
D) average of the bid and ask price 
A) stated or flat price in a quote sheet plus accrued interest 
B) stated or flat price in a quote sheet minus accrued interest 
C) bid price 
D) average of the bid and ask price

Question 2

Consider two bonds, A and B. Both bonds presently are selling at their par value of $1 000. Each pay interest of $120 annually. Bond A will mature in 5 years while Bond B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to 14%, ________.

Accepted Answer

A) both bonds will increase in value but Bond A will increase more than Bond B 
B) both bonds will increase in value but Bond B will increase more than Bond A 
C) both bonds will decrease in value but Bond A will decrease more than Bond B 
D) both bonds will decrease in value but Bond B will decrease more than Bond A 
A) both bonds will increase in value but Bond A will increase more than Bond B 
B) both bonds will increase in value but Bond B will increase more than Bond A 
C) both bonds will decrease in value but Bond A will decrease more than Bond B 
D) both bonds will decrease in value but Bond B will decrease more than Bond A

Question 3

Consider a newly issued TIPS bond with a three year maturity, par value of $1000, and a coupon rate of 5%. Assume annual coupon payments.   What is the nominal rate of return on the TIPS bond in the first year?

Accepted Answer

A) 5.00% 
B) 5.15% 
C) 8.15% 
D) 9.00% 
A) 5.00% 
B) 5.15% 
C) 8.15% 
D) 9.00%

Question 4

An investor pays $989.40 for a bond. The bond has an annual coupon rate of 4.8%. What is the current yield on this bond?

Accepted Answer

A) 4.80% 
B) 4.85% 
C) 9.60% 
D) 9.70% 
A) 4.80% 
B) 4.85% 
C) 9.60% 
D) 9.70%

Question 5

A 1% decline in yield will have the least effect on the price of the bond with a ________.

Accepted Answer

A) 10-year maturity, selling at 80 
B) 10-year maturity, selling at 100 
C) 20-year maturity, selling at 80 
D) 20-year maturity, selling at 100 
A) 10-year maturity, selling at 80 
B) 10-year maturity, selling at 100 
C) 20-year maturity, selling at 80 
D) 20-year maturity, selling at 100

Question 6

A bond has a 5% coupon rate. The coupon is paid semi-annually and the last coupon was paid 35 days ago. If the bond has a par value of $1 000, what is the accrued interest?

Accepted Answer

A) $4.81 
B) $14.24 
C) $25.00 
D) $50.00 
A) $4.81 
B) $14.24 
C) $25.00 
D) $50.00

Question 7

A coupon bond which pays interest of 4% annually, has a par value of $1 000, matures in 5 years, and is selling today at $785. The actual yield to maturity on this bond is ________.

Accepted Answer

A) 7.2% 
B) 8.8% 
C) 9.1% 
D) 9.6% $785 = $40 
A) 7.2% 
B) 8.8% 
C) 9.1% 
D) 9.6% $785 = $40

Question 8

The bonds of Elbow Grease Dishwashing Company have received a rating of 'C' by Moody's. The 'C' rating indicates the bonds are ________.

Accepted Answer

A) high grade 
B) intermediate grade 
C) investment grade 
D) junk bonds 
A) high grade 
B) intermediate grade 
C) investment grade 
D) junk bonds

Question 9

Yields on tax-exempt bonds are typically ________ yields on corporate bonds of similar risk and time to maturity.

Accepted Answer

A) lower than 
B) slightly higher than 
C) identical to 
D) twice as high as 
A) lower than 
B) slightly higher than 
C) identical to 
D) twice as high as

Question 10

Which of the following bonds would most likely sell at the lowest yield?

Accepted Answer

A) A callable debenture 
B) A puttable mortgage bond 
C) A callable mortgage bond 
D) A puttable debenture 
A) A callable debenture 
B) A puttable mortgage bond 
C) A callable mortgage bond 
D) A puttable debenture

Question 11

You purchased a 5-year annual interest coupon bond one year ago. Its coupon interest rate was 6% and its par value was $1 000. At the time you purchased the bond, the yield to maturity was 4%. If you sold the bond after receiving the first interest payment and the bond's yield to maturity had changed to 3%, your annual total rate of return on holding the bond for that year would have been approximately ________.

Accepted Answer

A) 5.0% 
B) 5.5% 
C) 7.6% 
D) 8.9% PV0 = 60 
A) 5.0% 
B) 5.5% 
C) 7.6% 
D) 8.9% PV0 = 60

Question 12

TIPS are an example of ________.

Accepted Answer

A) Eurobonds 
B) convertible bonds 
C) indexed bonds 
D) catastrophe bonds 
A) Eurobonds 
B) convertible bonds 
C) indexed bonds 
D) catastrophe bonds

Question 13

Everything else equal, ________ bonds will require a higher promised YTM than ________ bonds.

Accepted Answer

A) catastrophe; standard 
B) non-callable; callable 
C) mortgage; debenture 
D) AAA rated; BAA rated 
A) catastrophe; standard 
B) non-callable; callable 
C) mortgage; debenture 
D) AAA rated; BAA rated

Question 14

A coupon bond which pays interest of $60 annually, has a par value of $1 000, matures in 5 years, and is selling today at a $75.25 discount from par value. The current yield on this bond is ________.

Accepted Answer

A) 6.00% 
B) 6.49% 
C) 6.73% 
D) 7.00% 
A) 6.00% 
B) 6.49% 
C) 6.73% 
D) 7.00%

Question 15

Assuming semiannual compounding, a 20-year zero coupon bond with a par value of $1 000 and a required return of 12% would be priced at ________.

Accepted Answer

A) $97 
B) $104 
C) $364 
D) $732 
A) $97 
B) $104 
C) $364 
D) $732

Question 16

A ________ bond is a bond where the issuer has an option to retire the bond before maturity at a specific price after a specific date.

Accepted Answer

A) callable 
B) coupon 
C) puttable 
D) Treasury 
A) callable 
B) coupon 
C) puttable 
D) Treasury

Question 17

A zero-coupon bond has a yield to maturity of 5% and a par value of $1 000. If the bond matures in 16 years, it should sell for a price of ________ today.

Accepted Answer

A) $458.00 
B) $641.00 
C) $789.00 
D) $1 100.00 
A) $458.00 
B) $641.00 
C) $789.00 
D) $1 100.00

Question 18

A ________ bond is a bond where the bondholder has the right to cash in the bond before maturity at a specific price after a specific date.

Accepted Answer

A) callable 
B) coupon 
C) puttable 
D) Treasury 
A) callable 
B) coupon 
C) puttable 
D) Treasury

Question 19

Which one of the following statements is correct?

Accepted Answer

A) Invoice price = Flat price - Accrued interest 
B) Invoice price = Flat price + Accrued interest 
C) Flat price = Invoice price + Accrued interest 
D) Invoice price = Settlement price - Accrued interest 
A) Invoice price = Flat price - Accrued interest 
B) Invoice price = Flat price + Accrued interest 
C) Flat price = Invoice price + Accrued interest 
D) Invoice price = Settlement price - Accrued interest

Question 20

Consider the following $1 000 par value zero-coupon bonds:   The expected one-year interest rate four years from now should be ________.

Accepted Answer

A) 16.00% 
B) 18.00% 
C) 20.00% 
D) 22.00% 
A) 16.00% 
B) 18.00% 
C) 20.00% 
D) 22.00%

The invoice price of a bond is the ________.

Consider two bonds, A and B. Both bonds presently are selling at their par value of $1 000. Each pay interest of $120 annually. Bond A will mature in 5 years while Bond B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to 14%, ________.

Consider a newly issued TIPS bond with a three year maturity, par value of $1000, and a coupon rate of 5%. Assume annual coupon payments. What is the nominal rate of return on the TIPS bond in the first year?

An investor pays $989.40 for a bond. The bond has an annual coupon rate of 4.8%. What is the current yield on this bond?

A 1% decline in yield will have the least effect on the price of the bond with a ________.

A bond has a 5% coupon rate. The coupon is paid semi-annually and the last coupon was paid 35 days ago. If the bond has a par value of $1 000, what is the accrued interest?

A coupon bond which pays interest of 4% annually, has a par value of $1 000, matures in 5 years, and is selling today at $785. The actual yield to maturity on this bond is ________.

The bonds of Elbow Grease Dishwashing Company have received a rating of 'C' by Moody's. The 'C' rating indicates the bonds are ________.

Yields on tax-exempt bonds are typically ________ yields on corporate bonds of similar risk and time to maturity.

Which of the following bonds would most likely sell at the lowest yield?

TIPS are an example of ________.

Everything else equal, bonds will require a higher promised YTM than bonds.

A coupon bond which pays interest of $60 annually, has a par value of $1 000, matures in 5 years, and is selling today at a $75.25 discount from par value. The current yield on this bond is ________.

Assuming semiannual compounding, a 20-year zero coupon bond with a par value of $1 000 and a required return of 12% would be priced at ________.

A ________ bond is a bond where the issuer has an option to retire the bond before maturity at a specific price after a specific date.

A zero-coupon bond has a yield to maturity of 5% and a par value of $1 000. If the bond matures in 16 years, it should sell for a price of ________ today.

A ________ bond is a bond where the bondholder has the right to cash in the bond before maturity at a specific price after a specific date.

Which one of the following statements is correct?

Consider the following $1 000 par value zero-coupon bonds: The expected one-year interest rate four years from now should be ________.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Managed Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis and Behavioral Finance

Managing Bond Portfolios

Equity Valuation

Macroeconomic and Industry Analysis

Financial Statement Analysis

Options and Risk Management

Futures and Risk Management

Investors and the Investment Process

Hedge Funds

Portfolio Performance Evaluation

Filters

Exam 9: Bond Prices and Yields

The invoice price of a bond is the ________.

Consider two bonds, A and B. Both bonds presently are selling at their par value of $1 000. Each pay interest of $120 annually. Bond A will mature in 5 years while Bond B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to 14%, ________.

Consider a newly issued TIPS bond with a three year maturity, par value of $1000, and a coupon rate of 5%. Assume annual coupon payments. What is the nominal rate of return on the TIPS bond in the first year?

An investor pays $989.40 for a bond. The bond has an annual coupon rate of 4.8%. What is the current yield on this bond?

A 1% decline in yield will have the least effect on the price of the bond with a ________.

A bond has a 5% coupon rate. The coupon is paid semi-annually and the last coupon was paid 35 days ago. If the bond has a par value of $1 000, what is the accrued interest?

A coupon bond which pays interest of 4% annually, has a par value of $1 000, matures in 5 years, and is selling today at $785. The actual yield to maturity on this bond is ________.

The bonds of Elbow Grease Dishwashing Company have received a rating of 'C' by Moody's. The 'C' rating indicates the bonds are ________.

Yields on tax-exempt bonds are typically ________ yields on corporate bonds of similar risk and time to maturity.

Which of the following bonds would most likely sell at the lowest yield?

TIPS are an example of ________.

Everything else equal, ________ bonds will require a higher promised YTM than ________ bonds.

A coupon bond which pays interest of $60 annually, has a par value of $1 000, matures in 5 years, and is selling today at a $75.25 discount from par value. The current yield on this bond is ________.

Assuming semiannual compounding, a 20-year zero coupon bond with a par value of $1 000 and a required return of 12% would be priced at ________.

A ________ bond is a bond where the issuer has an option to retire the bond before maturity at a specific price after a specific date.

A zero-coupon bond has a yield to maturity of 5% and a par value of $1 000. If the bond matures in 16 years, it should sell for a price of ________ today.

A ________ bond is a bond where the bondholder has the right to cash in the bond before maturity at a specific price after a specific date.

Which one of the following statements is correct?

Consider the following $1 000 par value zero-coupon bonds: The expected one-year interest rate four years from now should be ________.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Managed Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis and Behavioral Finance

Managing Bond Portfolios

Equity Valuation

Macroeconomic and Industry Analysis

Financial Statement Analysis

Options and Risk Management

Futures and Risk Management

Investors and the Investment Process

Hedge Funds

Portfolio Performance Evaluation

Filters

Everything else equal, bonds will require a higher promised YTM than bonds.