Exam 7: Valuing Bonds

Consider the following three bond quotes; a Treasury note quoted at 102:30, and a corporate bond quoted at 99.45, and a municipal bond quoted at 102.45. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000, what is the price of these three bonds in dollars?

A 3.75 percent TIPS has an original reference CPI of 183.9. If the current CPI is 214.7, what is the current interest payment? (Assume semi-annual interest payments and a par value of $1,000.)

Rank from highest credit risk to lowest credit risk the following bonds, with the same time to maturity, by their yield to maturity: Treasury bond with yield of 6.55 percent, IBM bond with yield of 10.95 percent, Trump Casino bond with a yield of 9.15 percent, and Banc Ono bond with a yield of 9.46 percent.

To compensate the bondholders for getting the bond called, the issuer pays which of the following?

Which of the following is a debt security whose payments originate from other loans, such as credit card debt, auto loans, and home equity loans?

A bond issued by a corporation on May 1, 1999, is scheduled to mature on May 1, 2019. If today is May 2, 2009, what is this bond's time to maturity? (Assume annual interest payments.)

If a bond is selling at a discount, which of the following statements is correct?

A client in the 35 percent marginal tax bracket is comparing a municipal bond that offers a 4.25 percent yield to maturity and a similar-risk corporate bond that offers a 5.10 percent yield. Which bond will give the client more profit after taxes?

The bond's annual coupon rate divided by its market price is referred to as the:

A 6 percent corporate coupon bond is callable in 10 years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?

Regarding a bond's characteristics, which of the following is the principal loan amount that the borrower must repay?

Rank the following bonds, from highest to lowest interest rate risk: 2-year zero coupon, 2-year, 5 percent coupon bond, 30-year 5 percent coupon bond, 30-year, zero coupon bond.

What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4 percent for an investor in the 28 percent tax bracket?

Which of the following bonds makes no interest payments?

An 8% coupon municipal bond has 15 years left to maturity and has a price quote of 102.0. The bond can be called in 6 years. The call premium is one year of coupon payments. Compute the bond's yield to call and determine if the bond will be called. Assume interest payments are paid semi-annually and a par value of $5,000.

A 5.5 percent coupon bond with 18 years left to maturity is priced to offer a 6.25 percent yield to maturity. You believe that in one year, the yield to maturity will be 5.75 percent. What is the change in price the bond will experience in dollars? (Assume semi-annual interest payments and $1,000 par value.)

A 4.75 percent coupon bond with 12 years left to maturity can be called in two years. The call premium is one year of coupon payments. It is offered for sale at $1037.35. What is the yield to call of the bond? (Assume that interest payments are paid semi-annually and par value is $1,000.)

A bond with 23 years to maturity is selling for $991 and has a yield to maturity of 8.12 percent. If this bond pays its coupon payments semi-annually and par value is $1,000, what is the bond's annual coupon rate?

Which of the following is NOT true about EE savings bonds?

A corporate bond with an 8.5 percent coupon has 10 years left to maturity. It has had a credit rating of A and a yield to maturity of 10 percent. The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BBB. The new appropriate discount rate will be 11.5 percent. What will be the change in the bond's price in dollars? Assume interest payments are paid semi-annually and par value is $1,000.