Exam 7: Valuing Bonds

A client in the 28 percent marginal tax bracket is comparing a municipal bond that offers a 3.25 percent yield to maturity and a similar-risk corporate bond that offers a 4.10 percent yield. Which bond will give the client more profit after taxes?

Which of the following issues Treasury Inflation Protected Securities (TIPS)?

Which of the following is an important advantage to the issuer of a bond with a call provision?

What's the current yield of an 8.15 percent coupon corporate bond quoted at a price of 94.30?

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

Which of the following statements is correct?

A 2.5 percent TIPS has an original reference CPI of 170.4. If the current CPI is 205.7, what is the current interest payment and par value of the TIPS? (Assume semi-annual interest payments and $1,000 par value.)

Junk bonds are those bonds with a credit rating of:

If Zeus Energy bonds are upgraded from BBB- to BBB+, which of the following statements is true?

A 6.5 percent coupon bond with 12 years left to maturity can be called in four years. The call premium is one year of coupon payments. It is offered for sale at $1,190.25. What is the yield to call of the bond? (Assume interest payments are paid semi-annually and par value is $1,000.)

A 6.75 percent coupon bond with 10 years left to maturity is priced to offer a 6.5 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.65 percent. If this occurs, what would be the total return of the bond in percent? (Assume semi-annual interest payments and $1,000 par value.)

Possible shapes for the yield include all of the following EXCEPT:

All of the following items would need to be included in the bond's indenture agreement EXCEPT:

Calculate the price of a 6.5 percent coupon bond with 27 years left to maturity and a market interest rate of 5 percent. (Assume interest payments are semiannual and par value is $1,000.) Is this a discount or premium bond?

A 4.5 percent coupon municipal bond has 10 years left to maturity and has a price quote of 97.75. The bond can be called in four years. The call premium is one year of coupon payments. What is the bond's taxable equivalent yield for an investor in the 33 percent marginal tax bracket? (Assume interest payments are paid semi-annually and a par value of $5,000.)

A 3.25 percent coupon municipal bond has 12 years left to maturity and has a price quote of 98.75. The bond can be called in five years. The call premium is one year of coupon payments. What is the bond's taxable equivalent yield for an investor in the 35 percent marginal tax bracket? (Assume interest payments are paid semi-annually and a par value of $5,000.)

Consider a 3.25 percent TIPS with an issue CPI reference of 186.7. At the beginning of this year, the CPI was 197.5 and was at 202.4 at the end of the year. What was the capital gain of the TIPS in dollars? (Assume semi-annual interest payments and $1,000 par value.)

Under what conditions is a bond likely to be called?

Consider the following bond quote: a municipal bond quoted at 101.25. If the municipal bond has a par value of $5,000, what is the price of the bond in dollars?

Investment grade bonds include those bonds with ratings: