Question 1

Consider the following $1,000-par-value zero-coupon bonds: $\begin{array}{ccc}
&\text { Years of } \
\text { Bond } & \text { Maturity } & \text { Price } \
\hline\text { A } & 1 & \$ 909.09 \
\text { B } & 2 & 811.62 \
\text { C } & 3 & 711.78 \
\text { D } & 4 & 635.52
\end{array}$ The yield to maturity on bond D is

Accepted Answer

A)  10%. 
B)  11%. 
C)  12%. 
D)  14%. 
E)  None of the options are correct. 
A)  10%. 
B)  11%. 
C)  12%. 
D)  14%. 
E)  None of the options are correct.

Question 2

If an 8% coupon bond is trading for $1,025.00, it has a current yield of

Accepted Answer

A)  7.8%. 
B)  8.7%. 
C)  7.6%. 
D)  7.9%. 
E)  8.1%. 
A)  7.8%. 
B)  8.7%. 
C)  7.6%. 
D)  7.9%. 
E)  8.1%.

Question 3

Convertible bonds

Accepted Answer

A)  give their holders the ability to share in price appreciation of the underlying stock. 
B)  offer lower coupon rates than similar nonconvertible bonds. 
C)  offer higher coupon rates than similar nonconvertible bonds. 
D)  give their holders the ability to share in price appreciation of the underlying stock and offer lower coupon rates than similar nonconvertible bonds. 
E)  give their holders the ability to share in price appreciation of the underlying stock and offer higher coupon rates than similar nonconvertible bonds. 
A)  give their holders the ability to share in price appreciation of the underlying stock. 
B)  offer lower coupon rates than similar nonconvertible bonds. 
C)  offer higher coupon rates than similar nonconvertible bonds. 
D)  give their holders the ability to share in price appreciation of the underlying stock and offer lower coupon rates than similar nonconvertible bonds. 
E)  give their holders the ability to share in price appreciation of the underlying stock and offer higher coupon rates than similar nonconvertible bonds.

Question 4

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in seven years, and has a yield to maturity of 9.3%. The intrinsic value of the bond today will be ________ if the coupon rate is 9.5%.

Accepted Answer

A)  $922.77 
B)  $1,010.12 
C)  $1,075.80 
D)  $1,077.22 
E)  None of the options are correct. 
A)  $922.77 
B)  $1,010.12 
C)  $1,075.80 
D)  $1,077.22 
E)  None of the options are correct.

Question 5

A coupon bond pays annual interest, has a par value of $1,000, matures in 12 years, has a coupon rate of 11%, and has a yield to maturity of 12%. The current yield on this bond is

Accepted Answer

A)  10.39%. 
B)  10.43%. 
C)  10.58%. 
D)  11.73%. 
E)  None of the options are correct. 
A)  10.39%. 
B)  10.43%. 
C)  10.58%. 
D)  11.73%. 
E)  None of the options are correct.

Question 6

A convertible bond has a par value of $1,000 and a current market value of $950. The current price of the issuing firm's stock is $22, and the conversion ratio is 40 shares. The bond's conversion premium is

Accepted Answer

A)  $40. 
B)  $70. 
C)  $190. 
D)  $200. 
A)  $40. 
B)  $70. 
C)  $190. 
D)  $200.

Question 7

If a 7.5% coupon bond is trading for $1,050.00, it has a current yield of

Accepted Answer

A)  7.0%. 
B)  7.4%. 
C)  7.1%. 
D)  6.9%. 
E)  6.7%. 
A)  7.0%. 
B)  7.4%. 
C)  7.1%. 
D)  6.9%. 
E)  6.7%.

Question 8

You have just purchased a 10-year zero-coupon bond with a yield to maturity of 10% and a par value of $1,000. What would your rate of return at the end of the year be if you sell the bond? Assume the yield to maturity on the bond is 11% at the time you sell.

Accepted Answer

A)  10.00% 
B)  20.42% 
C)  13.8% 
D)  1.4% 
E)  None of the options are correct. 
A)  10.00% 
B)  20.42% 
C)  13.8% 
D)  1.4% 
E)  None of the options are correct.

Question 9

If a 9% coupon bond that pays interest every 182 days paid interest 112 days ago, the accrued interest would be

Accepted Answer

A)  $27.69. 
B)  $27.35. 
C)  $26.77. 
D)  $27.98. 
E)  $28.15. 
A)  $27.69. 
B)  $27.35. 
C)  $26.77. 
D)  $27.98. 
E)  $28.15.

Question 10

The process of retiring high-coupon debt and issuing new bonds at a lower coupon to reduce interest payments is called

Accepted Answer

A)  deferral. 
B)  reissue. 
C)  repurchase. 
D)  refunding. 
E)  None of the options are correct. 
A)  deferral. 
B)  reissue. 
C)  repurchase. 
D)  refunding. 
E)  None of the options are correct.

Question 11

A 7.5% coupon bond with an ask price of $100.00 pays interest every 182 days. If the bond paid interest 62 days ago, the invoice price of the bond would be

Accepted Answer

A)  $1,011.67. 
B)  $1,012.35. 
C)  $1,012.77. 
D)  $1,011.98. 
E)  $1,012.15. 
A)  $1,011.67. 
B)  $1,012.35. 
C)  $1,012.77. 
D)  $1,011.98. 
E)  $1,012.15.

Question 12

Ceteris paribus, the price and yield on a bond are

Accepted Answer

A)  positively related. 
B)  negatively related. 
C)  sometimes positively and sometimes negatively related. 
D)  not related. 
E)  indefinitely related. 
A)  positively related. 
B)  negatively related. 
C)  sometimes positively and sometimes negatively related. 
D)  not related. 
E)  indefinitely related.

Question 13

One year ago, you purchased a newly-issued TIPS bond that has a 5% coupon rate, five years to maturity, and a par value of $1,000. The average inflation rate over the year was 3.2%. What is the amount of the coupon payment you will receive, and what is the current face value of the bond?

Accepted Answer

A)  $50.00, $1,000 
B)  $32.00, $1,032 
C)  $50.00, $1,032 
D)  $32.00, $1,050 
E)  $51.60, $1,032 
A)  $50.00, $1,000 
B)  $32.00, $1,032 
C)  $50.00, $1,032 
D)  $32.00, $1,050 
E)  $51.60, $1,032

Question 14

A coupon bond pays annual interest, has a par value of $1,000, matures in four years, has a coupon rate of 10%, and has a yield to maturity of 12%. The current yield on this bond is

Accepted Answer

A)  10.65%. 
B)  10.45%. 
C)  10.95%. 
D)  10.52%. 
E)  None of the options are correct. 
A)  10.65%. 
B)  10.45%. 
C)  10.95%. 
D)  10.52%. 
E)  None of the options are correct.

Question 15

A 9% coupon bond with an ask price of 100:00 pays interest every 182 days. If the bond paid interest 112 days ago, the invoice price of the bond would be

Accepted Answer

A)  $1,027.69. 
B)  $1,027.35. 
C)  $1,026.77. 
D)  $1,027.98. 
E)  $1,028.15. 
A)  $1,027.69. 
B)  $1,027.35. 
C)  $1,026.77. 
D)  $1,027.98. 
E)  $1,028.15.

Question 16

To earn a high rating from the bond-rating agencies, a firm should have

Accepted Answer

A)  a low times-interest-earned ratio. 
B)  a low debt-to-equity ratio. 
C)  a high quick ratio. 
D)  a low debt-to-equity ratio and a high quick ratio. 
E)  a low times-interest-earned ratio and a high quick ratio. 
A)  a low times-interest-earned ratio. 
B)  a low debt-to-equity ratio. 
C)  a high quick ratio. 
D)  a low debt-to-equity ratio and a high quick ratio. 
E)  a low times-interest-earned ratio and a high quick ratio.

Question 17

TIPS are

Accepted Answer

A)  securities formed from the coupon payments only of government bonds. 
B)  securities formed from the principal payments only of government bonds. 
C)  government bonds with par value linked to the general level of prices. 
D)  government bonds with coupon rates linked to the general level of prices. 
E)  zero-coupon government bonds. 
A)  securities formed from the coupon payments only of government bonds. 
B)  securities formed from the principal payments only of government bonds. 
C)  government bonds with par value linked to the general level of prices. 
D)  government bonds with coupon rates linked to the general level of prices. 
E)  zero-coupon government bonds.

Question 18

A coupon bond that pays interest of $40 semi-annually has a par value of $1,000, matures in four years, and is selling today at a $36 discount from par value. The yield to maturity on this bond is

Accepted Answer

A)  8.69%. 
B)  9.09%. 
C)  10.43%. 
D)  9.76%. 
E)  None of the options are correct. 
A)  8.69%. 
B)  9.09%. 
C)  10.43%. 
D)  9.76%. 
E)  None of the options are correct.

Question 19

One year ago, you purchased a newly-issued TIPS bond that has a 4% coupon rate, five years to maturity, and a par value of $1,000. The average inflation rate over the year was 3.6%. What is the amount of the coupon payment you will receive, and what is the current face value of the bond?

Accepted Answer

A)  $40.00, $1,000 
B)  $41.44, $1,036 
C)  $40.00, $1,036 
D)  $36.00, $1,040 
E)  $76.00, $1,000 
A)  $40.00, $1,000 
B)  $41.44, $1,036 
C)  $40.00, $1,036 
D)  $36.00, $1,040 
E)  $76.00, $1,000

Question 20

A zero-coupon bond has a yield to maturity of 9% and a par value of $1,000. If the bond matures in eight years, the bond should sell for a price of _______ today.

Accepted Answer

A)  $422.41 
B)  $501.87 
C)  $513.16 
D)  $483.49 
E)  None of the options are correct. 
A)  $422.41 
B)  $501.87 
C)  $513.16 
D)  $483.49 
E)  None of the options are correct.

Exam 14: Bond Prices and Yields

Consider the following $1,000-par-value zero-coupon bonds: Years of Bond Maturity Price A 1 \ 909.09 B 2 811.62 C 3 711.78 D 4 635.52 The yield to maturity on bond D is

If an 8% coupon bond is trading for $1,025.00, it has a current yield of

Convertible bonds

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in seven years, and has a yield to maturity of 9.3%. The intrinsic value of the bond today will be ________ if the coupon rate is 9.5%.

A coupon bond pays annual interest, has a par value of $1,000, matures in 12 years, has a coupon rate of 11%, and has a yield to maturity of 12%. The current yield on this bond is

A convertible bond has a par value of $1,000 and a current market value of $950. The current price of the issuing firm's stock is $22, and the conversion ratio is 40 shares. The bond's conversion premium is

If a 7.5% coupon bond is trading for $1,050.00, it has a current yield of

You have just purchased a 10-year zero-coupon bond with a yield to maturity of 10% and a par value of $1,000. What would your rate of return at the end of the year be if you sell the bond? Assume the yield to maturity on the bond is 11% at the time you sell.

If a 9% coupon bond that pays interest every 182 days paid interest 112 days ago, the accrued interest would be

The process of retiring high-coupon debt and issuing new bonds at a lower coupon to reduce interest payments is called

A 7.5% coupon bond with an ask price of $100.00 pays interest every 182 days. If the bond paid interest 62 days ago, the invoice price of the bond would be

Ceteris paribus, the price and yield on a bond are

One year ago, you purchased a newly-issued TIPS bond that has a 5% coupon rate, five years to maturity, and a par value of $1,000. The average inflation rate over the year was 3.2%. What is the amount of the coupon payment you will receive, and what is the current face value of the bond?

A coupon bond pays annual interest, has a par value of $1,000, matures in four years, has a coupon rate of 10%, and has a yield to maturity of 12%. The current yield on this bond is

A 9% coupon bond with an ask price of 100:00 pays interest every 182 days. If the bond paid interest 112 days ago, the invoice price of the bond would be

To earn a high rating from the bond-rating agencies, a firm should have

TIPS are

A coupon bond that pays interest of $40 semi-annually has a par value of $1,000, matures in four years, and is selling today at a $36 discount from par value. The yield to maturity on this bond is

One year ago, you purchased a newly-issued TIPS bond that has a 4% coupon rate, five years to maturity, and a par value of $1,000. The average inflation rate over the year was 3.6%. What is the amount of the coupon payment you will receive, and what is the current face value of the bond?

A zero-coupon bond has a yield to maturity of 9% and a par value of $1,000. If the bond matures in eight years, the bond should sell for a price of _______ today.

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

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Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

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