Question 1

Which of the following formulas is incorrect?

Accepted Answer

A) Yield to maturity for an n-period zero-coupon bond =   
B) Price of an n-period bond =  
+
  
+ ...+
   
C) Price of an n-period bond = Coupon ×  
 
+
   
D) Coupon =   
A) Yield to maturity for an n-period zero-coupon bond =   
B) Price of an n-period bond =  
+
  
+ ...+
   
C) Price of an n-period bond = Coupon ×  
 
+
   
D) Coupon =

Question 2

According to Figure 6.5,the percent of countries in default or restructuring debt:

Accepted Answer

A) hit an all-time high in 2000-2005. 
B) peaked during World War II. 
C) is high whenever Greece defaults. 
D) is never more than 1/3. 
A) hit an all-time high in 2000-2005. 
B) peaked during World War II. 
C) is high whenever Greece defaults. 
D) is never more than 1/3.

Question 3

A 4 year default free security with a face value of $1000 and an annual coupon rate of 5.25% will trade:

Accepted Answer

A) at a premium. 
B) at par. 
C) at a discount. 
D) There is insufficient information provided to answer this question. 
A) at a premium. 
B) at par. 
C) at a discount. 
D) There is insufficient information provided to answer this question.

Question 4

A 3 year default free security with a face value of $1000 and an annual coupon rate of 6% will trade:

Accepted Answer

A) at a discount. 
B) at a premium. 
C) at par. 
D) There is insufficient information provided to answer this question. 
A) at a discount. 
B) at a premium. 
C) at par. 
D) There is insufficient information provided to answer this question.

Question 5

Plot the zero-coupon yield curve (for the first five years).

Accepted Answer

The answer of Plot the zero-coupon yield curve (for the...

Question 6

Which of the following statements is FALSE?

Accepted Answer

A) The yield to maturity of a coupon bond is a weighted average of the yields on the zero-coupon bonds. 
B) If the zero-coupon yield curve is downward sloping,the yield to maturity will decrease with the coupon rate. 
C) The information in the zero-coupon yield curve is sufficient to price all other risk-free bonds. 
D) When the yield curve is flat,all zero-coupon and coupon-paying bonds will have the same yield,independent of their maturities and coupon rates. 
A) The yield to maturity of a coupon bond is a weighted average of the yields on the zero-coupon bonds. 
B) If the zero-coupon yield curve is downward sloping,the yield to maturity will decrease with the coupon rate. 
C) The information in the zero-coupon yield curve is sufficient to price all other risk-free bonds. 
D) When the yield curve is flat,all zero-coupon and coupon-paying bonds will have the same yield,independent of their maturities and coupon rates.

Question 7

Use the following information to answer the question(s)below.
Suppose you purchase a 20-year treasury bond with a 6% annual coupon ten years ago at par.Today the bond's yield to maturity has risen to 8% (EAR).
-If you hold this bond to maturity,the internal rate of return you will earn on your investment will be closest to:

Accepted Answer

A) 5.0% 
B) 5.6% 
C) 6.0% 
D) 8.0% 
A) 5.0% 
B) 5.6% 
C) 6.0% 
D) 8.0%

Question 8

If you sell this bond now,the internal rate of return you will earn on your investment will be closest to:

Accepted Answer

A) 5.0% 
B) 5.6% 
C) 6.0% 
D) 8.0% 
A) 5.0% 
B) 5.6% 
C) 6.0% 
D) 8.0%

Question 9

Which of the following statements is FALSE?

Accepted Answer

A) If the bond trades at a discount,and investor who buys the bond will earn a return both from receiving the coupons and from receiving a face value that exceeds the price paid for the bond. 
B) Most coupon bond issuers choose a coupon rate so that the bonds will initially trade at,or very near to,par. 
C) Coupon bonds always trade for a discount. 
D) At any point in time,changes in market interest rates affect a bond's yield to maturity and its price. 
A) If the bond trades at a discount,and investor who buys the bond will earn a return both from receiving the coupons and from receiving a face value that exceeds the price paid for the bond. 
B) Most coupon bond issuers choose a coupon rate so that the bonds will initially trade at,or very near to,par. 
C) Coupon bonds always trade for a discount. 
D) At any point in time,changes in market interest rates affect a bond's yield to maturity and its price.

Question 10

Wyatt Oil is contemplating issuing a 20-year bond with semiannual coupons,a coupon rate of 8%,and a face value of $1000.Wyatt Oil believes it can get a AAA rating from Standard and Poor's for this bond issue.If Wyatt Oil is successful in getting a AAA rating,then the issue price for these bonds would be closest to:

Accepted Answer

A) $891 
B) $901 
C) $1000 
D) $1107 
A) $891 
B) $901 
C) $1000 
D) $1107

Question 11

Which of the following statements is FALSE?

Accepted Answer

A) The amount of each coupon payment is determined by the coupon rate of the bond. 
B) Prior to its maturity date,the price of a zero-coupon bond is always greater than its face value. 
C) The simplest type of bond is a zero-coupon bond. 
D) Treasury bills are U.S.government bonds with a maturity of up to one year. 
A) The amount of each coupon payment is determined by the coupon rate of the bond. 
B) Prior to its maturity date,the price of a zero-coupon bond is always greater than its face value. 
C) The simplest type of bond is a zero-coupon bond. 
D) Treasury bills are U.S.government bonds with a maturity of up to one year.

Question 12

Which of the following statements is FALSE?

Accepted Answer

A) Because the cash flows promised by the bond are the most that bondholders can hope to receive,the cash flows that a purchaser of a bond with credit risk expects to receive may be less than that amount. 
B) By consulting bond ratings,investors can assess the credit-worthiness of a particular bond issue. 
C) Because the yield to maturity for a bond is calculated using the promised cash flows,the yield of bonds with credit risk will be lower than that of otherwise identical default-free bonds. 
D) A higher yield to maturity does not necessarily imply that a bond's expected return is higher. 
A) Because the cash flows promised by the bond are the most that bondholders can hope to receive,the cash flows that a purchaser of a bond with credit risk expects to receive may be less than that amount. 
B) By consulting bond ratings,investors can assess the credit-worthiness of a particular bond issue. 
C) Because the yield to maturity for a bond is calculated using the promised cash flows,the yield of bonds with credit risk will be lower than that of otherwise identical default-free bonds. 
D) A higher yield to maturity does not necessarily imply that a bond's expected return is higher.

Question 13

Which of the four bonds is the least sensitive to a one percent increase in the YTM?

Accepted Answer

A) Bond A 
B) Bond B 
C) Bond C 
D) Bond D 
A) Bond A 
B) Bond B 
C) Bond C 
D) Bond D

Question 14

Suppose that when these bonds were issued,Luther received a price of $972.42 for each bond.What is the likely rating that Luther's bonds received?

Accepted Answer

A) AA 
B) BBB 
C) B 
D) A 
A) AA 
B) BBB 
C) B 
D) A

Question 15

The discount rate that sets the present value of the promised bond payments equal to the current market price of the bond is called:

Accepted Answer

A) the current yield. 
B) the yield to maturity. 
C) the zero coupon yield. 
D) the discount yield. 
A) the current yield. 
B) the yield to maturity. 
C) the zero coupon yield. 
D) the discount yield.

Exam 6: Valuing Bonds

Which of the following formulas is incorrect?

According to Figure 6.5,the percent of countries in default or restructuring debt:

A 4 year default free security with a face value of $1000 and an annual coupon rate of 5.25% will trade:

A 3 year default free security with a face value of $1000 and an annual coupon rate of 6% will trade:

Plot the zero-coupon yield curve (for the first five years).

Which of the following statements is FALSE?

If you sell this bond now,the internal rate of return you will earn on your investment will be closest to:

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Which of the four bonds is the least sensitive to a one percent increase in the YTM?

Suppose that when these bonds were issued,Luther received a price of $972.42 for each bond.What is the likely rating that Luther's bonds received?

The discount rate that sets the present value of the promised bond payments equal to the current market price of the bond is called:

The Corporation

Introduction to Financial Statement Analysis

Financial Decision Making and the Law of One Price

The Time Value of Money

Interest Rates

Investment Decision Rules

Fundamentals of Capital Budgeting

Valuing Stocks

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behavior and Capital Market Efficiency

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress,managerial Incentives,and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modeling: a Case Study

Financial Options

Option Valuation

Real Options

Raising Equity Capital

Debt Financing

Leasing

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

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