Question 1

Which of the following statements is false?

Accepted Answer

A)  We can use the law of one price to compute the price of a coupon bond from the prices of zero-coupon bonds. 
B)  The plot of the yields of coupon bonds of different maturities is called the coupon-paying yield curve. 
C)  It is possible to replicate the cash flows of a coupon bond using zero-coupon bonds. 
D)  Because the coupon bond provides cash flows at different points in time, the yield to maturity of a coupon bond is the simple average of the yields of the zero-coupon bonds of equal and shorter maturities. 
A)  We can use the law of one price to compute the price of a coupon bond from the prices of zero-coupon bonds. 
B)  The plot of the yields of coupon bonds of different maturities is called the coupon-paying yield curve. 
C)  It is possible to replicate the cash flows of a coupon bond using zero-coupon bonds. 
D)  Because the coupon bond provides cash flows at different points in time, the yield to maturity of a coupon bond is the simple average of the yields of the zero-coupon bonds of equal and shorter maturities. D

Question 2

The YTM of a 4-year default-free security with a face value of $1,000 and an annual coupon rate of 5.25% is closest to:

Accepted Answer

A)  5.2% 
B)  5.0% 
C)  4.9% 
D)  5.25% 
A)  5.2% 
B)  5.0% 
C)  4.9% 
D)  5.25% B

Question 3

Consider a bond that pays annually an 8% coupon with 20 years to maturity.The amount that the price of the bond will change if its yield to maturity increases from 5% to 7% is closest to:

Accepted Answer

A)  -$270 
B)  -$225 
C)  -$310 
D)  -$250 
A)  -$270 
B)  -$225 
C)  -$310 
D)  -$250 A

Question 4

Explain why the expected return of a corporate bond does not equal its yield to maturity?

Accepted Answer

Because we calculate the yield to maturi

Question 5

Use the table for the question(s) below.
Consider the following yields to maturity on various one-year zero-coupon securities:
  
-The price (expressed as a percentage of the face value)of a one-year,zero-coupon corporate bond with a BBB rating is closest to:

Accepted Answer

A)  95.60 
B)  94.16 
C)  95.42 
D)  94.70 
A)  95.60 
B)  94.16 
C)  95.42 
D)  94.70

Question 6

Use the table for the question(s) below.
Consider the following yields to maturity on various one-year zero-coupon securities:
  
-The credit spread of the BBB corporate bond is closest to:

Accepted Answer

A)  1.0% 
B)  5.6% 
C)  1.6% 
D)  0.8% 
A)  1.0% 
B)  5.6% 
C)  1.6% 
D)  0.8%

Question 7

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 8

Use the table for the question(s) below.
Consider the following four bonds that pay annual coupons:
  
-The percentage change in the price of the bond "A" if its yield to maturity increases from 5% to 6% is closest to:

Accepted Answer

A)  -4% 
B)  -6% 
C)  -1% 
D)  4% 
A)  -4% 
B)  -6% 
C)  -1% 
D)  4%

Question 9

Generally speaking,in Canada,the risk of bonds issued by corporations is relatively ________ the risk of bonds issued by the governments.

Accepted Answer

A)  higher than 
B)  lower than 
C)  equal to 
D)  none of the above 
A)  higher than 
B)  lower than 
C)  equal to 
D)  none of the above

Question 10

Use the table for the question(s) below.
The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face value):
  
-A corporate bond which receives a BBB rating from Standard and Poor's is considered

Accepted Answer

A)  a junk bond. 
B)  an investment grade bond. 
C)  a defaulted bond. 
D)  a high-yield bond. 
A)  a junk bond. 
B)  an investment grade bond. 
C)  a defaulted bond. 
D)  a high-yield bond.

Question 11

Which of the following statements is false?

Accepted Answer

A)  Forward rates tend not to be good predictors of future spot rates. 
B)  Given the risk associated with interest rate changes, corporate managers require tools to help manage this risk. 
C)  One of the most important tools to manage the risk of interest rate changes is the interest rate forward contract. 
D)  A spot rate is an interest rate that we can guarantee today for a loan or investment that will occur in the future. 
A)  Forward rates tend not to be good predictors of future spot rates. 
B)  Given the risk associated with interest rate changes, corporate managers require tools to help manage this risk. 
C)  One of the most important tools to manage the risk of interest rate changes is the interest rate forward contract. 
D)  A spot rate is an interest rate that we can guarantee today for a loan or investment that will occur in the future.

Question 12

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 Canadian 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 Canadian government bonds with a maturity of up to one year.

Question 13

Which of the following statements is false?

Accepted Answer

A)  Zero-coupon bonds are also called pure discount bonds. 
B)  The IRR of an investment opportunity is the discount rate at which the NPV of the investment opportunity is equal to zero. 
C)  The yield to maturity for a zero-coupon bond is the return you will earn as an investor from holding the bond to maturity and receiving the promised face value payment. 
D)  When prices are quoted in the bond market, they are conventionally quoted in increments of $1000. 
A)  Zero-coupon bonds are also called pure discount bonds. 
B)  The IRR of an investment opportunity is the discount rate at which the NPV of the investment opportunity is equal to zero. 
C)  The yield to maturity for a zero-coupon bond is the return you will earn as an investor from holding the bond to maturity and receiving the promised face value payment. 
D)  When prices are quoted in the bond market, they are conventionally quoted in increments of $1000.

Question 14

Which of the following statements is false?

Accepted Answer

A)  Bond traders typically quote bond prices rather than bond yields. 
B)  Treasury bills are zero-coupon bonds. 
C)  Zero-coupon bonds always trade at a discount. 
D)  The yield to maturity is typically stated as an annual rate by multiplying the calculated YTM by the number of coupon payments per year, thereby converting it to an APR. 
A)  Bond traders typically quote bond prices rather than bond yields. 
B)  Treasury bills are zero-coupon bonds. 
C)  Zero-coupon bonds always trade at a discount. 
D)  The yield to maturity is typically stated as an annual rate by multiplying the calculated YTM by the number of coupon payments per year, thereby converting it to an APR.

Question 15

Use the information for the question(s) below.
The Sisyphean Company has a bond outstanding with a face value of $1,000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semi-annually.
-Assuming that this bond trades for $903,then the YTM for this bond is closest to:

Accepted Answer

A)  8.0% 
B)  6.8% 
C)  9.9% 
D)  9.2% 
A)  8.0% 
B)  6.8% 
C)  9.9% 
D)  9.2%

Question 16

A 4-year default-free security with a face value of $1,000 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 17

Which of the following statements is correct?

Accepted Answer

A)  The value today of a bond equals the present value of all of its future cash flows. 
B)  The value today of a bond is smaller than the present value of all of its future cash flows. 
C)  The value today of a bond is greater than the present value of all of its future cash flows. 
D)  The value today of a bond equals the future value of all of its future cash flows. 
A)  The value today of a bond equals the present value of all of its future cash flows. 
B)  The value today of a bond is smaller than the present value of all of its future cash flows. 
C)  The value today of a bond is greater than the present value of all of its future cash flows. 
D)  The value today of a bond equals the future value of all of its future cash flows.

Question 18

Use the information for the question(s) below.
The Sisyphean Company has a bond outstanding with a face value of $1,000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semi-annually.
-How much are each of the semi-annual coupon payments? Assuming the appropriate YTM on the Sisyphean bond is 8.8%,then at what price should this bond trade?

Accepted Answer

Coupon = (coupon rate × face v

Question 19

The reason given for investors not selling US Treasury Bills in 2008 when they had a negative yield was

Accepted Answer

A)  uncertainty with respect to the solvency of US banks where the proceeds from the sale of the T-Bills would have to be invested. 
B)  the instability of economies outside the US. 
C)  the probability of corrective monetary policy action by the Fed. 
D)  the perceived lack of liquidity in the US economy at that time. 
A)  uncertainty with respect to the solvency of US banks where the proceeds from the sale of the T-Bills would have to be invested. 
B)  the instability of economies outside the US. 
C)  the probability of corrective monetary policy action by the Fed. 
D)  the perceived lack of liquidity in the US economy at that time.

Question 20

Use the table for the question(s) below.
Consider the following four bonds that pay annual coupons:
  
-The percentage change in the price of the bond "C" if its yield to maturity increases from 9% to 10% is closest to:

Accepted Answer

A)  -17% 
B)  -6% 
C)  -4% 
D)  4% 
A)  -17% 
B)  -6% 
C)  -4% 
D)  4%

Exam 6: Valuing Bonds

Which of the following statements is false?

The YTM of a 4-year default-free security with a face value of $1,000 and an annual coupon rate of 5.25% is closest to:

Consider a bond that pays annually an 8% coupon with 20 years to maturity.The amount that the price of the bond will change if its yield to maturity increases from 5% to 7% is closest to:

Explain why the expected return of a corporate bond does not equal its yield to maturity?

Use the table for the question(s) below. Consider the following yields to maturity on various one-year zero-coupon securities: -The price (expressed as a percentage of the face value)of a one-year,zero-coupon corporate bond with a BBB rating is closest to:

Use the table for the question(s) below. Consider the following yields to maturity on various one-year zero-coupon securities: -The credit spread of the BBB corporate bond is closest to:

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?

Use the table for the question(s) below. Consider the following four bonds that pay annual coupons: -The percentage change in the price of the bond "A" if its yield to maturity increases from 5% to 6% is closest to:

Generally speaking,in Canada,the risk of bonds issued by corporations is relatively ________ the risk of bonds issued by the governments.

Use the table for the question(s) below. The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face value): -A corporate bond which receives a BBB rating from Standard and Poor's is considered

Which of the following statements is false?

Which of the following statements is false?

Which of the following statements is false?

Which of the following statements is false?

A 4-year default-free security with a face value of $1,000 and an annual coupon rate of 5.25% will trade

Which of the following statements is correct?

The reason given for investors not selling US Treasury Bills in 2008 when they had a negative yield was

Use the table for the question(s) below. Consider the following four bonds that pay annual coupons: -The percentage change in the price of the bond "C" if its yield to maturity increases from 9% to 10% is closest to:

The Corporation

Introduction to Financial Statement Analysis

Arbitrage and Financial Decision Making

The Time Value of Money

Interest Rates

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behaviour and Capital Market Efficiency

Financial Options

Option Valuation

Real Options

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 Modelling: a Case Study

The Mechanics of 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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