Question 1

What is the relationship between a bond's price and its yield to maturity?

Accepted Answer

There is an inverse relationsh

Question 2

Consider a zero-coupon bond with a $1,000 face value and 10 years left until maturity.If the YTM of this bond is 10.4%,then the price of this bond is closest to:

Accepted Answer

A)  $1,000 
B)  $602 
C)  $1,040 
D)  $372 
A)  $1,000 
B)  $602 
C)  $1,040 
D)  $372

Question 3

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):
  
-The yield to maturity for the three year zero-coupon bond is closest to:

Accepted Answer

A)  5.4% 
B)  5.8% 
C)  5.6% 
D)  6.0% 
A)  5.4% 
B)  5.8% 
C)  5.6% 
D)  6.0%

Question 4

When the coupon rate of a bond is below the prevailing rate of return,the bond is sold at

Accepted Answer

A)  premium price. 
B)  discounted price. 
C)  parity price. 
D)  none of the above. 
A)  premium price. 
B)  discounted price. 
C)  parity price. 
D)  none of the above.

Question 5

Use the table for the question(s) below.
Consider the following zero-coupon yields on default-free securities:
  
-The forward rate for year 3 (the forward rate quoted today for an investment that begins in two years and matures in three years)is closest to:

Accepted Answer

A)  4.5% 
B)  5.0% 
C)  5.2% 
D)  4.6% 
A)  4.5% 
B)  5.0% 
C)  5.2% 
D)  4.6%

Question 6

The price today 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)  $1,000 
B)  $1,003 
C)  $1,008 
D)  $987 
A)  $1,000 
B)  $1,003 
C)  $1,008 
D)  $987

Question 7

Which of the following statements is false?

Accepted Answer

A)  By convention, practitioners always plot the yield of the most senior issued bonds, termed the on-the-run-bonds. 
B)  We can determine the no-arbitrage price of a coupon bond by discounting its cash flows using the zero-coupon yields. 
C)  If the zero-coupon yield curve is upward sloping, the resulting yield to maturity decreases with the coupon rate of the bond. 
D)  The yield to maturity of a coupon bond is a weighted average of the yields on the zero-coupon bonds. 
A)  By convention, practitioners always plot the yield of the most senior issued bonds, termed the on-the-run-bonds. 
B)  We can determine the no-arbitrage price of a coupon bond by discounting its cash flows using the zero-coupon yields. 
C)  If the zero-coupon yield curve is upward sloping, the resulting yield to maturity decreases with the coupon rate of the bond. 
D)  The yield to maturity of a coupon bond is a weighted average of the yields on the zero-coupon bonds.

Question 8

Use the information for the question(s) below.
Luther Industries needs to raise $25 million to fund a new office complex. The company plans on issuing ten-year bonds with a face value of $1,000 and a coupon rate of 7.0% (annual payments). The following table summarizes the YTM for similar ten-year corporate bonds of various credit ratings:
  
-Assuming that Luther's bonds receive a AAA rating,the number of bonds that Luther must issue to raise the needed $25 million is closest to:

Accepted Answer

A)  24,655 
B)  25,000 
C)  24,477 
D)  26,681 
A)  24,655 
B)  25,000 
C)  24,477 
D)  26,681

Question 9

Consider a zero-coupon bond with a $1,000 face value and 20 years to maturity.The price this bond will trade for if the YTM is 6% is closest to:

Accepted Answer

A)  $215 
B)  $312 
C)  $335 
D)  $306 
A)  $215 
B)  $312 
C)  $335 
D)  $306

Question 10

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 $1,112,then the YTM for this bond is closest to:

Accepted Answer

A)  8.0% 
B)  3.4% 
C)  6.8% 
D)  9.2% 
A)  8.0% 
B)  3.4% 
C)  6.8% 
D)  9.2%

Question 11

Which of the following statements is false?

Accepted Answer

A)  The principal or face value of a bond is the notional amount we use to compute the interest payments. 
B)  Payments are made on bonds until a final repayment date, called the term date of the bond. 
C)  The coupon rate of a bond is set by the issuer and stated on the bond certificate. 
D)  The promised interest payments of a bond are called coupons. 
A)  The principal or face value of a bond is the notional amount we use to compute the interest payments. 
B)  Payments are made on bonds until a final repayment date, called the term date of the bond. 
C)  The coupon rate of a bond is set by the issuer and stated on the bond certificate. 
D)  The promised interest payments of a bond are called coupons.

Question 12

Which of the following statements is false?

Accepted Answer

A)  Bond ratings encourage widespread investor participation and relatively liquid markets. 
B)  Bonds in the top four categories are often referred to as investment grade bonds. 
C)  A bond's rating depends on the risk of bankruptcy as well as the bondholder's ability to lay claim to the firm's assets in the event of a bankruptcy. 
D)  Debt issues with a low-priority claim in bankruptcy will have a better rating than issues from the same company that have a higher priority in bankruptcy. 
A)  Bond ratings encourage widespread investor participation and relatively liquid markets. 
B)  Bonds in the top four categories are often referred to as investment grade bonds. 
C)  A bond's rating depends on the risk of bankruptcy as well as the bondholder's ability to lay claim to the firm's assets in the event of a bankruptcy. 
D)  Debt issues with a low-priority claim in bankruptcy will have a better rating than issues from the same company that have a higher priority in bankruptcy.

Question 13

Which of the following equations is incorrect?

Accepted Answer

A)  Expected future spot interest rate = forward interest rate + risk premium 
B)  (1 + f1) × (1 + f2) × (1 + f3) × ... × (1 + fn) = (1 + YTMn)n 
C)  fn =   - 1 
D)  (1 + YTMn)n = (1 + YTMn - 1)n - 1(1 + fn) 
A)  Expected future spot interest rate = forward interest rate + risk premium 
B)  (1 + f1) × (1 + f2) × (1 + f3) × ... × (1 + fn) = (1 + YTMn)n 
C)  fn =   - 1 
D)  (1 + YTMn)n = (1 + YTMn - 1)n - 1(1 + fn)

Question 14

When the prevailing rate of return is below the coupon rate,the bond is sold at

Accepted Answer

A)  premium price. 
B)  discounted price. 
C)  parity price. 
D)  none of the above. 
A)  premium price. 
B)  discounted price. 
C)  parity price. 
D)  none of the above.

Question 15

Consider a corporate bond with a $1,000 face value,8% coupon with semiannual coupon payments,7 years until maturity,and a YTM of 9%.It has been 57 days since the last coupon payment was made and there are 182 days in the current coupon period.The dirty (cash)price for this bond is closest to:

Accepted Answer

A)  $949.70 
B)  $961.40 
C)  $936.40 
D)  $948.90 
A)  $949.70 
B)  $961.40 
C)  $936.40 
D)  $948.90

Question 16

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 AAA rating is closest to:

Accepted Answer

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

Question 17

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 B corporate bond is closest to:

Accepted Answer

A)  1.6% 
B)  0.8% 
C)  1.0% 
D)  1.4% 
A)  1.6% 
B)  0.8% 
C)  1.0% 
D)  1.4%

Question 18

Which of the following statements is false?

Accepted Answer

A)  Given the spot interest rates, we can determine the price and yield of any other default-free bond. 
B)  As the coupon increases, earlier cash flows become relatively less important than later cash flows in the calculation of the present value. 
C)  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. 
D)  When Canadian bond traders refer to "the yield curve," they are often referring to the coupon-paying treasury yield curve. 
A)  Given the spot interest rates, we can determine the price and yield of any other default-free bond. 
B)  As the coupon increases, earlier cash flows become relatively less important than later cash flows in the calculation of the present value. 
C)  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. 
D)  When Canadian bond traders refer to "the yield curve," they are often referring to the coupon-paying treasury yield curve.

Question 19

Which of the following statements is correct?

Accepted Answer

A)  The shape of the yield curve affects the price choice in the firm's financing decision. 
B)  The shape of the yield curve affects the cost choice in the firm's financing decision. 
C)  The shape of the yield curve affects the return choice in the firm's financing decision. 
D)  The shape of the yield curve affects the maturity choice in the firm's financing decision. 
A)  The shape of the yield curve affects the price choice in the firm's financing decision. 
B)  The shape of the yield curve affects the cost choice in the firm's financing decision. 
C)  The shape of the yield curve affects the return choice in the firm's financing decision. 
D)  The shape of the yield curve affects the maturity choice in the firm's financing decision.

Question 20

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 the appropriate YTM on the Sisyphean bond is 7.5%,then this bond will trade at

Accepted Answer

A)  par. 
B)  a discount. 
C)  a premium. 
D)  none of the above. 
A)  par. 
B)  a discount. 
C)  a premium. 
D)  none of the above.

Exam 6: Valuing Bonds

What is the relationship between a bond's price and its yield to maturity?

Consider a zero-coupon bond with a $1,000 face value and 10 years left until maturity.If the YTM of this bond is 10.4%,then the price of this bond is closest to:

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): -The yield to maturity for the three year zero-coupon bond is closest to:

When the coupon rate of a bond is below the prevailing rate of return,the bond is sold at

Use the table for the question(s) below. Consider the following zero-coupon yields on default-free securities: -The forward rate for year 3 (the forward rate quoted today for an investment that begins in two years and matures in three years)is closest to:

The price today 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:

Which of the following statements is false?

Consider a zero-coupon bond with a $1,000 face value and 20 years to maturity.The price this bond will trade for if the YTM is 6% is closest to:

Which of the following statements is false?

Which of the following statements is false?

Which of the following equations is incorrect?

When the prevailing rate of return is below the coupon rate,the bond is sold at

Consider a corporate bond with a $1,000 face value,8% coupon with semiannual coupon payments,7 years until maturity,and a YTM of 9%.It has been 57 days since the last coupon payment was made and there are 182 days in the current coupon period.The dirty (cash)price for this bond 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 price (expressed as a percentage of the face value)of a one-year,zero-coupon corporate bond with a AAA 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 B corporate bond is closest to:

Which of the following statements is false?

Which of the following statements is correct?

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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