Question 1

Prior to its maturity date, the price of a zero-coupon bond is its face value.

Accepted Answer

A) True 
 B)False  False

Question 2

Use the information to answer the question(s)below.  
-Shown above is information from FINRA regarding one of Caterpillar Financial Services' bonds. How much would the holder of such a bond earn each coupon payment for each $100 in face value if coupons are paid annually?

Accepted Answer

A) $1.38 
B) $3.95 
C) $4.00 
D) $4.36 
A) $1.38 
B) $3.95 
C) $4.00 
D) $4.36 C

Question 3

Which of the following statements regarding bonds and their terms is FALSE?

Accepted Answer

A) One advantage of quoting the yield to maturity rather than the price is that the yield is independent of the face value of the bond. 
B) Unlike the case of bonds that pay coupons, for zero-coupon bonds, there is no formula to solve for the yield to maturity. 
C) Because we can convert any bond price into a yield, and vice versa, bond prices and yields are often used interchangeably. 
D) The internal rate of return (IRR)of a bond is given a special name, the yield to maturity (YTM). 
A) One advantage of quoting the yield to maturity rather than the price is that the yield is independent of the face value of the bond. 
B) Unlike the case of bonds that pay coupons, for zero-coupon bonds, there is no formula to solve for the yield to maturity. 
C) Because we can convert any bond price into a yield, and vice versa, bond prices and yields are often used interchangeably. 
D) The internal rate of return (IRR)of a bond is given a special name, the yield to maturity (YTM). B

Question 4

Which of the following statements regarding bonds and their terms 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 zero-coupon bond has no periodic interest payments. 
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 zero-coupon bond has no periodic interest payments. 
D) Treasury bills are U.S. government bonds with a maturity of up to one year.

Question 5

A risk-free, zero-coupon bond with a face value of $10,000 has 15 years to maturity. If the YTM is 6.1%, which of the following would be closest to the price this bond will trade at?

Accepted Answer

A) $4937 
B) $5760 
C) $6582 
D) $4114 
A) $4937 
B) $5760 
C) $6582 
D) $4114

Question 6

The only cash payment an investor in a zero-coupon bond receives is the face value of the bond on its maturity date.

Accepted Answer

A) True 
 B)False

Question 7

The Sisyphean Company has a bond outstanding with a face value of $5000 that reaches maturity in 8 years. The bond certificate indicates that the stated coupon rate for this bond is 8.2% and that the coupon payments are to be made semiannually. Assuming that this bond trades for $4541.53, then the YTM for this bond is closest to ________.

Accepted Answer

A) 7.9% 
B) 11.9% 
C) 13.8% 
D) 9.9% 
A) 7.9% 
B) 11.9% 
C) 13.8% 
D) 9.9%

Question 8

A bond has five years to maturity, a $1000 face value, and a 5.5% coupon rate with annual coupons. What is its yield to maturity if it is currently trading at $846.11?

Accepted Answer

A) 11.41% 
B) 13.31% 
C) 7.61% 
D) 9.51% 
A) 11.41% 
B) 13.31% 
C) 7.61% 
D) 9.51%

Question 9

The coupon value of a bond is the face value of the bond.

Accepted Answer

A) True 
 B)False

Question 10

Use the figure for the question(s)below.  
-The current zero-coupon yield curve for risk-free bonds is shown above. What is the price of a zero-coupon, four-year, risk-free bond of $100?

Accepted Answer

A) $85.64 
B) $87.99 
C) $92.15 
D) $96.67 
A) $85.64 
B) $87.99 
C) $92.15 
D) $96.67

Question 11

What must be the price of a $10,000 bond with a 6.1% coupon rate, semiannual coupons, and five years to maturity if it has a yield to maturity of 10% APR?

Accepted Answer

A) $8494.26 
B) $10,193.11 
C) $11,891.97 
D) $6795.41 
A) $8494.26 
B) $10,193.11 
C) $11,891.97 
D) $6795.41

Question 12

Which of the following bonds will be most sensitive to a change in interest rates?

Accepted Answer

A) a ten-year bond with a $2,000 face value whose yield to maturity is 5.8% and coupon rate is 5.8% APR paid semiannually 
B) a 15-year bond with a $5,000 face value whose yield to maturity is 7.4% and coupon rate is 6.2% APR paid annually 
C) a 20-year bond with a $3,000 face value whose yield to maturity is 6.0% and coupon rate is 5.4% APR paid semiannually 
D) a 30-year bond with a $1,000 face value whose yield to maturity is 5.5% and coupon rate is 6.4% APR paid annually 
A) a ten-year bond with a $2,000 face value whose yield to maturity is 5.8% and coupon rate is 5.8% APR paid semiannually 
B) a 15-year bond with a $5,000 face value whose yield to maturity is 7.4% and coupon rate is 6.2% APR paid annually 
C) a 20-year bond with a $3,000 face value whose yield to maturity is 6.0% and coupon rate is 5.4% APR paid semiannually 
D) a 30-year bond with a $1,000 face value whose yield to maturity is 5.5% and coupon rate is 6.4% APR paid annually

Question 13

Which of the following bonds will be least sensitive to a change in interest rates?

Accepted Answer

A) a ten-year bond with a $2,000 face value whose yield to maturity is 5.8% and coupon rate is 5.8% APR paid semiannually 
B) a 15-year bond with a $5,000 face value whose yield to maturity is 7.4% and coupon rate is 6.2% APR paid annually 
C) a 20-year bond with a $3,000 face value whose yield to maturity is 6.0% and coupon rate is 5.4% APR paid semiannually 
D) a 30-year bond with a $1,000 face value whose yield to maturity is 5.5% and coupon rate is 6.4% APR paid annually 
A) a ten-year bond with a $2,000 face value whose yield to maturity is 5.8% and coupon rate is 5.8% APR paid semiannually 
B) a 15-year bond with a $5,000 face value whose yield to maturity is 7.4% and coupon rate is 6.2% APR paid annually 
C) a 20-year bond with a $3,000 face value whose yield to maturity is 6.0% and coupon rate is 5.4% APR paid semiannually 
D) a 30-year bond with a $1,000 face value whose yield to maturity is 5.5% and coupon rate is 6.4% APR paid annually

Question 14

Which of the following statements is true of bond prices?

Accepted Answer

A) A fall in bond prices causes interest rates to fall. 
B) A fall in interest rates causes a fall in bond prices. 
C) A rise in interest rates causes bond prices to fall. 
D) Bond prices and interest rates are not connected. 
A) A fall in bond prices causes interest rates to fall. 
B) A fall in interest rates causes a fall in bond prices. 
C) A rise in interest rates causes bond prices to fall. 
D) Bond prices and interest rates are not connected.

Question 15

Why are the interest rates of U.S. Treasury securities less than the interest rates of equivalent corporate bonds?

Accepted Answer

A) The U.S. government has a high credit spread. 
B) There is significant risk that the U.S. government will default. 
C) U.S. Treasury securities are widely regarded to be risk-free. 
D) U.S. Treasury securities yield inflation adjusted interest rates. 
A) The U.S. government has a high credit spread. 
B) There is significant risk that the U.S. government will default. 
C) U.S. Treasury securities are widely regarded to be risk-free. 
D) U.S. Treasury securities yield inflation adjusted interest rates.

Question 16

Use the information for the question(s)below.
The Sisyphean Company has a bond outstanding with a face value of $1000 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 semiannually.
-How much are each of the semiannual coupon payments? Assuming the appropriate YTM on the Sisyphean bond is 8.8%, then at what price should this bond trade for?

Accepted Answer

Coupon payments = (coupon rate

Question 17

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) 5.40% 
B) 2.70% 
C) 10.80% 
D) 0.15% 
A) 5.40% 
B) 2.70% 
C) 10.80% 
D) 0.15%

Question 18

The above table shows the yields to maturity on a number of three-year, zero-coupon securities. What is the price per $100 of the face value of a three-year, zero-coupon corporate bond with a BBB rating?

Accepted Answer

A) $99.06 
B) $115.57 
C) $82.55 
D) $66.04 
A) $99.06 
B) $115.57 
C) $82.55 
D) $66.04

Question 19

Use the information for the question(s)below.  
-Shown above is information from FINRA regarding one of Bank of America's bonds. How much would the holder of such a bond earn each coupon payment for each $100 in face value if coupons are paid semiannually?

Accepted Answer

A) $1.49 
B) $2.15 
C) $2.32 
D) $4.30 
A) $1.49 
B) $2.15 
C) $2.32 
D) $4.30

Question 20

A 20-year bond with a $1,000 face value was issued with a yield to maturity of 4.3% and pays coupons semi-annually. After ten years, the yield to maturity is still 4.3% and the clean price of the bond is $959.71. After three more months go by, what would you expect the dirty price to be?

Accepted Answer

A) $978.71 
B) $969.21 
C) $997.71 
D) Cannot be determined from information given. 
A) $978.71 
B) $969.21 
C) $997.71 
D) Cannot be determined from information given.

Exam 6: Bonds

Prior to its maturity date, the price of a zero-coupon bond is its face value.

Use the information to answer the question(s)below. -Shown above is information from FINRA regarding one of Caterpillar Financial Services' bonds. How much would the holder of such a bond earn each coupon payment for each $100 in face value if coupons are paid annually?

Which of the following statements regarding bonds and their terms is FALSE?

Which of the following statements regarding bonds and their terms is FALSE?

A risk-free, zero-coupon bond with a face value of $10,000 has 15 years to maturity. If the YTM is 6.1%, which of the following would be closest to the price this bond will trade at?

The only cash payment an investor in a zero-coupon bond receives is the face value of the bond on its maturity date.

A bond has five years to maturity, a $1000 face value, and a 5.5% coupon rate with annual coupons. What is its yield to maturity if it is currently trading at $846.11?

The coupon value of a bond is the face value of the bond.

Use the figure for the question(s)below. -The current zero-coupon yield curve for risk-free bonds is shown above. What is the price of a zero-coupon, four-year, risk-free bond of $100?

What must be the price of a $10,000 bond with a 6.1% coupon rate, semiannual coupons, and five years to maturity if it has a yield to maturity of 10% APR?

Which of the following bonds will be most sensitive to a change in interest rates?

Which of the following bonds will be least sensitive to a change in interest rates?

Which of the following statements is true of bond prices?

Why are the interest rates of U.S. Treasury securities less than the interest rates of equivalent corporate bonds?

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 ________.

The above table shows the yields to maturity on a number of three-year, zero-coupon securities. What is the price per $100 of the face value of a three-year, zero-coupon corporate bond with a BBB rating?

Use the information for the question(s)below. -Shown above is information from FINRA regarding one of Bank of America's bonds. How much would the holder of such a bond earn each coupon payment for each $100 in face value if coupons are paid semiannually?

A 20-year bond with a $1,000 face value was issued with a yield to maturity of 4.3% and pays coupons semi-annually. After ten years, the yield to maturity is still 4.3% and the clean price of the bond is $959.71. After three more months go by, what would you expect the dirty price to be?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

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