Question 1

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) 1.4% 
B) 1.70% 
C) 2.80% 
D) 0.70% 
A) 1.4% 
B) 1.70% 
C) 2.80% 
D) 0.70%

Question 2

Which of the following best describes a bond rated by Standard & Poor's and Moody as B?

Accepted Answer

A) judged to be high quality by all standards 
B) considered to be medium grade obligations 
C) neither highly protected nor poorly secured 
D) generally lacks the characteristics of a desirable investment 
A) judged to be high quality by all standards 
B) considered to be medium grade obligations 
C) neither highly protected nor poorly secured 
D) generally lacks the characteristics of a desirable investment

Question 3

How can the financial calculator be used to calculate the price of a coupon bond from its yield to maturity?

Accepted Answer

Most popular financial calcula

Question 4

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

Accepted Answer

A) Zero-coupon bonds are also called pure discount bonds. 
B) The internal rate of return (IRR)of an investment opportunity is the discount rate at which the net present value (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 $1,000. 
A) Zero-coupon bonds are also called pure discount bonds. 
B) The internal rate of return (IRR)of an investment opportunity is the discount rate at which the net present value (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 $1,000.

Question 5

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:  
-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 6

Before it matures, the price of any bond is always less than its face value.

Accepted Answer

A) True 
 B)False

Question 7

What is the coupon payment of a 15-year $10,000 bond with a 9% coupon rate with semiannual payments?

Accepted Answer

A) $150.00 
B) $450 
C) $900.00 
D) $1800.00 
A) $150.00 
B) $450 
C) $900.00 
D) $1800.00

Question 8

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) 112.68 
B) 131.46 
C) 75.12 
D) 93.90 
A) 112.68 
B) 131.46 
C) 75.12 
D) 93.90

Question 9

How are investors in zero-coupon bonds compensated for making such an investment?

Accepted Answer

A) Such bonds are purchased at their face value and sold at a premium on a later date. 
B) Such bonds make regular interest payments. 
C) Such bonds are purchased at a discount, below their face value. 
D) Such bonds have a lower face value as compared to other bonds of similar term. 
A) Such bonds are purchased at their face value and sold at a premium on a later date. 
B) Such bonds make regular interest payments. 
C) Such bonds are purchased at a discount, below their face value. 
D) Such bonds have a lower face value as compared to other bonds of similar term.

Question 10

What care, if any, should be taken regarding the sign of the cash flows while drawing the timeline and associated cash flows of a coupon bond?

Accepted Answer

A typical coupon bond will have the firs

Question 11

Which of the following bonds will be most sensitive to a change in interest rates if all bonds have the same initial yield to maturity?

Accepted Answer

A) a ten-year bond with a $1,000 face value whose coupon rate is 5.8% APR paid semiannually 
B) a ten-year bond with a $1,000 face value whose coupon rate is 7.4% APR paid semiannually 
C) a 20-year bond with a $1,000 face value whose coupon rate is 5.8% APR paid semiannually 
D) a 20-year bond with a $1,000 face value whose coupon rate is 7.4% APR paid semiannually 
A) a ten-year bond with a $1,000 face value whose coupon rate is 5.8% APR paid semiannually 
B) a ten-year bond with a $1,000 face value whose coupon rate is 7.4% APR paid semiannually 
C) a 20-year bond with a $1,000 face value whose coupon rate is 5.8% APR paid semiannually 
D) a 20-year bond with a $1,000 face value whose coupon rate is 7.4% APR paid semiannually

Question 12

Under what situation should the clean price, dirty price, and the price calculated by the basic annuity and present value (PV)equations for a bond be equal?

Accepted Answer

Typically, while drawing the timeline fo

Question 13

Which of the following bonds is trading at par?

Accepted Answer

A) a bond with a $2,000 face value trading at $1,987 
B) a bond with a $1,000 face value trading at $999 
C) a bond with a $1,000 face value trading at $1,000 
D) a bond with a $2,000 face value trading at $2,012 
A) a bond with a $2,000 face value trading at $1,987 
B) a bond with a $1,000 face value trading at $999 
C) a bond with a $1,000 face value trading at $1,000 
D) a bond with a $2,000 face value trading at $2,012

Question 14

A $1000 bond with a coupon rate of 6.2% paid semiannually has eight years to maturity and a yield to maturity of 8.3%. If interest rates rise and the yield to maturity increases to 8.6%, what will happen to the price of the bond?

Accepted Answer

A) The price of the bond will fall by $18.93. 
B) The price of the bond will fall by $15.78. 
C) The price of the bond will rise by $15.78. 
D) The price of the bond will not change. 
A) The price of the bond will fall by $18.93. 
B) The price of the bond will fall by $15.78. 
C) The price of the bond will rise by $15.78. 
D) The price of the bond will not change.

Question 15

A mining company needs to raise $100 million in order to begin open-pit mining of a coal seam. The company will fund this by issuing 30-year bonds with a face value of $1,000 and a coupon rate of 6.5%, paid annually. The above table shows the yield to maturity for similar 30-year corporate bonds of different ratings. If the company's bonds are rated A, what will be their selling price?

Accepted Answer

A) $1265.37 
B) $1476.27 
C) $1054.48 
D) $843.58 
A) $1265.37 
B) $1476.27 
C) $1054.48 
D) $843.58

Question 16

A corporate bond makes payments of $9.67 every month for ten years with a final payment of $2009.67. Which of the following best describes this bond?

Accepted Answer

A) a 10-year bond with a face value of $2,000 and a coupon rate of 4.8% with monthly payments 
B) a 10-year bond with a face value of $2,000 and a coupon rate of 5.8% with monthly payments 
C) a 10-year bond with a face value of $2,009.67 and a coupon rate of 4.8% with monthly payments 
D) a 10-year bond with a face value of $2,009.67 and a coupon rate of 5.8% with monthly payments 
A) a 10-year bond with a face value of $2,000 and a coupon rate of 4.8% with monthly payments 
B) a 10-year bond with a face value of $2,000 and a coupon rate of 5.8% with monthly payments 
C) a 10-year bond with a face value of $2,009.67 and a coupon rate of 4.8% with monthly payments 
D) a 10-year bond with a face value of $2,009.67 and a coupon rate of 5.8% with monthly payments

Question 17

A firm issues two-year bonds with a coupon rate of 6.7%, paid semiannually. The credit spread for this firm's two-year debt is 0.8%. New two-year Treasury notes are being issued at par with a coupon rate of 3.1%. What should the price of the firm's outstanding two-year bonds be per $100 of face value?

Accepted Answer

A) $126.40 
B) $147.47 
C) $84.27 
D) $105.34 
A) $126.40 
B) $147.47 
C) $84.27 
D) $105.34

Question 18

Consider a zero-coupon bond with a $1000 face value and 15 years left until maturity. If the bond is currently trading for $431, then the yield to maturity on this bond is closest to ________.

Accepted Answer

A) 2.89% 
B) 56.90% 
C) 43.10% 
D) 5.77% 
A) 2.89% 
B) 56.90% 
C) 43.10% 
D) 5.77%

Question 19

The Sisyphean Company has a bond outstanding with a face value of $5000 that matures in 10 years. The bond certificate indicates that the stated coupon rate for this bond is 8.9% and that the coupon payments are to be made semiannually. How much will each semiannual coupon payment be?

Accepted Answer

A) $445.0 
B) $222.5 
C) $667.5 
D) $890.0 
A) $445.0 
B) $222.5 
C) $667.5 
D) $890.0

Question 20

Maturity (years)1 2 3 4 5 Price $97.25 $94.53 $91.83 $89.23 $87.53
The above table shows the price per $100-face value bond of several risk-free, zero-coupon bonds. What is the yield to maturity of the two year, zero-coupon, risk-free bond shown?

Accepted Answer

A) 1.43% 
B) 5.71% 
C) 0.05% 
D) 2.85% 
A) 1.43% 
B) 5.71% 
C) 0.05% 
D) 2.85%

Exam 6: Bonds

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 best describes a bond rated by Standard & Poor's and Moody as B?

How can the financial calculator be used to calculate the price of a coupon bond from its yield to maturity?

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

Before it matures, the price of any bond is always less than its face value.

What is the coupon payment of a 15-year $10,000 bond with a 9% coupon rate with semiannual payments?

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 ________.

How are investors in zero-coupon bonds compensated for making such an investment?

What care, if any, should be taken regarding the sign of the cash flows while drawing the timeline and associated cash flows of a coupon bond?

Which of the following bonds will be most sensitive to a change in interest rates if all bonds have the same initial yield to maturity?

Under what situation should the clean price, dirty price, and the price calculated by the basic annuity and present value (PV)equations for a bond be equal?

Which of the following bonds is trading at par?

A $1000 bond with a coupon rate of 6.2% paid semiannually has eight years to maturity and a yield to maturity of 8.3%. If interest rates rise and the yield to maturity increases to 8.6%, what will happen to the price of the bond?

A corporate bond makes payments of $9.67 every month for ten years with a final payment of $2009.67. Which of the following best describes this bond?

Consider a zero-coupon bond with a $1000 face value and 15 years left until maturity. If the bond is currently trading for $431, then the yield to maturity on this bond is closest to ________.

The Sisyphean Company has a bond outstanding with a face value of $5000 that matures in 10 years. The bond certificate indicates that the stated coupon rate for this bond is 8.9% and that the coupon payments are to be made semiannually. How much will each semiannual coupon payment be?

Maturity (years)1 2 3 4 5 Price $97.25 $94.53 $91.83 $89.23 $87.53 The above table shows the price per $100-face value bond of several risk-free, zero-coupon bonds. What is the yield to maturity of the two year, zero-coupon, risk-free bond shown?

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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