Question 1

A bond will trade at a discount if its coupon rate is less than its yield to maturity.

Accepted Answer

A) True 
 B)False

Question 2

What issues should one be careful of when calculating the bond price from its yield to maturity using the "time value of money" (TVM)keys of a financial calculator?

Accepted Answer

It is quite simple to transfer the bond

Question 3

Bonds with a high risk of default generally offer high yields.

Accepted Answer

A) True 
 B)False

Question 4

What is the yield to maturity of a one-year, risk-free, zero-coupon bond with a $10,000 face value and a price of $9400 when released?

Accepted Answer

A) 3.191% 
B) 6.000% 
C) 6.383% 
D) 0.009% 
A) 3.191% 
B) 6.000% 
C) 6.383% 
D) 0.009%

Question 5

Consider a zero-coupon bond with a $1000 face value and 10 years left until maturity. If the YTM of this bond is 10.2%, then the price of this bond is closest to ________.

Accepted Answer

A) $1000 
B) $454.32 
C) $530.04 
D) $379 
A) $1000 
B) $454.32 
C) $530.04 
D) $379

Question 6

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:  
-What rating must Luther receive on these bonds if they want the bonds to be issued at par?

Accepted Answer

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

Question 7

A risk-free, zero-coupon bond has 15 years to maturity. Which of the following is closest to the price per $1000 of face value that the bond will trade at if the YTM is 6.1%?

Accepted Answer

A) $663.78 
B) $774.42 
C) $553.15 
D) $885.05 
A) $663.78 
B) $774.42 
C) $553.15 
D) $885.05

Question 8

Which of the following best illustrates why a bond is a type of loan?

Accepted Answer

A) The issuers of bonds make regular payments to bondholders. 
B) When a company issues a bond, the buyer of that bond becomes an owner of the issuing company. 
C) Funds raised are used to finance long-term projects. 
D) When an investor buys a bond from an issuer, the investor is giving money to the issuer, with the assurance that it will be repaid at a date in the future. 
A) The issuers of bonds make regular payments to bondholders. 
B) When a company issues a bond, the buyer of that bond becomes an owner of the issuing company. 
C) Funds raised are used to finance long-term projects. 
D) When an investor buys a bond from an issuer, the investor is giving money to the issuer, with the assurance that it will be repaid at a date in the future.

Question 9

Which of the following bonds is trading at a premium?

Accepted Answer

A) a five-year bond with a $2,000 face value whose yield to maturity is 7.0% and coupon rate is 7.2% APR paid semiannually 
B) a ten-year bond with a $4,000 face value whose yield to maturity is 6.0% and coupon rate is 5.9% APR paid semiannually 
C) a 15-year bond with a $10,000 face value whose yield to maturity is 8.0% and coupon rate is 7.8% APR paid semiannually 
D) a two-year bond with a $50,000 face value whose yield to maturity is 5.2% and coupon rate is 5.2% APR paid monthly 
A) a five-year bond with a $2,000 face value whose yield to maturity is 7.0% and coupon rate is 7.2% APR paid semiannually 
B) a ten-year bond with a $4,000 face value whose yield to maturity is 6.0% and coupon rate is 5.9% APR paid semiannually 
C) a 15-year bond with a $10,000 face value whose yield to maturity is 8.0% and coupon rate is 7.8% APR paid semiannually 
D) a two-year bond with a $50,000 face value whose yield to maturity is 5.2% and coupon rate is 5.2% APR paid monthly

Question 10

A firm issues 5-year bonds with a coupon rate of 4.7%, paid semiannually. The credit spread for this firm's 5-year debt is 1.2%. New 5-year Treasury notes are being issued at par with a coupon rate of 5.1%. What should the price of the firm's outstanding 5-year bonds be if their face value is $1,000?

Accepted Answer

A) $932.28 
B) $12.00 
C) $1305.19 
D) $745.82 
A) $932.28 
B) $12.00 
C) $1305.19 
D) $745.82

Question 11

The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 10 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 the appropriate YTM on the Sisyphean bond is 7.3%, then the price that this bond trades for will be closest to ________.

Accepted Answer

A) $1063 
B) $850 
C) $1276 
D) $1488 
A) $1063 
B) $850 
C) $1276 
D) $1488

Question 12

The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 5 years. The bond certificate indicates that the stated coupon rate for this bond is 10.0% and that the coupon payments are to be made semiannually. 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

Question 13

What is the coupon payment of a 25-year $1000 bond with a 4.5% coupon rate with quarterly payments?

Accepted Answer

A) $3.75 
B) $11.25 
C) $22.50 
D) $45.00 
A) $3.75 
B) $11.25 
C) $22.50 
D) $45.00

Question 14

What is the dirty price of a bond?

Accepted Answer

A) the bond's price based only on the bond's yield 
B) the bond's actual cash price 
C) the bond's price based only on coupon payments 
D) the bond's price less an adjustment for changes in interest rates 
A) the bond's price based only on the bond's yield 
B) the bond's actual cash price 
C) the bond's price based only on coupon payments 
D) the bond's price less an adjustment for changes in interest rates

Question 15

A $5000 bond with a coupon rate of 5.7% paid semiannually has ten years to maturity and a yield to maturity of 6.4%. If interest rates fall and the yield to maturity decreases by 0.8%, what will happen to the price of the bond?

Accepted Answer

A) The price of the bond will fall by $293.50. 
B) The price of the bond will fall by $352.20. 
C) The price of the bond will rise by $410.90. 
D) The price of the bond will rise by $293.50. 
A) The price of the bond will fall by $293.50. 
B) The price of the bond will fall by $352.20. 
C) The price of the bond will rise by $410.90. 
D) The price of the bond will rise by $293.50.

Question 16

A ten-year, zero-coupon bond with a yield to maturity of 4% has a face value of $1000. An investor purchases the bond when it is initially traded, and then sells it four years later. What is the rate of return of this investment, assuming the yield to maturity does not change?

Accepted Answer

A) 3.20% 
B) 2.40% 
C) 4.00% 
D) 2.00% 
A) 3.20% 
B) 2.40% 
C) 4.00% 
D) 2.00%

Question 17

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

Accepted Answer

A) Bonds are securities sold by governments and corporations to raise money from investors today in exchange for a promised future payment. 
B) By convention, the coupon rate is expressed as an effective annual rate. 
C) Bonds typically make two types of payments to their holders. 
D) The time remaining until the repayment date is known as the term of the bond. 
A) Bonds are securities sold by governments and corporations to raise money from investors today in exchange for a promised future payment. 
B) By convention, the coupon rate is expressed as an effective annual rate. 
C) Bonds typically make two types of payments to their holders. 
D) The time remaining until the repayment date is known as the term of the bond.

Question 18

A company releases a five-year bond with a face value of $1000 and coupons paid semiannually. If market interest rates imply a YTM of 6%, what should be the coupon rate offered if the bond is to trade at par?

Accepted Answer

A) 3% 
B) 5% 
C) 6% 
D) 7% 
A) 3% 
B) 5% 
C) 6% 
D) 7%

Question 19

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) 113.53 
B) 132.45 
C) 75.69 
D) 94.61 
A) 113.53 
B) 132.45 
C) 75.69 
D) 94.61

Question 20

Under what situation can a zero-coupon bond be selling at par to its face value?

Accepted Answer

Unlike a coupon bond, a zero-coupon bond

Exam 6: Bonds

A bond will trade at a discount if its coupon rate is less than its yield to maturity.

What issues should one be careful of when calculating the bond price from its yield to maturity using the "time value of money" (TVM)keys of a financial calculator?

Bonds with a high risk of default generally offer high yields.

What is the yield to maturity of a one-year, risk-free, zero-coupon bond with a $10,000 face value and a price of $9400 when released?

Consider a zero-coupon bond with a $1000 face value and 10 years left until maturity. If the YTM of this bond is 10.2%, then the price of this bond is closest to ________.

A risk-free, zero-coupon bond has 15 years to maturity. Which of the following is closest to the price per $1000 of face value that the bond will trade at if the YTM is 6.1%?

Which of the following best illustrates why a bond is a type of loan?

Which of the following bonds is trading at a premium?

What is the coupon payment of a 25-year $1000 bond with a 4.5% coupon rate with quarterly payments?

What is the dirty price of a bond?

A $5000 bond with a coupon rate of 5.7% paid semiannually has ten years to maturity and a yield to maturity of 6.4%. If interest rates fall and the yield to maturity decreases by 0.8%, what will happen to the price of the bond?

A ten-year, zero-coupon bond with a yield to maturity of 4% has a face value of $1000. An investor purchases the bond when it is initially traded, and then sells it four years later. What is the rate of return of this investment, assuming the yield to maturity does not change?

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

A company releases a five-year bond with a face value of $1000 and coupons paid semiannually. If market interest rates imply a YTM of 6%, what should be the coupon rate offered if the bond is to trade at par?

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 ________.

Under what situation can a zero-coupon bond be selling at par to its face value?

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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