Question 1

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

Accepted Answer

A) The internal rate of return (IRR)of an investment in a zero-coupon bond is the rate of return that investors will earn on their money if they buy a default-free bond at its current price and hold it to maturity. 
B) The yield to maturity of a bond is the discount rate that sets the future value (FV)of the promised bond payments equal to the current market price of the bond. 
C) Financial professionals also use the term spot interest rates to refer to the default-free zero-coupon yields. 
D) When we calculate a bond's yield to maturity by solving the formula, Price of an n-period bond =   +   + ... +   ,
The yield we compute will be a rate per coupon interval. 
A) The internal rate of return (IRR)of an investment in a zero-coupon bond is the rate of return that investors will earn on their money if they buy a default-free bond at its current price and hold it to maturity. 
B) The yield to maturity of a bond is the discount rate that sets the future value (FV)of the promised bond payments equal to the current market price of the bond. 
C) Financial professionals also use the term spot interest rates to refer to the default-free zero-coupon yields. 
D) When we calculate a bond's yield to maturity by solving the formula, Price of an n-period bond =   +   + ... +   ,
The yield we compute will be a rate per coupon interval.

Question 2

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 5.6% (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 AA rating, the number of bonds that Luther must issue to raise the needed $25 million is closest to ________.

Accepted Answer

A) 27,848 
B) 33,417 
C) 38,987 
D) 22,278 
A) 27,848 
B) 33,417 
C) 38,987 
D) 22,278

Question 3

An investor holds a Ford bond with a face value of $5000, a coupon rate of 8.5%, and semiannual payments that matures on January 15, 2029. How much will the investor receive on January 15, 2029?

Accepted Answer

A) $2606.25 
B) $5000.00 
C) $5212.50 
D) $5425.00 
A) $2606.25 
B) $5000.00 
C) $5212.50 
D) $5425.00

Question 4

A five-year bond with a $1,000 face value has a yield to maturity is 5.0% and it's coupon rate is 6.0% paid annually. The dirty price of this bond exactly 6 months after its second coupon payment is closest to ________.

Accepted Answer

A) $1087.23 
B) $1147.23 
C) $1027.23 
D) $1057.23 
A) $1087.23 
B) $1147.23 
C) $1027.23 
D) $1057.23

Question 5

Treasury bonds have original maturities from one to ten years, while Treasury notes have original maturities of more than ten years.

Accepted Answer

A) True 
 B)False

Question 6

What is the yield to maturity of a ten-year, $10,000 bond with a 5.4% coupon rate and semiannual coupons if this bond is currently trading for a price of $9207.93?

Accepted Answer

A) 7.79% 
B) 9.08% 
C) 6.49% 
D) 3.24% 
A) 7.79% 
B) 9.08% 
C) 6.49% 
D) 3.24%

Question 7

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) 0.8% 
B) 1.10% 
C) 1.60% 
D) 0.40% 
A) 0.8% 
B) 1.10% 
C) 1.60% 
D) 0.40%

Question 8

The above table shows the yields to maturity on a number of two-year, zero-coupon securities. What is the credit spread on a two-year, zero-coupon corporate bond with a B rating?

Accepted Answer

A) 2.4% 
B) 2.0% 
C) 2.8% 
D) 1.6% 
A) 2.4% 
B) 2.0% 
C) 2.8% 
D) 1.6%

Question 9

Bond traders generally quote bond yields rather than bond prices, since yield to maturity depends on the face value of the bond.

Accepted Answer

A) True 
 B)False

Question 10

If the yield to maturity of all of the following bonds is 6%, which will trade at the greatest premium per $100 face value?

Accepted Answer

A) a bond with a $10,000 face value, four years to maturity and 6.2% semiannual coupon payments 
B) a bond with a $500 face value, seven years to maturity and 5.2% annual coupon payments 
C) a bond with a $5,000 face value, seven years to maturity and 5.5% annual coupon payments 
D) a bond with a $1,000 face value, five years to maturity and 6.3% annual coupon payments 
A) a bond with a $10,000 face value, four years to maturity and 6.2% semiannual coupon payments 
B) a bond with a $500 face value, seven years to maturity and 5.2% annual coupon payments 
C) a bond with a $5,000 face value, seven years to maturity and 5.5% annual coupon payments 
D) a bond with a $1,000 face value, five years to maturity and 6.3% annual coupon payments

Question 11

A company issues a ten-year $1,000 face value bond at par with a coupon rate of 6.7% paid semiannually. The YTM at the beginning of the third year of the bond (8 years left to maturity)is 8.1%. What was the percentage change in the price of the bond over the past two years?

Accepted Answer

A) -6.50% 
B) -9.75% 
C) -8.13% 
D) -11.38% 
A) -6.50% 
B) -9.75% 
C) -8.13% 
D) -11.38%

Question 12

A bond has a $10,000 face value, ten years to maturity, and 8% semiannual coupon payments. What would be the expected difference in this bond's price immediately before and immediately after the next coupon payment?

Accepted Answer

A) $800 
B) $400 
C) $1200 
D) $200 
A) $800 
B) $400 
C) $1200 
D) $200

Question 13

Under what situation can a zero-coupon bond be selling at a premium?

Accepted Answer

Unlike a coupon bond, a zero-coupon bond

Question 14

Use the information for the question(s)below.  
-The above information is for a corporate bond issued by the Markel Corporation. What sort of bond is this?

Accepted Answer

A) a high-risk bond 
B) an investment grade bond 
C) a speculative bond 
D) a high-yield bond 
A) a high-risk bond 
B) an investment grade bond 
C) a speculative bond 
D) a high-yield bond

Question 15

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

Accepted Answer

A) The bond certificate typically specifies that the coupons will be paid periodically until the maturity date of the bond. 
B) The bond certificate indicates the amounts and dates of all payments to be made. 
C) The only cash payments the investor will receive from a zero-coupon bond are the interest payments that are paid up until the maturity date. 
D) The face value of a bond is repaid at maturity. 
A) The bond certificate typically specifies that the coupons will be paid periodically until the maturity date of the bond. 
B) The bond certificate indicates the amounts and dates of all payments to be made. 
C) The only cash payments the investor will receive from a zero-coupon bond are the interest payments that are paid up until the maturity date. 
D) The face value of a bond is repaid at maturity.

Question 16

An investor purchases a 30-year, zero-coupon bond with a face value of $5000 and a yield to maturity of 8.4%. He sells this bond ten years later. What is the rate of return on his investment, assuming yield to maturity does not change?

Accepted Answer

A) 6.72% 
B) 5.04% 
C) 8.40% 
D) 4.20% 
A) 6.72% 
B) 5.04% 
C) 8.40% 
D) 4.20%

Question 17

How are the cash flows of a zero-coupon bond different from those of a coupon bond?

Accepted Answer

A zero-coupon bond has only two cash flo

Question 18

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 7.3% (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) 28,469 
B) 33,213 
C) 23,724 
D) 18,979 
A) 28,469 
B) 33,213 
C) 23,724 
D) 18,979

Question 19

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

Accepted Answer

There are two issues that one has to be

Question 20

Use the figure for the question(s)below.  
-The current zero-coupon yield curve for risk-free bonds is shown above. What is the risk-free interest rate on a 4-year maturity?

Accepted Answer

A) 3.00% 
B) 3.15% 
C) 3.25% 
D) 6.34% 
A) 3.00% 
B) 3.15% 
C) 3.25% 
D) 6.34%

Exam 6: Bonds

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

An investor holds a Ford bond with a face value of $5000, a coupon rate of 8.5%, and semiannual payments that matures on January 15, 2029. How much will the investor receive on January 15, 2029?

A five-year bond with a $1,000 face value has a yield to maturity is 5.0% and it's coupon rate is 6.0% paid annually. The dirty price of this bond exactly 6 months after its second coupon payment is closest to ________.

Treasury bonds have original maturities from one to ten years, while Treasury notes have original maturities of more than ten years.

What is the yield to maturity of a ten-year, $10,000 bond with a 5.4% coupon rate and semiannual coupons if this bond is currently trading for a price of $9207.93?

Consider the following yields to maturity on various one-year, zero-coupon securities: The credit spread of the BBB corporate bond is closest to ________.

The above table shows the yields to maturity on a number of two-year, zero-coupon securities. What is the credit spread on a two-year, zero-coupon corporate bond with a B rating?

Bond traders generally quote bond yields rather than bond prices, since yield to maturity depends on the face value of the bond.

If the yield to maturity of all of the following bonds is 6%, which will trade at the greatest premium per $100 face value?

A company issues a ten-year $1,000 face value bond at par with a coupon rate of 6.7% paid semiannually. The YTM at the beginning of the third year of the bond (8 years left to maturity)is 8.1%. What was the percentage change in the price of the bond over the past two years?

A bond has a $10,000 face value, ten years to maturity, and 8% semiannual coupon payments. What would be the expected difference in this bond's price immediately before and immediately after the next coupon payment?

Under what situation can a zero-coupon bond be selling at a premium?

Use the information for the question(s)below. -The above information is for a corporate bond issued by the Markel Corporation. What sort of bond is this?

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

An investor purchases a 30-year, zero-coupon bond with a face value of $5000 and a yield to maturity of 8.4%. He sells this bond ten years later. What is the rate of return on his investment, assuming yield to maturity does not change?

How are the cash flows of a zero-coupon bond different from those of a coupon bond?

What care, if any, should be taken regarding the timing of the cash flows while drawing the timeline and associated cash flows of a coupon 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 risk-free interest rate on a 4-year maturity?

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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