Question 1

Which of the following terms means the chance that future interest payments will have to be reinvested at a lower interest rate?

Accepted Answer

A) Credit quality risk 
B) Interest rate risk 
C) Liquidity rate risk 
D) Reinvestment rate risk 
A) Credit quality risk 
B) Interest rate risk 
C) Liquidity rate risk 
D) Reinvestment rate risk

Question 2

Explain what credit quality risk measures.

Accepted Answer

Credit quality risk measures t

Question 3

Possible shapes for the yield curve include all of the following EXCEPT:

Accepted Answer

A) upward sloping. 
B) humped. 
C) horizontal line. 
D) vertical line. 
A) upward sloping. 
B) humped. 
C) horizontal line. 
D) vertical line.

Question 4

Investment grade bonds include those bonds with ratings:

Accepted Answer

A) from AAA to BB. 
B) from AAA to BBB. 
C) from AAA to B. 
D) from AAA to A. 
A) from AAA to BB. 
B) from AAA to BBB. 
C) from AAA to B. 
D) from AAA to A.

Question 5

Which of the following bonds carry significant risk that the issuer will not make current or future payments?

Accepted Answer

A) Credit quality risk bonds 
B) Interest rate risk bonds 
C) Liquidity rate risk bonds 
D) Junk bonds 
A) Credit quality risk bonds 
B) Interest rate risk bonds 
C) Liquidity rate risk bonds 
D) Junk bonds

Question 6

Which of the following is an important advantage to the issuer of a bond with a call provision?

Accepted Answer

A) They are able to avoid interest rate risk. 
B) They are able to avoid reinvestment rate risk. 
C) They are able to reduce their credit risk. 
D) They allow for refinancing opportunities. 
A) They are able to avoid interest rate risk. 
B) They are able to avoid reinvestment rate risk. 
C) They are able to reduce their credit risk. 
D) They allow for refinancing opportunities.

Question 7

Explain what the indenture agreement states.

Accepted Answer

The bond's legal contract,the indenture

Question 8

Under which conditions will an investor demand a larger return (yield)on a bond?

Accepted Answer

A) The bond issue is upgraded from A to AA. 
B) The bond issue is downgraded from A to BBB. 
C) Interest rates decrease due to decline in inflation. 
D) None of these conditions will cause an increase in the bond's yield. 
A) The bond issue is upgraded from A to AA. 
B) The bond issue is downgraded from A to BBB. 
C) Interest rates decrease due to decline in inflation. 
D) None of these conditions will cause an increase in the bond's yield.

Question 9

TIPS Capital Return Consider a 3.75 percent TIPS with an issue CPI reference of 183.5.At the beginning of this year,the CPI was 190.6 and was at 199.4 at the end of the year.What was the capital gain of the TIPS in percentage terms? (Assume semi-annual interest payments and $1,000 par value.)

Accepted Answer

A) 3.75 percent 
B) 4.62 percent 
C) 7.10 percent 
D) 8.80 percent 
A) 3.75 percent 
B) 4.62 percent 
C) 7.10 percent 
D) 8.80 percent

Question 10

Yields of a Bond A 4.5 percent coupon municipal bond has 10 years left to maturity and has a price quote of 97.75.The bond can be called in four years.The call premium is one year of coupon payments.What is the bond's taxable equivalent yield for an investor in the 33 percent marginal tax bracket? (Assume interest payments are paid semi-annually and a par value of $5,000.)

Accepted Answer

A) 4.5 percent 
B) 4.78 percent 
C) 7.13 percent 
D) 14.48 percent 
A) 4.5 percent 
B) 4.78 percent 
C) 7.13 percent 
D) 14.48 percent

Question 11

Consider a 4.5 percent TIPS with an issue CPI reference of 187.2.At the beginning of this year,the CPI was 199.5 and was 213.7 at the end of the year.What was the capital gain of the TIPS in dollars?

Accepted Answer

A) $32.73 
B) $46.92 
C) $62.49 
D) $75.85 
A) $32.73 
B) $46.92 
C) $62.49 
D) $75.85

Question 12

Time to Maturity A bond issued by a corporation on May 1,1999,is scheduled to mature on May 1,2019.If today is May 2,2009,what is this bond's time to maturity? (Assume annual interest payments.)

Accepted Answer

A) 9 years 
B) 10 years 
C) 19 years 
D) 20 years 
A) 9 years 
B) 10 years 
C) 19 years 
D) 20 years

Question 13

Yield to Call A 4.75 percent coupon bond with 12 years left to maturity can be called in two years.The call premium is one year of coupon payments.It is offered for sale at $1037.35.What is the yield to call of the bond? (Assume that interest payments are paid semi-annually and par value is $1,000.)

Accepted Answer

A) 4.60 percent 
B) 4.68 percent 
C) 4.75 percent 
D) 5.05 percent 
A) 4.60 percent 
B) 4.68 percent 
C) 4.75 percent 
D) 5.05 percent

Question 14

Which of these statements answers why bonds are known as fixed income securities?

Accepted Answer

A) Many investors on fixed incomes buy them. 
B) Investors know how much they will receive in interest payments. 
C) Investors will not receive their principal when the bond's term is up. 
D) All of these. 
A) Many investors on fixed incomes buy them. 
B) Investors know how much they will receive in interest payments. 
C) Investors will not receive their principal when the bond's term is up. 
D) All of these.

Question 15

Which of the following bonds makes no interest payments?

Accepted Answer

A) A bond whose coupon rate is equal to the market interest rates 
B) A bond whose coupon rates are greater than market interest rates 
C) A bond whose coupon rates are less than the market interest rates 
D) Zero coupon bond 
A) A bond whose coupon rate is equal to the market interest rates 
B) A bond whose coupon rates are greater than market interest rates 
C) A bond whose coupon rates are less than the market interest rates 
D) Zero coupon bond

Question 16

Comparing Bond Yields A client in the 35 percent marginal tax bracket is comparing a municipal bond that offers a 4.25 percent yield to maturity and a similar-risk corporate bond that offers a 5.10 percent yield.Which bond will give the client more profit after taxes?

Accepted Answer

A) The municipal bond. 
B) The corporate bond. 
C) Both give the client equal profits after taxes. 
D) There is not enough information given to determine answer. 
A) The municipal bond. 
B) The corporate bond. 
C) Both give the client equal profits after taxes. 
D) There is not enough information given to determine answer.

Question 17

The bond's annual coupon rate divided by its market price is referred to as the:

Accepted Answer

A) yield to call. 
B) yield to maturity. 
C) current yield. 
D) term structure of interest rates. 
A) yield to call. 
B) yield to maturity. 
C) current yield. 
D) term structure of interest rates.

Question 18

TIPS Capital Return Consider a 3.25 percent TIPS with an issue CPI reference of 186.7.At the beginning of this year,the CPI was 197.5 and was at 202.4 at the end of the year.What was the capital gain of the TIPS in dollars? (Assume semi-annual interest payments and $1,000 par value.)

Accepted Answer

A) $4.90 
B) $10.80 
C) $15.70 
D) $26.25 
A) $4.90 
B) $10.80 
C) $15.70 
D) $26.25

Question 19

All of the following items would need to be included in the bond's indenture agreement EXCEPT:

Accepted Answer

A) the coupon rate. 
B) the call feature. 
C) the credit rating. 
D) steps that the bondholder can take in the event that the issuer fails to pay the interest or principal. 
A) the coupon rate. 
B) the call feature. 
C) the credit rating. 
D) steps that the bondholder can take in the event that the issuer fails to pay the interest or principal.

Question 20

An 8% coupon municipal bond has 15 years left to maturity and has a price quote of 102.0.The bond can be called in 6 years.The call premium is one year of coupon payments.Compute the bond's yield to call and determine if the bond will be called.Assume interest payments are paid semi-annually and a par value of $5,000.

Accepted Answer

A) 4.31%; yes, the bond will be called 
B) 8.62%; yes, the bond will be called 
C) 8.62%; no, the bond will not be called 
D) 11.21%; no the bond will not be called 
A) 4.31%; yes, the bond will be called 
B) 8.62%; yes, the bond will be called 
C) 8.62%; no, the bond will not be called 
D) 11.21%; no the bond will not be called

Which of the following terms means the chance that future interest payments will have to be reinvested at a lower interest rate?

Explain what credit quality risk measures.

Possible shapes for the yield curve include all of the following EXCEPT:

Investment grade bonds include those bonds with ratings:

Which of the following bonds carry significant risk that the issuer will not make current or future payments?

Which of the following is an important advantage to the issuer of a bond with a call provision?

Explain what the indenture agreement states.

Under which conditions will an investor demand a larger return (yield)on a bond?

TIPS Capital Return Consider a 3.75 percent TIPS with an issue CPI reference of 183.5.At the beginning of this year,the CPI was 190.6 and was at 199.4 at the end of the year.What was the capital gain of the TIPS in percentage terms? (Assume semi-annual interest payments and $1,000 par value.)

Consider a 4.5 percent TIPS with an issue CPI reference of 187.2.At the beginning of this year,the CPI was 199.5 and was 213.7 at the end of the year.What was the capital gain of the TIPS in dollars?

Time to Maturity A bond issued by a corporation on May 1,1999,is scheduled to mature on May 1,2019.If today is May 2,2009,what is this bond's time to maturity? (Assume annual interest payments.)

Yield to Call A 4.75 percent coupon bond with 12 years left to maturity can be called in two years.The call premium is one year of coupon payments.It is offered for sale at $1037.35.What is the yield to call of the bond? (Assume that interest payments are paid semi-annually and par value is $1,000.)

Which of these statements answers why bonds are known as fixed income securities?

Which of the following bonds makes no interest payments?

Comparing Bond Yields A client in the 35 percent marginal tax bracket is comparing a municipal bond that offers a 4.25 percent yield to maturity and a similar-risk corporate bond that offers a 5.10 percent yield.Which bond will give the client more profit after taxes?

The bond's annual coupon rate divided by its market price is referred to as the:

TIPS Capital Return Consider a 3.25 percent TIPS with an issue CPI reference of 186.7.At the beginning of this year,the CPI was 197.5 and was at 202.4 at the end of the year.What was the capital gain of the TIPS in dollars? (Assume semi-annual interest payments and $1,000 par value.)

All of the following items would need to be included in the bond's indenture agreement EXCEPT:

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money

Time Value of Money

Valuing Stockspart

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, equity, and Capital Structure

Sharing Firm Wealth: Dividends, share Repurchases and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 7: Valuing Bonds

Which of the following terms means the chance that future interest payments will have to be reinvested at a lower interest rate?

Explain what credit quality risk measures.

Possible shapes for the yield curve include all of the following EXCEPT:

Investment grade bonds include those bonds with ratings:

Which of the following bonds carry significant risk that the issuer will not make current or future payments?

Which of the following is an important advantage to the issuer of a bond with a call provision?

Explain what the indenture agreement states.

Under which conditions will an investor demand a larger return (yield)on a bond?

TIPS Capital Return Consider a 3.75 percent TIPS with an issue CPI reference of 183.5.At the beginning of this year,the CPI was 190.6 and was at 199.4 at the end of the year.What was the capital gain of the TIPS in percentage terms? (Assume semi-annual interest payments and $1,000 par value.)

Consider a 4.5 percent TIPS with an issue CPI reference of 187.2.At the beginning of this year,the CPI was 199.5 and was 213.7 at the end of the year.What was the capital gain of the TIPS in dollars?

Time to Maturity A bond issued by a corporation on May 1,1999,is scheduled to mature on May 1,2019.If today is May 2,2009,what is this bond's time to maturity? (Assume annual interest payments.)

Which of these statements answers why bonds are known as fixed income securities?

Which of the following bonds makes no interest payments?

Comparing Bond Yields A client in the 35 percent marginal tax bracket is comparing a municipal bond that offers a 4.25 percent yield to maturity and a similar-risk corporate bond that offers a 5.10 percent yield.Which bond will give the client more profit after taxes?

The bond's annual coupon rate divided by its market price is referred to as the:

TIPS Capital Return Consider a 3.25 percent TIPS with an issue CPI reference of 186.7.At the beginning of this year,the CPI was 197.5 and was at 202.4 at the end of the year.What was the capital gain of the TIPS in dollars? (Assume semi-annual interest payments and $1,000 par value.)

All of the following items would need to be included in the bond's indenture agreement EXCEPT:

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money

Time Value of Money

Valuing Stockspart

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, equity, and Capital Structure

Sharing Firm Wealth: Dividends, share Repurchases and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters