Question 1

Calculate the price of a zero coupon bond that matures in 20 years if the market interest rate is 8.5 percent.(Assume annual compounding and a par value of $1,000.)

Accepted Answer

A)  $90.29 
B)  $195.62 
C)  $1,195.62 
D)  $995.62 
A)  $90.29 
B)  $195.62 
C)  $1,195.62 
D)  $995.62 B

Question 2

Determine the interest payment for the following three bonds: 5.5 percent coupon corporate bond (paid semi-annually),6.45 percent coupon Treasury note,and a corporate zero coupon bond maturing in 10 years.(Assume a $1,000 par value.)

Accepted Answer

A)  $5.50, $6.45, $0, respectively 
B)  $27.50, $32.25, $0, respectively 
C)  $27.50, $32.25, $100, respectively 
D)  $55.00, $64.50, $0, respectively 
A)  $5.50, $6.45, $0, respectively 
B)  $27.50, $32.25, $0, respectively 
C)  $27.50, $32.25, $100, respectively 
D)  $55.00, $64.50, $0, respectively B

Question 3

Determine the interest payment for the following three bonds: 2.5 percent coupon corporate bond (paid semi-annually),3.15 percent coupon Treasury note,and a corporate zero coupon bond maturing in 10 years.(Assume a $1,000 par value.)

Accepted Answer

A)  $2.50, $3.15, $0, respectively 
B)  $12.50, $15.75, $0, respectively 
C)  $12.50, $15.75, $100, respectively 
D)  $25.00, $31.50, $0, respectively 
A)  $2.50, $3.15, $0, respectively 
B)  $12.50, $15.75, $0, respectively 
C)  $12.50, $15.75, $100, respectively 
D)  $25.00, $31.50, $0, respectively B

Question 4

If Zeus Energy bonds are upgraded from BBB- to BBB+,which of the following statements is true?

Accepted Answer

A)  The current bond price will decrease and interest rates on new bonds issue will increase. 
B)  Interest rates required on new bond issue will increase. 
C)  The current bond price will decrease. 
D)  The current bond price will increase and interest rates on new bonds issue will decrease. 
A)  The current bond price will decrease and interest rates on new bonds issue will increase. 
B)  Interest rates required on new bond issue will increase. 
C)  The current bond price will decrease. 
D)  The current bond price will increase and interest rates on new bonds issue will decrease.

Question 5

A 5.5 percent coupon bond with 18 years left to maturity is priced to offer a 6.25 percent yield to maturity.You believe that in one year,the yield to maturity will be 5.75 percent.What is the change in price the bond will experience in dollars? (Assume semi-annual interest payments and $1,000 par value.)

Accepted Answer

A)  $25.00 
B)  $26.89 
C)  $53.48 
D)  $80.37 
A)  $25.00 
B)  $26.89 
C)  $53.48 
D)  $80.37

Question 6

Which of the following would NOT be an example of an agency bond?

Accepted Answer

A)  Federal Home Loan Bank bond 
B)  Student Loan Marketing Association bond 
C)  Fannie Mae bond 
D)  Treasury bills 
A)  Federal Home Loan Bank bond 
B)  Student Loan Marketing Association bond 
C)  Fannie Mae bond 
D)  Treasury bills

Question 7

A 15-year bond with a 10 percent coupon has a yield to maturity of 8 percent.The bond could be called in four years and if called would generate a yield to call of 6 percent.What is this bond's call premium? Assume the coupon payments are made semi-annually and par value is $1,000.

Accepted Answer

A)  $19.73 
B)  $81.87 
C)  $41.20 
D)  $66.03 
A)  $19.73 
B)  $81.87 
C)  $41.20 
D)  $66.03

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 the 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 the conditions will cause an increase in the bond's yield.

Question 9

Which of the following are main issuers of bonds?

Accepted Answer

A)  U.S. Treasury bonds 
B)  Corporate bonds 
C)  Municipal bonds 
D)  All of the options 
A)  U.S. Treasury bonds 
B)  Corporate bonds 
C)  Municipal bonds 
D)  All of the options

Question 10

A 2.5 percent TIPS has an original reference CPI of 170.4.If the current CPI is 205.7,what is the current interest payment and par value of the TIPS? (Assume semi-annual interest payments and $1,000 par value.)

Accepted Answer

A)  $1,000, $7.16, respectively 
B)  $1,000, $15.09, respectively 
C)  $1,207.16, $7.16, respectively 
D)  $1,207.16, $15.09, respectively 
A)  $1,000, $7.16, respectively 
B)  $1,000, $15.09, respectively 
C)  $1,207.16, $7.16, respectively 
D)  $1,207.16, $15.09, respectively

Question 11

A 4.15 percent TIPS has an original reference CPI of 182.1.If the current CPI is 188.3,what is the par value of the TIPS?

Accepted Answer

A)  $1,034.05 
B)  $1,004.75 
C)  $1,000.00 
D)  $967.07 
A)  $1,034.05 
B)  $1,004.75 
C)  $1,000.00 
D)  $967.07

Question 12

Which of the following statements is correct?

Accepted Answer

A)  All else the same, an investor will require less return to invest in a callable bond than one that is not callable. 
B)  All else the same, an investor will require more return to invest in a callable bond than one that is not callable. 
C)  The call feature does not impact the return that investors demand. 
D)  We would need to know the current level of interest rates to answer this question. 
A)  All else the same, an investor will require less return to invest in a callable bond than one that is not callable. 
B)  All else the same, an investor will require more return to invest in a callable bond than one that is not callable. 
C)  The call feature does not impact the return that investors demand. 
D)  We would need to know the current level of interest rates to answer this question.

Question 13

Sally is choosing between two bonds both of which mature in 15 years and have the same level of risk.Bond A is a municipal bond that yields 5.75 percent.Bond B is a corporate bond that yields 7.75 percent.If Sally is in the 28 percent tax bracket,which bond should she select and why?

Accepted Answer

A)  Sally should select Bond A because its interest income is not taxable. 
B)  Sally will be indifferent between Bond A and B since the taxable equivalent yield of Bond A equals the yield of Bond B. 
C)  Sally should select Bond A because its TEY is greater than the yield of Bond B. 
D)  Sally should select Bond B because the TEY of Bond A is less than the yield of Bond B. 
A)  Sally should select Bond A because its interest income is not taxable. 
B)  Sally will be indifferent between Bond A and B since the taxable equivalent yield of Bond A equals the yield of Bond B. 
C)  Sally should select Bond A because its TEY is greater than the yield of Bond B. 
D)  Sally should select Bond B because the TEY of Bond A is less than the yield of Bond B.

Question 14

A corporate bond with an 8.5 percent coupon has 10 years left to maturity.It has had a credit rating of A and a yield to maturity of 10 percent.The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BBB.The new appropriate discount rate will be 11.5 percent.What will be the change in the bond's price in dollars? Assume interest payments are paid semi-annually and par value is $1,000.

Accepted Answer

A)  −$82.13 
B)  −$95.19 
C)  −$101.37 
D)  −$69.85 
A)  −$82.13 
B)  −$95.19 
C)  −$101.37 
D)  −$69.85

Question 15

Many bonds are not callable,but for those that are,which of following is a common feature?

Accepted Answer

A)  Called any time after 2 years of issuance. 
B)  Called any time after 2 years from the time an investor buys the bond. 
C)  Called any time after 10 years of issuance. 
D)  Called any time after 10 years from the time an investor buys the bond. 
A)  Called any time after 2 years of issuance. 
B)  Called any time after 2 years from the time an investor buys the bond. 
C)  Called any time after 10 years of issuance. 
D)  Called any time after 10 years from the time an investor buys the bond.

Question 16

Compute the price of a 6 percent coupon bond with 10 years left to maturity and a market interest rate of 8.75 percent.(Assume interest payments are semi-annual and par value is $1,000.)Is this a discount or premium bond?

Accepted Answer

A)  Discount 
B)  Premium 
A)  Discount 
B)  Premium

Question 17

A 5 percent coupon bond has 10 years to maturity and could be called in two years.If the bond is called,investors will earn 6.2 percent.The call premium is one year of coupon payments.If coupon payments are made semi-annually and par value is $1,000,what is the bond's yield to maturity?

Accepted Answer

A)  2.36 percent 
B)  4.72 percent 
C)  5.18 percent 
D)  6.49 percent 
A)  2.36 percent 
B)  4.72 percent 
C)  5.18 percent 
D)  6.49 percent

Question 18

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 19

Bonds are issued by which of the following?

Accepted Answer

A)  Corporations 
B)  Federal government or its agencies 
C)  State and local governments 
D)  All of the options 
A)  Corporations 
B)  Federal government or its agencies 
C)  State and local governments 
D)  All of the options

Question 20

What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4 percent for an investor in the 28 percent tax bracket?

Accepted Answer

A)  2.88 percent 
B)  3.87 percent 
C)  4.51 percent 
D)  5.56 percent 
A)  2.88 percent 
B)  3.87 percent 
C)  4.51 percent 
D)  5.56 percent

Calculate the price of a zero coupon bond that matures in 20 years if the market interest rate is 8.5 percent.(Assume annual compounding and a par value of $1,000.)

Determine the interest payment for the following three bonds: 5.5 percent coupon corporate bond (paid semi-annually),6.45 percent coupon Treasury note,and a corporate zero coupon bond maturing in 10 years.(Assume a $1,000 par value.)

Determine the interest payment for the following three bonds: 2.5 percent coupon corporate bond (paid semi-annually),3.15 percent coupon Treasury note,and a corporate zero coupon bond maturing in 10 years.(Assume a $1,000 par value.)

If Zeus Energy bonds are upgraded from BBB- to BBB+,which of the following statements is true?

Which of the following would NOT be an example of an agency bond?

A 15-year bond with a 10 percent coupon has a yield to maturity of 8 percent.The bond could be called in four years and if called would generate a yield to call of 6 percent.What is this bond's call premium? Assume the coupon payments are made semi-annually and par value is $1,000.

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

Which of the following are main issuers of bonds?

A 2.5 percent TIPS has an original reference CPI of 170.4.If the current CPI is 205.7,what is the current interest payment and par value of the TIPS? (Assume semi-annual interest payments and $1,000 par value.)

A 4.15 percent TIPS has an original reference CPI of 182.1.If the current CPI is 188.3,what is the par value of the TIPS?

Which of the following statements is correct?

Sally is choosing between two bonds both of which mature in 15 years and have the same level of risk.Bond A is a municipal bond that yields 5.75 percent.Bond B is a corporate bond that yields 7.75 percent.If Sally is in the 28 percent tax bracket,which bond should she select and why?

Many bonds are not callable,but for those that are,which of following is a common feature?

Compute the price of a 6 percent coupon bond with 10 years left to maturity and a market interest rate of 8.75 percent.(Assume interest payments are semi-annual and par value is $1,000.)Is this a discount or premium bond?

A 5 percent coupon bond has 10 years to maturity and could be called in two years.If the bond is called,investors will earn 6.2 percent.The call premium is one year of coupon payments.If coupon payments are made semi-annually and par value is $1,000,what is the bond's yield to maturity?

Which of the following bonds makes no interest payments?

Bonds are issued by which of the following?

What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4 percent for an investor in the 28 percent tax bracket?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Stocks

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 Management and Policies

Filters

Exam 7: Valuing Bonds

Calculate the price of a zero coupon bond that matures in 20 years if the market interest rate is 8.5 percent.(Assume annual compounding and a par value of $1,000.)

Determine the interest payment for the following three bonds: 5.5 percent coupon corporate bond (paid semi-annually),6.45 percent coupon Treasury note,and a corporate zero coupon bond maturing in 10 years.(Assume a $1,000 par value.)

Determine the interest payment for the following three bonds: 2.5 percent coupon corporate bond (paid semi-annually),3.15 percent coupon Treasury note,and a corporate zero coupon bond maturing in 10 years.(Assume a $1,000 par value.)

If Zeus Energy bonds are upgraded from BBB- to BBB+,which of the following statements is true?

Which of the following would NOT be an example of an agency bond?

A 15-year bond with a 10 percent coupon has a yield to maturity of 8 percent.The bond could be called in four years and if called would generate a yield to call of 6 percent.What is this bond's call premium? Assume the coupon payments are made semi-annually and par value is $1,000.

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

Which of the following are main issuers of bonds?

A 2.5 percent TIPS has an original reference CPI of 170.4.If the current CPI is 205.7,what is the current interest payment and par value of the TIPS? (Assume semi-annual interest payments and $1,000 par value.)

A 4.15 percent TIPS has an original reference CPI of 182.1.If the current CPI is 188.3,what is the par value of the TIPS?

Which of the following statements is correct?

Sally is choosing between two bonds both of which mature in 15 years and have the same level of risk.Bond A is a municipal bond that yields 5.75 percent.Bond B is a corporate bond that yields 7.75 percent.If Sally is in the 28 percent tax bracket,which bond should she select and why?

Many bonds are not callable,but for those that are,which of following is a common feature?

Compute the price of a 6 percent coupon bond with 10 years left to maturity and a market interest rate of 8.75 percent.(Assume interest payments are semi-annual and par value is $1,000.)Is this a discount or premium bond?

A 5 percent coupon bond has 10 years to maturity and could be called in two years.If the bond is called,investors will earn 6.2 percent.The call premium is one year of coupon payments.If coupon payments are made semi-annually and par value is $1,000,what is the bond's yield to maturity?

Which of the following bonds makes no interest payments?

Bonds are issued by which of the following?

What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4 percent for an investor in the 28 percent tax bracket?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Stocks

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 Management and Policies

Filters