Question 1

Which of the following terms is a comparison of market yields on securities,assuming all characteristics except maturity are the same?

Accepted Answer

A)  Credit quality risk 
B)  Interest rate risk 
C)  Liquidity of interest rate risk 
D)  Term structure of interest rates 
A)  Credit quality risk 
B)  Interest rate risk 
C)  Liquidity of interest rate risk 
D)  Term structure of interest rates

Question 2

A 10 percent coupon bond has 15 years to maturity and could be called in two years.If the bond is called,investors will earn 4 percent.The call premium is one year of coupon payments.If coupon payments are made annually and par value is $1,000,what is the bond's yield to maturity?

Accepted Answer

A)  6.19 percent 
B)  6.82 percent 
C)  7.65 percent 
D)  7.98 percent 
A)  6.19 percent 
B)  6.82 percent 
C)  7.65 percent 
D)  7.98 percent

Question 3

Which of the following statements is correct?

Accepted Answer

A)  There is an inverse relationship between bond prices and bond yields. 
B)  There is a positive relationship between bond prices and bond yields. 
C)  There is no relationship between bond prices and bond yields. 
D)  The relationship between bond prices and bond yields is dependent on the market interest rate. 
A)  There is an inverse relationship between bond prices and bond yields. 
B)  There is a positive relationship between bond prices and bond yields. 
C)  There is no relationship between bond prices and bond yields. 
D)  The relationship between bond prices and bond yields is dependent on the market interest rate.

Question 4

A client in the 28 percent marginal tax bracket is comparing a municipal bond that offers a 3.25 percent yield to maturity and a similar-risk corporate bond that offers a 4.10 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 the 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 the answer.

Question 5

Which of the following countries became the first to miss an International Monetary Fund loan repayment?

Accepted Answer

A)  Argentina. 
B)  Greece. 
C)  Japan. 
D)  Mexico. 
A)  Argentina. 
B)  Greece. 
C)  Japan. 
D)  Mexico.

Question 6

Which of the following issues Treasury Inflation Protected Securities (TIPS)?

Accepted Answer

A)  U.S. Treasury 
B)  Corporations 
C)  Municipalities 
D)  Nonprofits 
A)  U.S. Treasury 
B)  Corporations 
C)  Municipalities 
D)  Nonprofits

Question 7

An 8 percent coupon bond with 15 years to maturity is priced to offer a 9 percent yield to maturity.You believe that in one year,the yield to maturity will be 6.5 percent.What is the change in price the bond will experience in dollars? (Assume annual interest payments and par value is $1,000.)

Accepted Answer

A)  $163.92 
B)  $176.15 
C)  $198.45 
D)  $215.82 
A)  $163.92 
B)  $176.15 
C)  $198.45 
D)  $215.82

Question 8

A 2.95 percent TIPS has an original reference CPI of 180.2.If the current CPI is 205.1,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)  $878.60, $16.79, respectively 
B)  $1,000.00, $29.50, respectively 
C)  $1,138.18, $16.79, respectively 
D)  $1,138.18, $29.50, respectively 
A)  $878.60, $16.79, respectively 
B)  $1,000.00, $29.50, respectively 
C)  $1,138.18, $16.79, respectively 
D)  $1,138.18, $29.50, respectively

Question 9

A 4.5 percent corporate coupon bond is callable in five years for a call premium of one year of coupon payments.Assuming a par value of $1,000,what is the price paid to the bondholder if the issuer calls the bond?

Accepted Answer

A)  $45 
B)  $225 
C)  $1,000 
D)  $1,045 
A)  $45 
B)  $225 
C)  $1,000 
D)  $1,045

Question 10

A 4.25 percent coupon municipal bond has 10 years left to maturity and has a price quote of 108.75.The bond can be called in five years.The call premium is one year of coupon payments.What is the bond's taxable equivalent yield for an investor in the 28 percent marginal tax bracket? (Assume interest payments are paid semi-annually and a par value of $1,000.)

Accepted Answer

A)  2.24 percent 
B)  4.47 percent 
C)  5.75 percent 
D)  5.90 percent 
A)  2.24 percent 
B)  4.47 percent 
C)  5.75 percent 
D)  5.90 percent

Question 11

A 6.75 percent coupon bond with 10 years left to maturity is priced to offer a 6.5 percent yield to maturity.You believe that in one year,the yield to maturity will be 6.65 percent.If this occurs,what would be the total return of the bond in percent? (Assume semi-annual interest payments and $1,000 par value.)

Accepted Answer

A)  5.5 percent 
B)  5.6 percent 
C)  6.6 percent 
D)  6.7 percent 
A)  5.5 percent 
B)  5.6 percent 
C)  6.6 percent 
D)  6.7 percent

Question 12

A 7.5 percent coupon bond with 16 years left to maturity is offered for sale at $834.92.What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually and par value is $1,000.)

Accepted Answer

A)  4.77 percent 
B)  7.5 percent 
C)  9.54 percent 
D)  10.34 percent 
A)  4.77 percent 
B)  7.5 percent 
C)  9.54 percent 
D)  10.34 percent

Question 13

Which of the following terms means that during periods when interest rates change substantially,bondholders experience distinct gains and losses in their bond investments?

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 14

Rank the following bonds,from highest to lowest interest rate risk: 2-year zero coupon,2-year 5 percent coupon bond,30-year 5 percent coupon bond,30-year,zero coupon bond.

Accepted Answer

A)  30-year, zero coupon bond, 30-year 5 percent coupon bond, 2-year 5 percent coupon bond, 2-year zero coupon bond 
B)  2-year 5 percent coupon bond, 2-year zero coupon bond, 30-year 5 percent coupon bond, 30-year zero coupon bond 
C)  30-year, zero coupon bond, 30-year 5 percent coupon bond, 2-year zero coupon bond, 2-year 5 percent coupon bond 
D)  30-year, 5 percent coupon bond, 30-year zero coupon bond, 2-year 5 percent coupon bond, 2-year zero coupon bond 
A)  30-year, zero coupon bond, 30-year 5 percent coupon bond, 2-year 5 percent coupon bond, 2-year zero coupon bond 
B)  2-year 5 percent coupon bond, 2-year zero coupon bond, 30-year 5 percent coupon bond, 30-year zero coupon bond 
C)  30-year, zero coupon bond, 30-year 5 percent coupon bond, 2-year zero coupon bond, 2-year 5 percent coupon bond 
D)  30-year, 5 percent coupon bond, 30-year zero coupon bond, 2-year 5 percent coupon bond, 2-year zero coupon bond

Question 15

Calculate the price of a 6.5 percent coupon bond with 27 years left to maturity and a market interest rate of 5 percent.(Assume interest payments are semiannual and par value is $1,000.)Is this a discount or premium bond?

Accepted Answer

A)  $982.03; discount 
B)  $1,010.59; discount 
C)  $1,220.93; premium 
D)  $1,315.62; premium 
A)  $982.03; discount 
B)  $1,010.59; discount 
C)  $1,220.93; premium 
D)  $1,315.62; premium

Question 16

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 5.25 percent.Bond B is a corporate bond that yields 7.75 percent.If Sally is in the 30 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 should select Bond B because it has lower risk. 
C)  Sally should select Bond A because its taxable equivalent yield is greater than the yield of Bond B. 
D)  Sally should select Bond B because the taxable equivalent yield 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 should select Bond B because it has lower risk. 
C)  Sally should select Bond A because its taxable equivalent yield is greater than the yield of Bond B. 
D)  Sally should select Bond B because the taxable equivalent yield of Bond A is less than the yield of Bond B.

Question 17

A 3.5 percent coupon municipal bond has 8 years left to maturity and has a price quote of 102.75.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 $1,000.)

Accepted Answer

A)  2.35 percent 
B)  3.50 percent 
C)  4.64 percent 
D)  9.75 percent 
A)  2.35 percent 
B)  3.50 percent 
C)  4.64 percent 
D)  9.75 percent

Question 18

A 6.5 percent coupon bond with 12 years left to maturity can be called in four years.The call premium is one year of coupon payments.It is offered for sale at $1,190.25.What is the yield to call of the bond? (Assume interest payments are paid semi-annually and par value is $1,000.)

Accepted Answer

A)  1.48 percent 
B)  2.96 percent 
C)  6.5 percent 
D)  7.23 percent 
A)  1.48 percent 
B)  2.96 percent 
C)  6.5 percent 
D)  7.23 percent

Question 19

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 20

A 3.75 percent TIPS has an original reference CPI of 183.9.If the current CPI is 214.7,what is the current interest payment? (Assume semi-annual interest payments and a par value of $1,000.)

Accepted Answer

A)  $43.78 
B)  $37.50 
C)  $21.89 
D)  $18.75 
A)  $43.78 
B)  $37.50 
C)  $21.89 
D)  $18.75

Which of the following terms is a comparison of market yields on securities,assuming all characteristics except maturity are the same?

A 10 percent coupon bond has 15 years to maturity and could be called in two years.If the bond is called,investors will earn 4 percent.The call premium is one year of coupon payments.If coupon payments are made annually and par value is $1,000,what is the bond's yield to maturity?

Which of the following statements is correct?

A client in the 28 percent marginal tax bracket is comparing a municipal bond that offers a 3.25 percent yield to maturity and a similar-risk corporate bond that offers a 4.10 percent yield.Which bond will give the client more profit after taxes?

Which of the following countries became the first to miss an International Monetary Fund loan repayment?

Which of the following issues Treasury Inflation Protected Securities (TIPS)?

An 8 percent coupon bond with 15 years to maturity is priced to offer a 9 percent yield to maturity.You believe that in one year,the yield to maturity will be 6.5 percent.What is the change in price the bond will experience in dollars? (Assume annual interest payments and par value is $1,000.)

A 2.95 percent TIPS has an original reference CPI of 180.2.If the current CPI is 205.1,what is the current interest payment and par value of the TIPS? (Assume semi-annual interest payments and $1,000 par value.)

A 4.5 percent corporate coupon bond is callable in five years for a call premium of one year of coupon payments.Assuming a par value of $1,000,what is the price paid to the bondholder if the issuer calls the bond?

A 7.5 percent coupon bond with 16 years left to maturity is offered for sale at $834.92.What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually and par value is $1,000.)

Which of the following terms means that during periods when interest rates change substantially,bondholders experience distinct gains and losses in their bond investments?

Rank the following bonds,from highest to lowest interest rate risk: 2-year zero coupon,2-year 5 percent coupon bond,30-year 5 percent coupon bond,30-year,zero coupon bond.

Calculate the price of a 6.5 percent coupon bond with 27 years left to maturity and a market interest rate of 5 percent.(Assume interest payments are semiannual and par value is $1,000.)Is this a discount or premium bond?

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 5.25 percent.Bond B is a corporate bond that yields 7.75 percent.If Sally is in the 30 percent tax bracket,which bond should she select and why?

A 6.5 percent coupon bond with 12 years left to maturity can be called in four years.The call premium is one year of coupon payments.It is offered for sale at $1,190.25.What is the yield to call of the bond? (Assume interest payments are paid semi-annually and par value is $1,000.)

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

A 3.75 percent TIPS has an original reference CPI of 183.9.If the current CPI is 214.7,what is the current interest payment? (Assume semi-annual interest payments and a par value of $1,000.)

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

Which of the following terms is a comparison of market yields on securities,assuming all characteristics except maturity are the same?

A 10 percent coupon bond has 15 years to maturity and could be called in two years.If the bond is called,investors will earn 4 percent.The call premium is one year of coupon payments.If coupon payments are made annually and par value is $1,000,what is the bond's yield to maturity?

Which of the following statements is correct?

A client in the 28 percent marginal tax bracket is comparing a municipal bond that offers a 3.25 percent yield to maturity and a similar-risk corporate bond that offers a 4.10 percent yield.Which bond will give the client more profit after taxes?

Which of the following countries became the first to miss an International Monetary Fund loan repayment?

Which of the following issues Treasury Inflation Protected Securities (TIPS)?

An 8 percent coupon bond with 15 years to maturity is priced to offer a 9 percent yield to maturity.You believe that in one year,the yield to maturity will be 6.5 percent.What is the change in price the bond will experience in dollars? (Assume annual interest payments and par value is $1,000.)

A 2.95 percent TIPS has an original reference CPI of 180.2.If the current CPI is 205.1,what is the current interest payment and par value of the TIPS? (Assume semi-annual interest payments and $1,000 par value.)

A 4.5 percent corporate coupon bond is callable in five years for a call premium of one year of coupon payments.Assuming a par value of $1,000,what is the price paid to the bondholder if the issuer calls the bond?

A 7.5 percent coupon bond with 16 years left to maturity is offered for sale at $834.92.What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually and par value is $1,000.)

Which of the following terms means that during periods when interest rates change substantially,bondholders experience distinct gains and losses in their bond investments?

Rank the following bonds,from highest to lowest interest rate risk: 2-year zero coupon,2-year 5 percent coupon bond,30-year 5 percent coupon bond,30-year,zero coupon bond.

Calculate the price of a 6.5 percent coupon bond with 27 years left to maturity and a market interest rate of 5 percent.(Assume interest payments are semiannual and par value is $1,000.)Is this a discount or premium bond?

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 5.25 percent.Bond B is a corporate bond that yields 7.75 percent.If Sally is in the 30 percent tax bracket,which bond should she select and why?

A 6.5 percent coupon bond with 12 years left to maturity can be called in four years.The call premium is one year of coupon payments.It is offered for sale at $1,190.25.What is the yield to call of the bond? (Assume interest payments are paid semi-annually and par value is $1,000.)

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

A 3.75 percent TIPS has an original reference CPI of 183.9.If the current CPI is 214.7,what is the current interest payment? (Assume semi-annual interest payments and a par value of $1,000.)

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