Question 1

If a bond is selling at a premium,then:

Accepted Answer

A)  its coupon rate must be greater than its yield. 
B)  its coupon rate must be less than its yield. 
C)  its coupon rate must be equal to its yield. 
D)  its coupon rate must be equal to one-half the yield to maturity for a five-year bond. 
A)  its coupon rate must be greater than its yield. 
B)  its coupon rate must be less than its yield. 
C)  its coupon rate must be equal to its yield. 
D)  its coupon rate must be equal to one-half the yield to maturity for a five-year bond.

Question 2

A 30-year bond with an 8 percent coupon has a yield to maturity of 6 percent.The bond could be called in seven years and if called would generate a yield to call of 5.75 percent.What is this bond's call premium? Assume the coupon payments are made annually and par value is $1,000.

Accepted Answer

A)  $219.73 
B)  $152.64 
C)  $106.29 
D)  $301.76 
A)  $219.73 
B)  $152.64 
C)  $106.29 
D)  $301.76

Question 3

A bond issued by a corporation on October 1,2007,is scheduled to mature on October 1,3007.If today is October 2,2009,what is this bond's time to maturity? (Assume annual interest payments.)

Accepted Answer

A)  2 years 
B)  50 years 
C)  998 years 
D)  100 years 
A)  2 years 
B)  50 years 
C)  998 years 
D)  100 years

Question 4

Which of the following is NOT true about EE savings bonds?

Accepted Answer

A)  Interest payments are received annually but are tax deductible. 
B)  About one in six Americans owns a savings bond. 
C)  These are tax deferred investments. 
D)  Paper bonds sell for one-half of their face value. 
A)  Interest payments are received annually but are tax deductible. 
B)  About one in six Americans owns a savings bond. 
C)  These are tax deferred investments. 
D)  Paper bonds sell for one-half of their face value.

Question 5

Regarding a bond's characteristics,which of the following is the principal loan amount that the borrower must repay?

Accepted Answer

A)  Call premium 
B)  Maturity date 
C)  Par or face value 
D)  Time to maturity value 
A)  Call premium 
B)  Maturity date 
C)  Par or face value 
D)  Time to maturity value

Question 6

Rank from highest credit risk to lowest credit risk the following bonds,with the same time to maturity,by their yield to maturity: Treasury bond with yield of 6.55 percent,IBM bond with yield of 10.95 percent,Trump Casino bond with a yield of 9.15 percent,and Banc Ono bond with a yield of 9.46 percent.

Accepted Answer

A)  Treasury, Trump Casino, Banc Ono, IBM 
B)  Banc Ono, Trump Casino, IBM, Treasury 
C)  Trump Casino, Treasury, Banc Ono, IBM 
D)  IBM, Banc Ono, Trump Casino, Treasury 
A)  Treasury, Trump Casino, Banc Ono, IBM 
B)  Banc Ono, Trump Casino, IBM, Treasury 
C)  Trump Casino, Treasury, Banc Ono, IBM 
D)  IBM, Banc Ono, Trump Casino, Treasury

Question 7

Which of the following bonds will have the largest percentage increase in value if interest rates decrease by 1 percent?

Accepted Answer

A)  2-year, 5 percent coupon bond 
B)  30-year, 10 percent coupon bond 
C)  10-year, zero coupon 
D)  30-year, zero coupon 
A)  2-year, 5 percent coupon bond 
B)  30-year, 10 percent coupon bond 
C)  10-year, zero coupon 
D)  30-year, zero coupon

Question 8

Which of the following statements is correct?

Accepted Answer

A)  Long-term bonds have more reinvestment rate risk than short-term bonds. 
B)  Long-term bonds have more interest rate risk than short-term bonds. 
C)  Short-term bonds with high coupons have high interest rate risk. 
D)  Zero coupon bonds do not have interest rate risk. 
A)  Long-term bonds have more reinvestment rate risk than short-term bonds. 
B)  Long-term bonds have more interest rate risk than short-term bonds. 
C)  Short-term bonds with high coupons have high interest rate risk. 
D)  Zero coupon bonds do not have interest rate risk.

Question 9

Under what conditions is a bond likely to be called?

Accepted Answer

A)  The firm is in financial duress. 
B)  The firm is planning a massive expansion and needs to raise a lot of capital. 
C)  Interest rates have significantly declined. 
D)  The firm wants to increase its debt ratio. 
A)  The firm is in financial duress. 
B)  The firm is planning a massive expansion and needs to raise a lot of capital. 
C)  Interest rates have significantly declined. 
D)  The firm wants to increase its debt ratio.

Question 10

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 11

Rank from lowest credit risk to highest credit risk the following bonds,with the same time to maturity,by their yield to maturity: Treasury bond with yield of 5.55 percent,IBM bond with yield of 7.95 percent,Trump Casino bond with a yield of 9.15 percent and Banc Ono bond with a yield of 6.12 percent.

Accepted Answer

A)  Treasury, Trump Casino, Banc Ono, IBM 
B)  Trump Casino, IBM, Banc Ono, Treasury 
C)  Treasury, Banc Ono, IBM, Trump Casino 
D)  Trump Casino, Banc Ono, IBM, Treasury 
A)  Treasury, Trump Casino, Banc Ono, IBM 
B)  Trump Casino, IBM, Banc Ono, Treasury 
C)  Treasury, Banc Ono, IBM, Trump Casino 
D)  Trump Casino, Banc Ono, IBM, Treasury

Question 12

Which of the following is not a correct statement?

Accepted Answer

A)  Treasury inflation-protected securities have fixed coupon rates. 
B)  The federal government adjusts the par value of Treasury inflation-protected securities at the rate of inflation. 
C)  At maturity, an investor in Treasury inflation-protected securities receives an inflation-adjusted principal amount. 
D)  All of the statements are correct. 
A)  Treasury inflation-protected securities have fixed coupon rates. 
B)  The federal government adjusts the par value of Treasury inflation-protected securities at the rate of inflation. 
C)  At maturity, an investor in Treasury inflation-protected securities receives an inflation-adjusted principal amount. 
D)  All of the statements are correct.

Question 13

Consider a 2.75 percent TIPS with an issue CPI reference of 184.2.At the beginning of this year,the CPI was 195.4 and was at 200.5 at the end of the year.What was the capital gain of the TIPS in dollars?

Accepted Answer

A)  $5.10 
B)  $11.20 
C)  $16.30 
D)  $27.69 
A)  $5.10 
B)  $11.20 
C)  $16.30 
D)  $27.69

Question 14

A client in the 33 percent marginal tax bracket is comparing a municipal bond that offers a 5 percent yield to maturity and a similar-risk corporate bond that offers a 6.25 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 15

What's the current yield of a 6 percent coupon corporate bond quoted at a price of 101.70?

Accepted Answer

A)  5.9 percent 
B)  6.0 percent 
C)  6.1 percent 
D)  10.2 percent 
A)  5.9 percent 
B)  6.0 percent 
C)  6.1 percent 
D)  10.2 percent

Question 16

Bond prices are quoted in terms of which of the following?

Accepted Answer

A)  Original issue discount 
B)  Percent of par value 
C)  Coupon rate in dollars 
D)  Market rate in dollars 
A)  Original issue discount 
B)  Percent of par value 
C)  Coupon rate in dollars 
D)  Market rate in dollars

Question 17

Consider the following three bond quotes; a Treasury note quoted at 87.25,and a corporate bond quoted at 102.42,and a municipal bond quoted at 101.45.If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000,what is the price of these three bonds in dollars?

Accepted Answer

A)  $872.50, $1,000, $1,000, respectively 
B)  $1,000, $1,000, $1,000, respectively 
C)  $872.50, $1,024.20, $5,072.50, respectively 
D)  $1,000, $1,024.20, $1,001.45, respectively 
A)  $872.50, $1,000, $1,000, respectively 
B)  $1,000, $1,000, $1,000, respectively 
C)  $872.50, $1,024.20, $5,072.50, respectively 
D)  $1,000, $1,024.20, $1,001.45, respectively

Question 18

If a bond is selling at a discount,which of the following statements is correct?

Accepted Answer

A)  The current yield must be greater than the coupon rate. 
B)  The coupon rate must be greater than the yield to maturity. 
C)  The bond must have a low bond rating. 
D)  All of the statements are correct. 
A)  The current yield must be greater than the coupon rate. 
B)  The coupon rate must be greater than the yield to maturity. 
C)  The bond must have a low bond rating. 
D)  All of the statements are correct.

Question 19

A corporate bond with a 5.75 percent coupon has 15 years left to maturity.It has had a credit rating of BB and a yield to maturity of 6.25 percent.The firm has recently gotten more financially stable and the rating agency is upgrading the bonds to BBB.The new appropriate discount rate will be 6.00 percent.What will be the change in the bond's price in dollars? (Assume interest payments are paid semi-annually and a par value of $1,000.)

Accepted Answer

A)  decrease $22.25 
B)  increase $22.25 
C)  decrease $23.72 
D)  increase $23.72 
A)  decrease $22.25 
B)  increase $22.25 
C)  decrease $23.72 
D)  increase $23.72

Question 20

Which of the following is used to compute bond cash interest payments?

Accepted Answer

A)  Current yield. 
B)  Yield to maturity. 
C)  Coupon rate. 
D)  None of the options. 
A)  Current yield. 
B)  Yield to maturity. 
C)  Coupon rate. 
D)  None of the options.

If a bond is selling at a premium,then:

A 30-year bond with an 8 percent coupon has a yield to maturity of 6 percent.The bond could be called in seven years and if called would generate a yield to call of 5.75 percent.What is this bond's call premium? Assume the coupon payments are made annually and par value is $1,000.

A bond issued by a corporation on October 1,2007,is scheduled to mature on October 1,3007.If today is October 2,2009,what is this bond's time to maturity? (Assume annual interest payments.)

Which of the following is NOT true about EE savings bonds?

Regarding a bond's characteristics,which of the following is the principal loan amount that the borrower must repay?

Which of the following bonds will have the largest percentage increase in value if interest rates decrease by 1 percent?

Which of the following statements is correct?

Under what conditions is a bond likely to be called?

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.)

Which of the following is not a correct statement?

Consider a 2.75 percent TIPS with an issue CPI reference of 184.2.At the beginning of this year,the CPI was 195.4 and was at 200.5 at the end of the year.What was the capital gain of the TIPS in dollars?

A client in the 33 percent marginal tax bracket is comparing a municipal bond that offers a 5 percent yield to maturity and a similar-risk corporate bond that offers a 6.25 percent yield.Which bond will give the client more profit after taxes?

What's the current yield of a 6 percent coupon corporate bond quoted at a price of 101.70?

Bond prices are quoted in terms of which of the following?

If a bond is selling at a discount,which of the following statements is correct?

Which of the following is used to compute bond cash interest payments?

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

If a bond is selling at a premium,then:

A 30-year bond with an 8 percent coupon has a yield to maturity of 6 percent.The bond could be called in seven years and if called would generate a yield to call of 5.75 percent.What is this bond's call premium? Assume the coupon payments are made annually and par value is $1,000.

A bond issued by a corporation on October 1,2007,is scheduled to mature on October 1,3007.If today is October 2,2009,what is this bond's time to maturity? (Assume annual interest payments.)

Which of the following is NOT true about EE savings bonds?

Regarding a bond's characteristics,which of the following is the principal loan amount that the borrower must repay?

Which of the following bonds will have the largest percentage increase in value if interest rates decrease by 1 percent?

Which of the following statements is correct?

Under what conditions is a bond likely to be called?

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.)

Which of the following is not a correct statement?

Consider a 2.75 percent TIPS with an issue CPI reference of 184.2.At the beginning of this year,the CPI was 195.4 and was at 200.5 at the end of the year.What was the capital gain of the TIPS in dollars?

A client in the 33 percent marginal tax bracket is comparing a municipal bond that offers a 5 percent yield to maturity and a similar-risk corporate bond that offers a 6.25 percent yield.Which bond will give the client more profit after taxes?

What's the current yield of a 6 percent coupon corporate bond quoted at a price of 101.70?

Bond prices are quoted in terms of which of the following?

If a bond is selling at a discount,which of the following statements is correct?

Which of the following is used to compute bond cash interest payments?

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