Question 1

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

Accepted Answer

A)  humped. 
B)  downward sloping. 
C)  flat. 
D)  All of the options are possible shapes. 
A)  humped. 
B)  downward sloping. 
C)  flat. 
D)  All of the options are possible shapes.

Question 2

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 7.20 percent.Bond B is a corporate bond that yields 10.00 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 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 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 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 3

A 7.25 percent coupon bond with 25 years left to maturity can be called in five years.The call premium is one year of coupon payments.It is offered for sale at $1,066.24.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)  3.41 percent 
B)  3.45 percent 
C)  3.51 percent 
D)  6.90 percent 
A)  3.41 percent 
B)  3.45 percent 
C)  3.51 percent 
D)  6.90 percent

Question 4

A bond issued by a corporation on June 15,2007,is scheduled to mature on June 15,2017.If today is December 16,2008,what is this bond's time to maturity? (Assume annual interest payments.)

Accepted Answer

A)  1 year, 6 months 
B)  8 years 
C)  8 years, 6 months 
D)  10 years 
A)  1 year, 6 months 
B)  8 years 
C)  8 years, 6 months 
D)  10 years

Question 5

Compute the price of a 4.75 percent coupon bond with 15 years left to maturity and a market interest rate of 6.25 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 6

Calculate the price of a 6.5 percent coupon bond with 17 years left to maturity and a market interest rate of 10.5 percent.(Assume interest rates are semiannual and par value is $1,000.)Is this a discount or premium bond?

Accepted Answer

A)  $685.93; discount 
B)  $791.03; discount 
C)  $1,051.83; premium 
D)  $1,176.31; premium 
A)  $685.93; discount 
B)  $791.03; discount 
C)  $1,051.83; premium 
D)  $1,176.31; premium

Question 7

A 5.5 percent coupon municipal bond has 16 years left to maturity and has a price quote of 92.55.The bond can be called in nine years.The call premium is one year of coupon payments.Compute the bond's current yield.Assume interest payments are paid semi-annually and a par value of $5,000.

Accepted Answer

A)  5.94 percent 
B)  11.89 percent 
C)  12.19 percent 
D)  13.14 percent 
A)  5.94 percent 
B)  11.89 percent 
C)  12.19 percent 
D)  13.14 percent

Question 8

Which of the following is a legal contract that outlines the precise terms between the issuer and the bondholder?

Accepted Answer

A)  Debenture 
B)  Enforcement codes 
C)  Indenture 
D)  Prospectus 
A)  Debenture 
B)  Enforcement codes 
C)  Indenture 
D)  Prospectus

Question 9

Calculate the price of a zero coupon bond that matures in five years if the market interest rate is 7.50 percent.(Assume semi-annual compounding and $1,000 par value.)

Accepted Answer

A)  $692.04 
B)  $696.57 
C)  $962.50 
D)  $1,000.00 
A)  $692.04 
B)  $696.57 
C)  $962.50 
D)  $1,000.00

Question 10

A 6 percent coupon bond with 12 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 6.25 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)  $21.55 
C)  $53.48 
D)  $80.37 
A)  $25.00 
B)  $21.55 
C)  $53.48 
D)  $80.37

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

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 13

Which of these statements is false?

Accepted Answer

A)  Bonds are more important capital sources than stocks for companies and governments. 
B)  Some bonds offer high potential for rewards and, consequently, higher risk. 
C)  The bond market is larger than the stock market. 
D)  Bonds are always less risky than stocks. 
A)  Bonds are more important capital sources than stocks for companies and governments. 
B)  Some bonds offer high potential for rewards and, consequently, higher risk. 
C)  The bond market is larger than the stock market. 
D)  Bonds are always less risky than stocks.

Question 14

Rank the following bonds in order from lowest credit risk to highest risk all with the same time to maturity,by their yield to maturity: JM Corporate bond with yield of 12.25 percent,IB Corporate bond with yield of 4.49 percent,TC Corporate bond with yield of 8.76 percent,and B&O Corporate bond with a yield of 5.99 percent.

Accepted Answer

A)  JM bond, TC bond, B&O bond, IB bond 
B)  IB bond, B&O bond, TC bond, JM bond 
C)  TC bond, B&O bond, IB bond, JM bond 
D)  JM bond, IB bond, B&O bond, TC bond 
A)  JM bond, TC bond, B&O bond, IB bond 
B)  IB bond, B&O bond, TC bond, JM bond 
C)  TC bond, B&O bond, IB bond, JM bond 
D)  JM bond, IB bond, B&O bond, TC bond

Question 15

A 6.75 percent coupon bond with 13 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 $919.75.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)  12.14 percent 
B)  7.27 percent 
C)  14.54 percent 
D)  8.29 percent 
A)  12.14 percent 
B)  7.27 percent 
C)  14.54 percent 
D)  8.29 percent

Question 16

A 7.5 percent coupon bond with nine years left to maturity is priced to offer a 10.4 percent yield to maturity.You believe that in one year,the yield to maturity will be 8 percent.What is the change in price the bond will experience in dollars? (Assume interest payments are semiannual and par value is $1,000.)

Accepted Answer

A)  $97.75 
B)  $101.50 
C)  $129.25 
D)  $137.75 
A)  $97.75 
B)  $101.50 
C)  $129.25 
D)  $137.75

Question 17

A 4.25 percent coupon bond with eight years left to maturity is offered for sale at $983.36.What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually and par value is $1,000.)

Accepted Answer

A)  2.25 percent 
B)  2.36 percent 
C)  4.25 percent 
D)  4.50 percent 
A)  2.25 percent 
B)  2.36 percent 
C)  4.25 percent 
D)  4.50 percent

Question 18

To compensate the bondholders for getting the bond called,the issuer pays which of the following?

Accepted Answer

A)  Call feature 
B)  Call premium 
C)  Coupon rate 
D)  Original issue premium 
A)  Call feature 
B)  Call premium 
C)  Coupon rate 
D)  Original issue premium

Question 19

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 20

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 the options. 
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 the options.

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

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 7.20 percent.Bond B is a corporate bond that yields 10.00 percent.If Sally is in the 28 percent tax bracket,which bond should she select and why?

A 7.25 percent coupon bond with 25 years left to maturity can be called in five years.The call premium is one year of coupon payments.It is offered for sale at $1,066.24.What is the yield to call of the bond? (Assume that interest payments are paid semi-annually and par value is $1,000.)

A bond issued by a corporation on June 15,2007,is scheduled to mature on June 15,2017.If today is December 16,2008,what is this bond's time to maturity? (Assume annual interest payments.)

Compute the price of a 4.75 percent coupon bond with 15 years left to maturity and a market interest rate of 6.25 percent.(Assume interest payments are semi-annual and par value is $1,000.)Is this a discount or premium bond?

Calculate the price of a 6.5 percent coupon bond with 17 years left to maturity and a market interest rate of 10.5 percent.(Assume interest rates are semiannual and par value is $1,000.)Is this a discount or premium bond?

A 5.5 percent coupon municipal bond has 16 years left to maturity and has a price quote of 92.55.The bond can be called in nine years.The call premium is one year of coupon payments.Compute the bond's current yield.Assume interest payments are paid semi-annually and a par value of $5,000.

Which of the following is a legal contract that outlines the precise terms between the issuer and the bondholder?

Calculate the price of a zero coupon bond that matures in five years if the market interest rate is 7.50 percent.(Assume semi-annual compounding 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?

Which of these statements is false?

A 6.75 percent coupon bond with 13 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 $919.75.What is the yield to call of the bond? Assume interest payments are paid semi-annually and par value is $1,000.

A 4.25 percent coupon bond with eight years left to maturity is offered for sale at $983.36.What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually and par value is $1,000.)

To compensate the bondholders for getting the bond called,the issuer pays which of the following?

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

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

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

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

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 7.20 percent.Bond B is a corporate bond that yields 10.00 percent.If Sally is in the 28 percent tax bracket,which bond should she select and why?

A 7.25 percent coupon bond with 25 years left to maturity can be called in five years.The call premium is one year of coupon payments.It is offered for sale at $1,066.24.What is the yield to call of the bond? (Assume that interest payments are paid semi-annually and par value is $1,000.)

A bond issued by a corporation on June 15,2007,is scheduled to mature on June 15,2017.If today is December 16,2008,what is this bond's time to maturity? (Assume annual interest payments.)

Compute the price of a 4.75 percent coupon bond with 15 years left to maturity and a market interest rate of 6.25 percent.(Assume interest payments are semi-annual and par value is $1,000.)Is this a discount or premium bond?

Calculate the price of a 6.5 percent coupon bond with 17 years left to maturity and a market interest rate of 10.5 percent.(Assume interest rates are semiannual and par value is $1,000.)Is this a discount or premium bond?

A 5.5 percent coupon municipal bond has 16 years left to maturity and has a price quote of 92.55.The bond can be called in nine years.The call premium is one year of coupon payments.Compute the bond's current yield.Assume interest payments are paid semi-annually and a par value of $5,000.

Which of the following is a legal contract that outlines the precise terms between the issuer and the bondholder?

Calculate the price of a zero coupon bond that matures in five years if the market interest rate is 7.50 percent.(Assume semi-annual compounding 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?

Which of these statements is false?

A 6.75 percent coupon bond with 13 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 $919.75.What is the yield to call of the bond? Assume interest payments are paid semi-annually and par value is $1,000.

A 4.25 percent coupon bond with eight years left to maturity is offered for sale at $983.36.What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually and par value is $1,000.)

To compensate the bondholders for getting the bond called,the issuer pays which of the following?

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

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

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