Question 1

What is the coupon rate of a 10-year $10,000 bond with semi-annual payments of $300?

Accepted Answer

A) 1% 
B) 10% 
C) 1.5% 
D) 3% 
E) 6% 
A) 1% 
B) 10% 
C) 1.5% 
D) 3% 
E) 6%

Question 2

A risk-free,zero-coupon bond with a face value of $1,000 has 15 years to maturity.If the YTM is 5.8%,which of the following would be closest to the price this bond will trade at?

Accepted Answer

A) $721 
B) $686 
C) $525 
D) $429 
E) $397 
A) $721 
B) $686 
C) $525 
D) $429 
E) $397

Question 3

How much are each of the semi-annual coupon payments? Assuming the appropriate YTM on the Sisyphean bond is 8.8%,then at what price should this bond trade for?

Accepted Answer

Coupon = (coupon rate × face v

Question 4

Which of the following bonds is trading at par?

Accepted Answer

A) a bond with a $2000 face value trading at $1987 
B) a bond with a $1000 face value trading at $999 
C) a bond with a $1000 face value trading at $1000 
D) a bond with a $2000 face value trading at $2012 
E) a bond with a $1000 face value trading at $1200 
A) a bond with a $2000 face value trading at $1987 
B) a bond with a $1000 face value trading at $999 
C) a bond with a $1000 face value trading at $1000 
D) a bond with a $2000 face value trading at $2012 
E) a bond with a $1000 face value trading at $1200

Question 5

Suppose Alex purchases a 10-year,zero-coupon bond with a yield to maturity of 7.5% and face value of $10,000.If he sold it 3 years later,what would be the rate of return of his investment,given that the yield to maturity is now 6%?

Accepted Answer

A) 7.72% 
B) 6% 
C) 1.5% 
D) 11.08% 
E) 13.5% 
A) 7.72% 
B) 6% 
C) 1.5% 
D) 11.08% 
E) 13.5%

Question 6

A company releases a five-year bond with a face value of $1000 and coupons paid semi-annually.If market interest rates imply a YTM of 6%,which of the following coupon rates will cause the bond to be issued at a premium?

Accepted Answer

A) 3% 
B) 4% 
C) 6% 
D) 8% 
E) 5% 
A) 3% 
B) 4% 
C) 6% 
D) 8% 
E) 5%

Question 7

Use the information for the question(s)below.
  
-The above table shows the yields to maturity on a number of one-year,zero-coupon securities.What is the price per $100 of the face value of a one-year,zero-coupon corporate bond with a BBB rating?

Accepted Answer

A) $92.21 
B) $93.54 
C) $94.16 
D) $94.87 
E) $94.52 
A) $92.21 
B) $93.54 
C) $94.16 
D) $94.87 
E) $94.52

Question 8

A zero-coupon bond with a $1000 face value has 7 years left until maturity.If its current price is $786,then the yield to maturity on this bond is approximately:

Accepted Answer

A) 3.5% 
B) 1.27% 
C) 1.03% 
D) 0.035% 
E) 7% 
A) 3.5% 
B) 1.27% 
C) 1.03% 
D) 0.035% 
E) 7%

Question 9

A Government of Canada zero-coupon bond has a yield to maturity of 4%.Investors believe that AB Company will default with certainty at the end of 1 year,only being able to pay 85% of its obligations.The company's bond promises $5,000 next year.What is the price of a one-year zero-coupon bond issued by AB Company?

Accepted Answer

A) $4,450 
B) $4,250 
C) $4,086.54 
D) $5,000 
E) $4,278.85 
A) $4,450 
B) $4,250 
C) $4,086.54 
D) $5,000 
E) $4,278.85

Question 10

If the yield to maturity of all of the following bonds is 6%,which trades at the greatest discount per $100 face value?

Accepted Answer

A) a bond with a $10,000 face value,four years to maturity and 6.2% semi-annual coupon payments 
B) a bond with a $500 face value,ten years to maturity and 5.2% annual coupon payments 
C) a bond with a $5000 face value,seven years to maturity and 5.5% annual coupon payments 
D) a bond with a $1000 face value,five years to maturity and 6.3% annual coupon payments 
E) a bond with a $100 face value,3 years to maturity and 6.0% annual coupon payments 
A) a bond with a $10,000 face value,four years to maturity and 6.2% semi-annual coupon payments 
B) a bond with a $500 face value,ten years to maturity and 5.2% annual coupon payments 
C) a bond with a $5000 face value,seven years to maturity and 5.5% annual coupon payments 
D) a bond with a $1000 face value,five years to maturity and 6.3% annual coupon payments 
E) a bond with a $100 face value,3 years to maturity and 6.0% annual coupon payments

Question 11

A $1000 bond with a coupon rate of 5.4% paid semi-annually has five years to maturity and a yield to maturity of 7.5%.If interest rates rise and the yield to maturity increases to 7.8%,what will happen to the price of the bond?

Accepted Answer

A) fall by $9.82 
B) fall by $11.58 
C) rise by $12.16 
D) rise by $10.06 
E) The price of the bond will not change. 
A) fall by $9.82 
B) fall by $11.58 
C) rise by $12.16 
D) rise by $10.06 
E) The price of the bond will not change.

Question 12

The yield to maturity of a 5-year,risk-free,zero-coupon bond is 4.25%.Its face value is $2,500,what is the cost of purchasing 5 of these zero-coupon bonds?

Accepted Answer

A) $12,500 
B) $2,030.30 
C) $2,035.17 
D) $10,151.49 
E) $10,175.87 
A) $12,500 
B) $2,030.30 
C) $2,035.17 
D) $10,151.49 
E) $10,175.87

Question 13

Why is the yield to maturity of a zero-coupon,risk-free bond that matures at the end of a given period the risk-free interest rate for that period?

Accepted Answer

A) Since such a bond provides a risk-free return over that period,the Law of One Price guarantees the risk-free interest rate be equal to this yield. 
B) Since a bond's price will converge on its face value as the bond approaches the maturity date,the Law of One Price dictates that the risk-free interest rate will reflect this convergence. 
C) Since interest rates will rise and fall in response to the movement in bond prices. 
D) Since there is,by definition,no risk in investing in such bonds,the return from such bonds is the best that can be expected from any investment over the period. 
E) Since it the easiest bond to value and this gives investors an easy benchmark against which they can evaluate other investments. 
A) Since such a bond provides a risk-free return over that period,the Law of One Price guarantees the risk-free interest rate be equal to this yield. 
B) Since a bond's price will converge on its face value as the bond approaches the maturity date,the Law of One Price dictates that the risk-free interest rate will reflect this convergence. 
C) Since interest rates will rise and fall in response to the movement in bond prices. 
D) Since there is,by definition,no risk in investing in such bonds,the return from such bonds is the best that can be expected from any investment over the period. 
E) Since it the easiest bond to value and this gives investors an easy benchmark against which they can evaluate other investments.

Question 14

Use the information to answer the question(s)below.  
-Shown above is information from FINRA regarding one of Caterpillar Financial Services' bonds.How much would the holder of such a bond earn each coupon payment for each $100 in face value if coupons are paid annually?

Accepted Answer

A) $1.38 
B) $3.95 
C) $4.00 
D) $4.36 
E) $5.17 
A) $1.38 
B) $3.95 
C) $4.00 
D) $4.36 
E) $5.17

Question 15

A university issues a bond with a face value of $10,000 and a coupon rate of 5.65% that matures on 07/15/2020.The holder of such a bond receives coupon payments of $282.50.How frequently are coupon payments made in this case?

Accepted Answer

A) monthly 
B) quarterly 
C) semi-annually 
D) annually 
E) biannually 
A) monthly 
B) quarterly 
C) semi-annually 
D) annually 
E) biannually

Question 16

Use the information for the question(s)below.  
-Shown above is information from FINRA regarding one of Bank of America's bonds.How much would the holder of such a bond earn each coupon payment for each $100 in face value if coupons are paid semi-annually?

Accepted Answer

A) $1.49 
B) $2.15 
C) $2.32 
D) $4.30 
E) $2.18 
A) $1.49 
B) $2.15 
C) $2.32 
D) $4.30 
E) $2.18

Question 17

A $3000 bond with a coupon rate of 7.2% paid semi-annually has six years to maturity and a yield to maturity of 4.6%.If interest rates fall and the yield to maturity decreases by 0.4%,what will happen to the price of the bond?

Accepted Answer

A) rise by $24.13 
B) rise by $54.77 
C) fall by $68.04 
D) fall by $67.71 
E) fall by $48.65 
A) rise by $24.13 
B) rise by $54.77 
C) fall by $68.04 
D) fall by $67.71 
E) fall by $48.65

Question 18

Bonds with a high risk of default generally offer high yields.

Accepted Answer

A) True 
 B)False

Question 19

Bond A and Bond B are both zero-coupon,risk-free bonds.They both have the same yield to maturity and face value.However,they have different maturity dates.Using the information in the above table,what is the Price of Bond B?

Accepted Answer

A) $1,000 
B) $620.92 
C) $1,610.51 
D) $500 
E) $385.54 
A) $1,000 
B) $620.92 
C) $1,610.51 
D) $500 
E) $385.54

Question 20

Based upon the information provided in the table above,you can conclude

Accepted Answer

A) that the yield curve is flat. 
B) nothing about the shape of the yield curve. 
C) that the yield curve is downward sloping. 
D) that the yield curve is upward sloping. 
E) that the yield curve is unpredictable. 
A) that the yield curve is flat. 
B) nothing about the shape of the yield curve. 
C) that the yield curve is downward sloping. 
D) that the yield curve is upward sloping. 
E) that the yield curve is unpredictable.

Exam 6: Bonds

What is the coupon rate of a 10-year $10,000 bond with semi-annual payments of $300?

A risk-free,zero-coupon bond with a face value of $1,000 has 15 years to maturity.If the YTM is 5.8%,which of the following would be closest to the price this bond will trade at?

How much are each of the semi-annual coupon payments? Assuming the appropriate YTM on the Sisyphean bond is 8.8%,then at what price should this bond trade for?

Which of the following bonds is trading at par?

Suppose Alex purchases a 10-year,zero-coupon bond with a yield to maturity of 7.5% and face value of $10,000.If he sold it 3 years later,what would be the rate of return of his investment,given that the yield to maturity is now 6%?

A company releases a five-year bond with a face value of $1000 and coupons paid semi-annually.If market interest rates imply a YTM of 6%,which of the following coupon rates will cause the bond to be issued at a premium?

Use the information for the question(s)below. -The above table shows the yields to maturity on a number of one-year,zero-coupon securities.What is the price per $100 of the face value of a one-year,zero-coupon corporate bond with a BBB rating?

A zero-coupon bond with a $1000 face value has 7 years left until maturity.If its current price is $786,then the yield to maturity on this bond is approximately:

If the yield to maturity of all of the following bonds is 6%,which trades at the greatest discount per $100 face value?

A $1000 bond with a coupon rate of 5.4% paid semi-annually has five years to maturity and a yield to maturity of 7.5%.If interest rates rise and the yield to maturity increases to 7.8%,what will happen to the price of the bond?

The yield to maturity of a 5-year,risk-free,zero-coupon bond is 4.25%.Its face value is $2,500,what is the cost of purchasing 5 of these zero-coupon bonds?

Why is the yield to maturity of a zero-coupon,risk-free bond that matures at the end of a given period the risk-free interest rate for that period?

Use the information to answer the question(s)below. -Shown above is information from FINRA regarding one of Caterpillar Financial Services' bonds.How much would the holder of such a bond earn each coupon payment for each $100 in face value if coupons are paid annually?

A university issues a bond with a face value of $10,000 and a coupon rate of 5.65% that matures on 07/15/2020.The holder of such a bond receives coupon payments of $282.50.How frequently are coupon payments made in this case?

Use the information for the question(s)below. -Shown above is information from FINRA regarding one of Bank of America's bonds.How much would the holder of such a bond earn each coupon payment for each $100 in face value if coupons are paid semi-annually?

A $3000 bond with a coupon rate of 7.2% paid semi-annually has six years to maturity and a yield to maturity of 4.6%.If interest rates fall and the yield to maturity decreases by 0.4%,what will happen to the price of the bond?

Bonds with a high risk of default generally offer high yields.

Bond A and Bond B are both zero-coupon,risk-free bonds.They both have the same yield to maturity and face value.However,they have different maturity dates.Using the information in the above table,what is the Price of Bond B?

Based upon the information provided in the table above,you can conclude

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

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