Question 1

What rating must Luther receive on these bonds if they want the bonds to be issued at par?

Accepted Answer

A) A 
B) B 
C) BBB 
D) AA 
E) AAA 
A) A 
B) B 
C) BBB 
D) AA 
E) AAA

Question 2

Which of the following bonds will be most sensitive to a change in interest rates?

Accepted Answer

A) a ten-year bond with a $2000 face value whose yield to maturity is 5.8% and coupon rate is 5.8% APR paid semi-annually 
B) a 15-year bond with a $5000 face value whose yield to maturity is 7.4% and coupon rate is 6.2% APR paid annually 
C) a 20-year bond with a $3000 face value whose yield to maturity is 6.0% and coupon rate is 5.4% APR paid semi-annually 
D) a 30-year bond with a $1000 face value whose yield to maturity is 5.5% and coupon rate is 6.4% APR paid annually 
E) a five-year bond with a $10,000 face value whose yield to maturity is 6.4% and coupon rate is 6.8% APR paid annually 
A) a ten-year bond with a $2000 face value whose yield to maturity is 5.8% and coupon rate is 5.8% APR paid semi-annually 
B) a 15-year bond with a $5000 face value whose yield to maturity is 7.4% and coupon rate is 6.2% APR paid annually 
C) a 20-year bond with a $3000 face value whose yield to maturity is 6.0% and coupon rate is 5.4% APR paid semi-annually 
D) a 30-year bond with a $1000 face value whose yield to maturity is 5.5% and coupon rate is 6.4% APR paid annually 
E) a five-year bond with a $10,000 face value whose yield to maturity is 6.4% and coupon rate is 6.8% APR paid annually

Question 3

A bond will trade at a discount if its coupon rate is less than its yield to maturity.

Accepted Answer

A) True 
 B)False

Question 4

A company issues a ten-year $1000 bond at par with a coupon rate of 6% paid semi-annually.The YTM at the beginning of the third year of the bond (8 years left to maturity)is 7.8%.What was the percentage change in the price of the bond over the past two years?

Accepted Answer

A) 11.81% 
B) -43.04% 
C) -10.56% 
D) 75.55% 
E) 6.57% 
A) 11.81% 
B) -43.04% 
C) -10.56% 
D) 75.55% 
E) 6.57%

Question 5

Use the figure for the question(s)below.  
-The current zero-coupon yield curve for risk-free bonds is shown above.What is the price per $100 face value of a four-year,zero-coupon,risk-free bond?

Accepted Answer

A) $85.64 
B) $87.99 
C) $92.15 
D) $96.67 
E) $90.85 
A) $85.64 
B) $87.99 
C) $92.15 
D) $96.67 
E) $90.85

Question 6

Which of the following statements is TRUE?

Accepted Answer

A) A coupon bond is a pure discount bond. 
B) Prior to its maturity date,the price of a zero-coupon bond is always greater than its face value. 
C) The simplest type of bond is a coupon bond. 
D) Treasury bills are Government of Canada bonds with a maturity of up to 10 years. 
E) The amount of each coupon payment is determined by the coupon rate of the bond. 
A) A coupon bond is a pure discount bond. 
B) Prior to its maturity date,the price of a zero-coupon bond is always greater than its face value. 
C) The simplest type of bond is a coupon bond. 
D) Treasury bills are Government of Canada bonds with a maturity of up to 10 years. 
E) The amount of each coupon payment is determined by the coupon rate of the bond.

Question 7

Suppose that when these bonds were issued,Luther received a price of $972.42 for each bond.What is the likely rating that Luther's bonds received?

Accepted Answer

A) AA 
B) BBB 
C) B 
D) A 
E) AAA 
A) AA 
B) BBB 
C) B 
D) A 
E) AAA

Question 8

The above table provides information on a coupon bond that has annual coupon payments.What is the face value of this bond?

Accepted Answer

A) $17,000 
B) $20,000 
C) $17,442 
D) $16,158.26 
E) $15,000 
A) $17,000 
B) $20,000 
C) $17,442 
D) $16,158.26 
E) $15,000

Question 9

The coupon value of a bond is the face value of that bond.

Accepted Answer

A) True 
 B)False

Question 10

A bond is said to mature on the date when the issuer repays its notional value.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is TRUE?

Accepted Answer

A) A fall in bond prices causes interest rates to fall. 
B) A fall in interest rates causes a fall in bond prices. 
C) A rise in interest rates causes bond prices to fall. 
D) Bond prices change independently of interest rates. 
E) Interest rates change independently of bond prices. 
A) A fall in bond prices causes interest rates to fall. 
B) A fall in interest rates causes a fall in bond prices. 
C) A rise in interest rates causes bond prices to fall. 
D) Bond prices change independently of interest rates. 
E) Interest rates change independently of bond prices.

Question 12

What is the coupon rate of a 10-year $4,000 bond with annual coupon payments of $100?

Accepted Answer

A) 2.5% 
B) 4% 
C) 5% 
D) 10% 
E) 25% 
A) 2.5% 
B) 4% 
C) 5% 
D) 10% 
E) 25%

Question 13

How are the cash flows of a coupon bond different from an amortizing loan?

Accepted Answer

A coupon bond pays interest over the lif

Question 14

Under what situation can a zero-coupon bond be selling at par to its face value?

Accepted Answer

Unlike a coupon bond,a zero-coupon bond

Question 15

Which of the following best shows the timeline for cash flows from a five-year bond with a face value of $2,000,a coupon rate of 4.2%,and semi-annual payments?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 16

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 credit spread on a one-year,zero-coupon corporate bond with a B rating?

Accepted Answer

A) 0.7% 
B) 1.7% 
C) 1.8% 
D) 6.9% 
E) 0.6% 
A) 0.7% 
B) 1.7% 
C) 1.8% 
D) 6.9% 
E) 0.6%

Question 17

How are investors in zero-coupon bonds compensated for making such an investment?

Accepted Answer

A) Such bonds are purchased at their face value and sold at a premium at a later date. 
B) The bond makes regular interest payments. 
C) Such bonds are purchased at a discount to their face value. 
D) The face value of these bonds is less than the value of the bond when the bond matures. 
E) Bond prices always increase over time. 
A) Such bonds are purchased at their face value and sold at a premium at a later date. 
B) The bond makes regular interest payments. 
C) Such bonds are purchased at a discount to their face value. 
D) The face value of these bonds is less than the value of the bond when the bond matures. 
E) Bond prices always increase over time.

Question 18

Which of the following best describes a bond rated by Standard and Poor's,Moody's,and DBRS as B?

Accepted Answer

A) judged to be high quality by all standards 
B) possessing many favorable characteristics 
C) neither highly protected nor poorly secured 
D) generally lacks the characteristics of a desirable investment 
E) may be in default 
A) judged to be high quality by all standards 
B) possessing many favorable characteristics 
C) neither highly protected nor poorly secured 
D) generally lacks the characteristics of a desirable investment 
E) may be in default

Question 19

Use the table for the question(s)below.
The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face value):
  
-The yield to maturity for the two-year zero-coupon bond is closest to:

Accepted Answer

A) 6.0% 
B) 5.8% 
C) 5.6% 
D) 5.5% 
E) 5.0% 
A) 6.0% 
B) 5.8% 
C) 5.6% 
D) 5.5% 
E) 5.0%

Question 20

What is the yield to maturity of a ten-year,$1000 bond with a 5.2% coupon rate and semi-annual coupons if this bond is currently trading for a price of $884?

Accepted Answer

A) 5.02% 
B) 6.23% 
C) 6.82% 
D) 12.46% 
E) 5.20% 
A) 5.02% 
B) 6.23% 
C) 6.82% 
D) 12.46% 
E) 5.20%

Exam 6: Bonds

What rating must Luther receive on these bonds if they want the bonds to be issued at par?

Which of the following bonds will be most sensitive to a change in interest rates?

A bond will trade at a discount if its coupon rate is less than its yield to maturity.

A company issues a ten-year $1000 bond at par with a coupon rate of 6% paid semi-annually.The YTM at the beginning of the third year of the bond (8 years left to maturity)is 7.8%.What was the percentage change in the price of the bond over the past two years?

Use the figure for the question(s)below. -The current zero-coupon yield curve for risk-free bonds is shown above.What is the price per $100 face value of a four-year,zero-coupon,risk-free bond?

Which of the following statements is TRUE?

Suppose that when these bonds were issued,Luther received a price of $972.42 for each bond.What is the likely rating that Luther's bonds received?

The above table provides information on a coupon bond that has annual coupon payments.What is the face value of this bond?

The coupon value of a bond is the face value of that bond.

A bond is said to mature on the date when the issuer repays its notional value.

Which of the following statements is TRUE?

What is the coupon rate of a 10-year $4,000 bond with annual coupon payments of $100?

How are the cash flows of a coupon bond different from an amortizing loan?

Under what situation can a zero-coupon bond be selling at par to its face value?

Which of the following best shows the timeline for cash flows from a five-year bond with a face value of $2,000,a coupon rate of 4.2%,and semi-annual payments?

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 credit spread on a one-year,zero-coupon corporate bond with a B rating?

How are investors in zero-coupon bonds compensated for making such an investment?

Which of the following best describes a bond rated by Standard and Poor's,Moody's,and DBRS as B?

Use the table for the question(s)below. The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face value): -The yield to maturity for the two-year zero-coupon bond is closest to:

What is the yield to maturity of a ten-year,$1000 bond with a 5.2% coupon rate and semi-annual coupons if this bond is currently trading for a price of $884?

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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