Question 1

Allan purchases a 10-year $100 coupon bond with 10% annual coupons.If its yield to maturity decreases from 7.5% to 6%,what is the percentage change in the price of the bond?

Accepted Answer

A) -9.49% 
B) 10.48% 
C) 1.5% 
D) 9.49% 
E) -10.48% 
A) -9.49% 
B) 10.48% 
C) 1.5% 
D) 9.49% 
E) -10.48%

Question 2

A risk-free,zero-coupon bond with a $5000 face value has ten years to maturity.The bond currently trades at $3650.What is the yield to maturity of this bond?

Accepted Answer

A) 3.197% 
B) 3.284% 
C) 3.465% 
D) 3.699% 
E) 3.747% 
A) 3.197% 
B) 3.284% 
C) 3.465% 
D) 3.699% 
E) 3.747%

Question 3

Why do bond traders typically quote bond yields rather than bond prices?

Accepted Answer

The advantage of quoting the y

Question 4

Use the information for the question(s)below.
Luther Industries needs to raise $25 million to fund a new office complex.The company plans on issuing ten-year bonds with a face value of $1000 and a coupon rate of 7.0% (annual payments).The following table summarizes the YTM for similar ten-year corporate bonds of various credit ratings:
  
-Assuming that Luther's bonds receive a AAA rating,the price of the bonds will be closest to:

Accepted Answer

A) $1021 
B) $1014 
C) $1000 
D) $937 
E) $933 
A) $1021 
B) $1014 
C) $1000 
D) $937 
E) $933

Question 5

A bond indenture indicates:

Accepted Answer

A) the amounts and dates of all payments to be made. 
B) the individual to whom payments will be made. 
C) the yield to maturity of the bond. 
D) the price of the bond. 
E) the bond premium. 
A) the amounts and dates of all payments to be made. 
B) the individual to whom payments will be made. 
C) the yield to maturity of the bond. 
D) the price of the bond. 
E) the bond premium.

Question 6

What is the yield to maturity of a one-year,risk-free,zero-coupon bond with a $10,000 face value and a price of $9600 when released?

Accepted Answer

A) 3.212% 
B) 4.000% 
C) 4.167% 
D) 9.600% 
E) 5.140% 
A) 3.212% 
B) 4.000% 
C) 4.167% 
D) 9.600% 
E) 5.140%

Question 7

Investors may be willing to invest in U.S Treasury Bills trading with a negative yield because:

Accepted Answer

A) The risk of holding cash in a financial institution is greater than the short-term loss from the investment in T-Bill 
B) Alternative investments with a positive yield are not available. 
C) Financial institutions are refusing to accept cash deposits from legitimate investors. 
D) Losses generated create a significant tax savings for the investor. 
E) The phenomenon indicates there is confidence that an economic upturn is imminent. 
A) The risk of holding cash in a financial institution is greater than the short-term loss from the investment in T-Bill 
B) Alternative investments with a positive yield are not available. 
C) Financial institutions are refusing to accept cash deposits from legitimate investors. 
D) Losses generated create a significant tax savings for the investor. 
E) The phenomenon indicates there is confidence that an economic upturn is imminent.

Question 8

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 five-year zero-coupon bond is closest to:

Accepted Answer

A) 5.4% 
B) 5.8% 
C) 5.6% 
D) 6.0% 
E) 5.0% 
A) 5.4% 
B) 5.8% 
C) 5.6% 
D) 6.0% 
E) 5.0%

Question 9

Before it matures,the price of any bond is always less than its face value.

Accepted Answer

A) True 
 B)False

Question 10

Assuming that this bond trades for $1112,then the YTM for this bond is closest to:

Accepted Answer

A) 8.0% 
B) 3.4% 
C) 6.8% 
D) 9.2% 
E) 11.2% 
A) 8.0% 
B) 3.4% 
C) 6.8% 
D) 9.2% 
E) 11.2%

Question 11

Use the table for the question(s)below.
Consider the following yields to maturity on various one-year zero-coupon securities:
-  The price (expressed as a percentage of the face value)of a one-year,zero-coupon corporate bond with a AAA rating is closest to:

Accepted Answer

A) 94.70 
B) 95.60 
C) 94.16 
D) 94.88 
E) 95.10 
A) 94.70 
B) 95.60 
C) 94.16 
D) 94.88 
E) 95.10

Question 12

A bond has a $1000 face value,ten years to maturity,and 7% semi-annual coupon payments.What would be the expected difference in this bond's price immediately before and immediately after the next coupon payment?

Accepted Answer

A) $18 
B) $35 
C) $70 
D) $84 
E) $100 
A) $18 
B) $35 
C) $70 
D) $84 
E) $100

Question 13

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%,what should be the coupon rate offered if the bond is to trade at par?

Accepted Answer

A) 3% 
B) 4% 
C) 6% 
D) 8% 
E) 9% 
A) 3% 
B) 4% 
C) 6% 
D) 8% 
E) 9%

Question 14

A corporate bond makes payments of $9.67 every month for ten years with a final payment of $2009.67.Which of the following best describes this bond?

Accepted Answer

A) a 10-year bond with a face value of $2000 and a coupon rate of 4.8% with monthly payments 
B) a 10-year bond with a face value of $2000 and a coupon rate of 5.8% with monthly payments 
C) a 10-year bond with a face value of $2009.67 and a coupon rate of 4.8% with monthly payments 
D) a 10-year bond with a face value of $2009.67 and a coupon rate of 5.8% with monthly payments 
E) a 10-year bond with a face value of $2009.67 and a coupon rate of 6.8% with monthly payments 
A) a 10-year bond with a face value of $2000 and a coupon rate of 4.8% with monthly payments 
B) a 10-year bond with a face value of $2000 and a coupon rate of 5.8% with monthly payments 
C) a 10-year bond with a face value of $2009.67 and a coupon rate of 4.8% with monthly payments 
D) a 10-year bond with a face value of $2009.67 and a coupon rate of 5.8% with monthly payments 
E) a 10-year bond with a face value of $2009.67 and a coupon rate of 6.8% with monthly payments

Question 15

The face value of a 30-year coupon bond is $100,000.If it pays $1,500 every 3 months,what is its coupon rate?

Accepted Answer

A) 1.5% 
B) 0.06% 
C) 6% 
D) 4.5% 
E) 15% 
A) 1.5% 
B) 0.06% 
C) 6% 
D) 4.5% 
E) 15%

Question 16

What is the coupon rate of a two-year,$10,000 bond with semi-annual coupons and a price of $9543.45,if it has a yield to maturity of 6.8%?

Accepted Answer

A) 4.32% 
B) 5.60% 
C) 6.25% 
D) 8.44% 
E) 6.80% 
A) 4.32% 
B) 5.60% 
C) 6.25% 
D) 8.44% 
E) 6.80%

Question 17

Prior to its maturity date,the price of a zero-coupon bond is its face value.

Accepted Answer

A) True 
 B)False

Question 18

Use the figure for the question(s)below.  
-The current zero-coupon yield curve for risk-free bonds is shown above.What is the risk-free interest rate on a 3-year maturity?

Accepted Answer

A) 3.00% 
B) 3.15% 
C) 3.25% 
D) 6.34% 
E) 3.50% 
A) 3.00% 
B) 3.15% 
C) 3.25% 
D) 6.34% 
E) 3.50%

Question 19

The credit spread of a bond shrinks if it is perceived that the probability of the issuer defaulting increases.

Accepted Answer

A) True 
 B)False

Question 20

The yields to maturity on a number of one-year,zero-coupon securities are shown in the table above.What is the credit spread on a one-year,zero-coupon corporate bond with an A rating?

Accepted Answer

A) 4.7% 
B) 2% 
C) 1.2% 
D) 0.4% 
E) 0.8% 
A) 4.7% 
B) 2% 
C) 1.2% 
D) 0.4% 
E) 0.8%

Exam 6: Bonds

Allan purchases a 10-year $100 coupon bond with 10% annual coupons.If its yield to maturity decreases from 7.5% to 6%,what is the percentage change in the price of the bond?

A risk-free,zero-coupon bond with a $5000 face value has ten years to maturity.The bond currently trades at $3650.What is the yield to maturity of this bond?

Why do bond traders typically quote bond yields rather than bond prices?

A bond indenture indicates:

What is the yield to maturity of a one-year,risk-free,zero-coupon bond with a $10,000 face value and a price of $9600 when released?

Investors may be willing to invest in U.S Treasury Bills trading with a negative yield because:

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 five-year zero-coupon bond is closest to:

Before it matures,the price of any bond is always less than its face value.

Assuming that this bond trades for $1112,then the YTM for this bond is closest to:

Use the table for the question(s)below. Consider the following yields to maturity on various one-year zero-coupon securities: - The price (expressed as a percentage of the face value)of a one-year,zero-coupon corporate bond with a AAA rating is closest to:

A bond has a $1000 face value,ten years to maturity,and 7% semi-annual coupon payments.What would be the expected difference in this bond's price immediately before and immediately after the next coupon payment?

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%,what should be the coupon rate offered if the bond is to trade at par?

A corporate bond makes payments of $9.67 every month for ten years with a final payment of $2009.67.Which of the following best describes this bond?

The face value of a 30-year coupon bond is $100,000.If it pays $1,500 every 3 months,what is its coupon rate?

What is the coupon rate of a two-year,$10,000 bond with semi-annual coupons and a price of $9543.45,if it has a yield to maturity of 6.8%?

Prior to its maturity date,the price of a zero-coupon bond is its face value.

Use the figure for the question(s)below. -The current zero-coupon yield curve for risk-free bonds is shown above.What is the risk-free interest rate on a 3-year maturity?

The credit spread of a bond shrinks if it is perceived that the probability of the issuer defaulting increases.

The yields to maturity on a number of one-year,zero-coupon securities are shown in the table above.What is the credit spread on a one-year,zero-coupon corporate bond with an A rating?

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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