Question 1

The only cash payment an investor in a zero-coupon bond receives is the face value of the bond on its maturity date.

Accepted Answer

A) True 
 B)False

Question 2

Use the figure for the question(s) below.  
-A risk-free, zero-coupon bond with a $5000 face value has 15 years to maturity. The bond currently trades at $3750. What is the yield to maturity of this bond?

Accepted Answer

A)  1.936% 
B)  0.968% 
C)  62.500% 
D)  75.000% 
A)  1.936% 
B)  0.968% 
C)  62.500% 
D)  75.000%

Question 3

Consolidated Insurance wants to raise $35 million in order to build a new headquarters. The company will fund this by issuing 10-year bonds with a face value of $1,000 and a coupon rate of 6.3%, paid semiannually. The above table shows the yield to maturity for similar 10-year corporate bonds of different ratings. Which of the following is closest to how many more bonds Consolidated Insurance would have to sell to raise this money if their bonds received an A rating rather than an AA rating?

Accepted Answer

A)  937 bonds 
B)  1093 bonds 
C)  781 bonds 
D)  625 bonds 
A)  937 bonds 
B)  1093 bonds 
C)  781 bonds 
D)  625 bonds

Question 4

Use the information for the question(s) below.  
-The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 10 years. The bond certificate indicates that the stated coupon rate for this bond is 8.2% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 7.3%, then the price that this bond trades for will be closest to ________.

Accepted Answer

A)  $1063 
B)  $850 
C)  $1276 
D)  $1488 
A)  $1063 
B)  $850 
C)  $1276 
D)  $1488

Question 5

A company issues a ten-year $1,000 face value bond at par with a coupon rate of 6.7% paid semiannually. The YTM at the beginning of the third year of the bond (8 years left to maturity) is 8.1%. What was the percentage change in the price of the bond over the past two years?

Accepted Answer

A)  -6.50% 
B)  -9.75% 
C)  -8.13% 
D)  -11.38% 
A)  -6.50% 
B)  -9.75% 
C)  -8.13% 
D)  -11.38%

Question 6

A university issues a bond with a face value of $5000 and a coupon rate of 4.41% that matures on July 15, 2018. The holder of such a bond receives coupon payments of $110.25. How frequently are coupon payments made in this case?

Accepted Answer

A)  monthly 
B)  quarterly 
C)  semiannually 
D)  annually 
A)  monthly 
B)  quarterly 
C)  semiannually 
D)  annually

Question 7

A ten-year, zero-coupon bond with a yield to maturity of 4% has a face value of $1000. An investor purchases the bond when it is initially traded, and then sells it four years later. What is the rate of return of this investment, assuming the yield to maturity does not change?

Accepted Answer

A)  3.20% 
B)  2.40% 
C)  4.00% 
D)  2.00% 
A)  3.20% 
B)  2.40% 
C)  4.00% 
D)  2.00%

Question 8

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

Accepted Answer

A)  a bond with a $10,000 face value, four years to maturity and 6.2% semiannual coupon payments 
B)  a bond with a $500 face value, seven years to maturity and 5.2% annual coupon payments 
C)  a bond with a $5,000 face value, seven years to maturity and 5.5% annual coupon payments 
D)  a bond with a $1,000 face value, five years to maturity and 6.3% annual coupon payments 
A)  a bond with a $10,000 face value, four years to maturity and 6.2% semiannual coupon payments 
B)  a bond with a $500 face value, seven years to maturity and 5.2% annual coupon payments 
C)  a bond with a $5,000 face value, seven years to maturity and 5.5% annual coupon payments 
D)  a bond with a $1,000 face value, five years to maturity and 6.3% annual coupon payments

Question 9

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 10

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)  113.53 
B)  132.45 
C)  75.69 
D)  94.61 
A)  113.53 
B)  132.45 
C)  75.69 
D)  94.61

Question 11

Which of the following statements regarding bonds and their terms is FALSE?

Accepted Answer

A)  One advantage of quoting the yield to maturity rather than the price is that the yield is independent of the face value of the bond. 
B)  Unlike the case of bonds that pay coupons, for zero-coupon bonds, there is no formula to solve for the yield to maturity. 
C)  Because we can convert any bond price into a yield, and vice versa, bond prices and yields are often used interchangeably. 
D)  The internal rate of return (IRR) of a bond is given a special name, the yield to maturity (YTM). 
A)  One advantage of quoting the yield to maturity rather than the price is that the yield is independent of the face value of the bond. 
B)  Unlike the case of bonds that pay coupons, for zero-coupon bonds, there is no formula to solve for the yield to maturity. 
C)  Because we can convert any bond price into a yield, and vice versa, bond prices and yields are often used interchangeably. 
D)  The internal rate of return (IRR) of a bond is given a special name, the yield to maturity (YTM).

Question 12

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

Accepted Answer

A)  a ten-year bond with a $2,000 face value whose yield to maturity is 5.8% and coupon rate is 5.8% APR paid semiannually 
B)  a 15-year bond with a $5,000 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 $3,000 face value whose yield to maturity is 6.0% and coupon rate is 5.4% APR paid semiannually 
D)  a 30-year bond with a $1,000 face value whose yield to maturity is 5.5% and coupon rate is 6.4% APR paid annually 
A)  a ten-year bond with a $2,000 face value whose yield to maturity is 5.8% and coupon rate is 5.8% APR paid semiannually 
B)  a 15-year bond with a $5,000 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 $3,000 face value whose yield to maturity is 6.0% and coupon rate is 5.4% APR paid semiannually 
D)  a 30-year bond with a $1,000 face value whose yield to maturity is 5.5% and coupon rate is 6.4% APR paid annually

Question 13

Which of the following bonds will be most sensitive to a change in interest rates if all bonds have the same initial yield to maturity?

Accepted Answer

A)  a ten-year bond with a $1,000 face value whose coupon rate is 5.8% APR paid semiannually 
B)  a ten-year bond with a $1,000 face value whose coupon rate is 7.4% APR paid semiannually 
C)  a 20-year bond with a $1,000 face value whose coupon rate is 5.8% APR paid semiannually 
D)  a 20-year bond with a $1,000 face value whose coupon rate is 7.4% APR paid semiannually 
A)  a ten-year bond with a $1,000 face value whose coupon rate is 5.8% APR paid semiannually 
B)  a ten-year bond with a $1,000 face value whose coupon rate is 7.4% APR paid semiannually 
C)  a 20-year bond with a $1,000 face value whose coupon rate is 5.8% APR paid semiannually 
D)  a 20-year bond with a $1,000 face value whose coupon rate is 7.4% APR paid semiannually

Question 14

Use the information for the question(s) below.
The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually.
-How much are each of the semiannual 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 payments = (coupon rate

Question 15

Assuming that this bond trades for $1,035.44, then the YTM for this bond is equal to ________.

Accepted Answer

FV = $1,000
PMT = 40

Question 16

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 $1,000 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:
  
-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 
A)  AA 
B)  BBB 
C)  B 
D)  A

Question 17

Which of the following statements regarding bonds and their terms is FALSE?

Accepted Answer

A)  Bonds are securities sold by governments and corporations to raise money from investors today in exchange for a promised future payment. 
B)  By convention, the coupon rate is expressed as an effective annual rate. 
C)  Bonds typically make two types of payments to their holders. 
D)  The time remaining until the repayment date is known as the term of the bond. 
A)  Bonds are securities sold by governments and corporations to raise money from investors today in exchange for a promised future payment. 
B)  By convention, the coupon rate is expressed as an effective annual rate. 
C)  Bonds typically make two types of payments to their holders. 
D)  The time remaining until the repayment date is known as the term of the bond.

Question 18

What is the coupon payment of a 25-year $1000 bond with a 4.5% coupon rate with quarterly payments?

Accepted Answer

A)  $3.75 
B)  $11.25 
C)  $22.50 
D)  $45.00 
A)  $3.75 
B)  $11.25 
C)  $22.50 
D)  $45.00

Question 19

Which of the following best illustrates why a bond is a type of loan?

Accepted Answer

A)  The issuers of bonds make regular payments to bondholders. 
B)  When a company issues a bond, the buyer of that bond becomes an owner of the issuing company. 
C)  Funds raised are used to finance long-term projects. 
D)  When an investor buys a bond from an issuer, the investor is giving money to the issuer, with the assurance that it will be repaid at a date in the future. 
A)  The issuers of bonds make regular payments to bondholders. 
B)  When a company issues a bond, the buyer of that bond becomes an owner of the issuing company. 
C)  Funds raised are used to finance long-term projects. 
D)  When an investor buys a bond from an issuer, the investor is giving money to the issuer, with the assurance that it will be repaid at a date in the future.

Question 20

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 four-year zero-coupon bond is closest to ________.

Accepted Answer

A)  5.20% 
B)  2.60% 
C)  10.40% 
D)  0.18% 
A)  5.20% 
B)  2.60% 
C)  10.40% 
D)  0.18%

Exam 6: Bonds

The only cash payment an investor in a zero-coupon bond receives is the face value of the bond on its maturity date.

Use the figure for the question(s) below. -A risk-free, zero-coupon bond with a $5000 face value has 15 years to maturity. The bond currently trades at $3750. What is the yield to maturity of this bond?

A company issues a ten-year $1,000 face value bond at par with a coupon rate of 6.7% paid semiannually. The YTM at the beginning of the third year of the bond (8 years left to maturity) is 8.1%. What was the percentage change in the price of the bond over the past two years?

A university issues a bond with a face value of $5000 and a coupon rate of 4.41% that matures on July 15, 2018. The holder of such a bond receives coupon payments of $110.25. How frequently are coupon payments made in this case?

A ten-year, zero-coupon bond with a yield to maturity of 4% has a face value of $1000. An investor purchases the bond when it is initially traded, and then sells it four years later. What is the rate of return of this investment, assuming the yield to maturity does not change?

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

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

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 ________.

Which of the following statements regarding bonds and their terms is FALSE?

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

Which of the following bonds will be most sensitive to a change in interest rates if all bonds have the same initial yield to maturity?

Assuming that this bond trades for $1,035.44, then the YTM for this bond is equal to ________.

Which of the following statements regarding bonds and their terms is FALSE?

What is the coupon payment of a 25-year $1000 bond with a 4.5% coupon rate with quarterly payments?

Which of the following best illustrates why a bond is a type of loan?

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 four-year zero-coupon bond is closest to ________.

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

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