Question 1

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

Accepted Answer

A)  The bond certificate typically specifies that the coupons will be paid periodically until the maturity date of the bond. 
B)  The bond certificate indicates the amounts and dates of all payments to be made. 
C)  The only cash payments the investor will receive from a zero-coupon bond are the interest payments that are paid up until the maturity date. 
D)  The face value of a bond is repaid at maturity. 
A)  The bond certificate typically specifies that the coupons will be paid periodically until the maturity date of the bond. 
B)  The bond certificate indicates the amounts and dates of all payments to be made. 
C)  The only cash payments the investor will receive from a zero-coupon bond are the interest payments that are paid up until the maturity date. 
D)  The face value of a bond is repaid at maturity.

Question 2

What must be the price of a $10,000 bond with a 6.1% coupon rate, semiannual coupons, and five years to maturity if it has a yield to maturity of 10% APR?

Accepted Answer

A)  $8494.26 
B)  $10,193.11 
C)  $11,891.97 
D)  $6795.41 
A)  $8494.26 
B)  $10,193.11 
C)  $11,891.97 
D)  $6795.41

Question 3

Which of the following bonds is trading at par?

Accepted Answer

A)  a bond with a $2,000 face value trading at $1,987 
B)  a bond with a $1,000 face value trading at $999 
C)  a bond with a $1,000 face value trading at $1,000 
D)  a bond with a $2,000 face value trading at $2,012 
A)  a bond with a $2,000 face value trading at $1,987 
B)  a bond with a $1,000 face value trading at $999 
C)  a bond with a $1,000 face value trading at $1,000 
D)  a bond with a $2,000 face value trading at $2,012

Question 4

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 5

How are the cash flows of a zero-coupon bond different from those of a coupon bond?

Accepted Answer

A zero-coupon bond has only two cash flo

Question 6

Consider a zero-coupon bond with $100 face value and 15 years to maturity. If the YTM is 7.4%, this bond will trade at a price closest to ________.

Accepted Answer

A)  $41.13 
B)  $34.27 
C)  $47.98 
D)  $54.83 
A)  $41.13 
B)  $34.27 
C)  $47.98 
D)  $54.83

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

A $1000 bond with a coupon rate of 6.2% paid semiannually has eight years to maturity and a yield to maturity of 8.3%. If interest rates rise and the yield to maturity increases to 8.6%, what will happen to the price of the bond?

Accepted Answer

A)  The price of the bond will fall by $18.93. 
B)  The price of the bond will fall by $15.78. 
C)  The price of the bond will rise by $15.78. 
D)  The price of the bond will not change. 
A)  The price of the bond will fall by $18.93. 
B)  The price of the bond will fall by $15.78. 
C)  The price of the bond will rise by $15.78. 
D)  The price of the bond will not change.

Question 9

The above table shows the yields to maturity on a number of three-year, zero-coupon securities. What is the price per $100 of the face value of a three-year, zero-coupon corporate bond with a BBB rating?

Accepted Answer

A)  $99.06 
B)  $115.57 
C)  $82.55 
D)  $66.04 
A)  $99.06 
B)  $115.57 
C)  $82.55 
D)  $66.04

Question 10

A five-year bond with a $1,000 face value has a yield to maturity is 5.0% and it's coupon rate is 6.0% paid annually. The dirty price of this bond exactly 6 months after its second coupon payment is closest to ________.

Accepted Answer

A)  $1087.23 
B)  $1147.23 
C)  $1027.23 
D)  $1057.23 
A)  $1087.23 
B)  $1147.23 
C)  $1027.23 
D)  $1057.23

Question 11

Which of the following statements is true of bond prices?

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 and interest rates are not connected. 
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 and interest rates are not connected.

Question 12

Use the figure for the question(s) below.  
-A risk-free, zero-coupon bond has 15 years to maturity. Which of the following is closest to the price per $1000 of face value that the bond will trade at if the YTM is 6.1%?

Accepted Answer

A)  $663.78 
B)  $774.42 
C)  $553.15 
D)  $885.05 
A)  $663.78 
B)  $774.42 
C)  $553.15 
D)  $885.05

Question 13

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 7.3% (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 number of bonds that Luther must issue to raise the needed $25 million is closest to ________.

Accepted Answer

A)  28,469 
B)  33,213 
C)  23,724 
D)  18,979 
A)  28,469 
B)  33,213 
C)  23,724 
D)  18,979

Question 14

Use the information for the question(s) below.  
-The above information is for a corporate bond issued by the Markel Corporation. What sort of bond is this?

Accepted Answer

A)  a high-risk bond 
B)  an investment grade bond 
C)  a speculative bond 
D)  a high-yield bond 
A)  a high-risk bond 
B)  an investment grade bond 
C)  a speculative bond 
D)  a high-yield bond

Question 15

What is the yield to maturity of a(n) eight-year, $5000 bond with a 4.4% coupon rate and semiannual coupons if this bond is currently trading for a price of $4723.70?

Accepted Answer

A)  6.31% 
B)  5.26% 
C)  7.36% 
D)  2.63% 
A)  6.31% 
B)  5.26% 
C)  7.36% 
D)  2.63%

Question 16

Use the information for the question(s) below.  
-The Sisyphean Company has a bond outstanding with a face value of $5000 that reaches maturity in 8 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 that this bond trades for $4541.53, then the YTM for this bond is closest to ________.

Accepted Answer

A)  7.9% 
B)  11.9% 
C)  13.8% 
D)  9.9% 
A)  7.9% 
B)  11.9% 
C)  13.8% 
D)  9.9%

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

What is the coupon payment of a 15-year $10,000 bond with a 9% coupon rate with semiannual payments?

Accepted Answer

A)  $150.00 
B)  $450 
C)  $900.00 
D)  $1800.00 
A)  $150.00 
B)  $450 
C)  $900.00 
D)  $1800.00

Question 20

Use the information for the question(s) below.  
-Why are the interest rates of U.S. Treasury securities less than the interest rates of equivalent corporate bonds?

Accepted Answer

A)  The U.S. government has a high credit spread. 
B)  There is significant risk that the U.S. government will default. 
C)  U.S. Treasury securities are widely regarded to be risk-free. 
D)  U.S. Treasury securities yield inflation adjusted interest rates. 
A)  The U.S. government has a high credit spread. 
B)  There is significant risk that the U.S. government will default. 
C)  U.S. Treasury securities are widely regarded to be risk-free. 
D)  U.S. Treasury securities yield inflation adjusted interest rates.

Exam 6: Bonds

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

What must be the price of a $10,000 bond with a 6.1% coupon rate, semiannual coupons, and five years to maturity if it has a yield to maturity of 10% APR?

Which of the following bonds is trading at par?

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

How are the cash flows of a zero-coupon bond different from those of a coupon bond?

Consider a zero-coupon bond with $100 face value and 15 years to maturity. If the YTM is 7.4%, this bond will trade at a price closest to ________.

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

A $1000 bond with a coupon rate of 6.2% paid semiannually has eight years to maturity and a yield to maturity of 8.3%. If interest rates rise and the yield to maturity increases to 8.6%, what will happen to the price of the bond?

The above table shows the yields to maturity on a number of three-year, zero-coupon securities. What is the price per $100 of the face value of a three-year, zero-coupon corporate bond with a BBB rating?

A five-year bond with a $1,000 face value has a yield to maturity is 5.0% and it's coupon rate is 6.0% paid annually. The dirty price of this bond exactly 6 months after its second coupon payment is closest to ________.

Which of the following statements is true of bond prices?

Use the figure for the question(s) below. -A risk-free, zero-coupon bond has 15 years to maturity. Which of the following is closest to the price per $1000 of face value that the bond will trade at if the YTM is 6.1%?

Use the information for the question(s) below. -The above information is for a corporate bond issued by the Markel Corporation. What sort of bond is this?

What is the yield to maturity of a(n) eight-year, $5000 bond with a 4.4% coupon rate and semiannual coupons if this bond is currently trading for a price of $4723.70?

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

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

What is the coupon payment of a 15-year $10,000 bond with a 9% coupon rate with semiannual payments?

Use the information for the question(s) below. -Why are the interest rates of U.S. Treasury securities less than the interest rates of equivalent corporate bonds?

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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