Question 1

Consider the following yields to maturity on various one-year, zero-coupon securities:   The credit spread of the B corporate bond is closest to ________.

Accepted Answer

A)  1.4% 
B)  1.70% 
C)  2.80% 
D)  0.70% 
A)  1.4% 
B)  1.70% 
C)  2.80% 
D)  0.70%

Question 2

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 BBB rating is closest to ________.

Accepted Answer

A)  112.68 
B)  131.46 
C)  75.12 
D)  93.90 
A)  112.68 
B)  131.46 
C)  75.12 
D)  93.90

Question 3

Lloyd Industries raised $28 million in order to upgrade its roller kiln furnace for the production of ceramic tiles. The company funded this by issuing 15-year bonds with a face value of $1,000 and a coupon rate of 6.2%, paid annually. The above table shows the yield to maturity for similar 15-year corporate bonds of different ratings issued at the same time. When Lloyd Industries issued their bonds, they received a price of $962.63. Which of the following is most likely to be the rating these bonds received?

Accepted Answer

A)  AA 
B)  A 
C)  BBB 
D)  BB 
A)  AA 
B)  A 
C)  BBB 
D)  BB

Question 4

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 $2,000 and a coupon rate of 4.8% with monthly payments 
B)  a 10-year bond with a face value of $2,000 and a coupon rate of 5.8% with monthly payments 
C)  a 10-year bond with a face value of $2,009.67 and a coupon rate of 4.8% with monthly payments 
D)  a 10-year bond with a face value of $2,009.67 and a coupon rate of 5.8% with monthly payments 
A)  a 10-year bond with a face value of $2,000 and a coupon rate of 4.8% with monthly payments 
B)  a 10-year bond with a face value of $2,000 and a coupon rate of 5.8% with monthly payments 
C)  a 10-year bond with a face value of $2,009.67 and a coupon rate of 4.8% with monthly payments 
D)  a 10-year bond with a face value of $2,009.67 and a coupon rate of 5.8% with monthly payments

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Treasury bonds have original maturities from one to ten years, while Treasury notes have original maturities of more than ten years.

Accepted Answer

A) True 
 B)False

Question 7

A 20-year bond with a $1,000 face value was issued with a yield to maturity of 4.3% and pays coupons semi-annually. After ten years, the yield to maturity is still 4.3% and the clean price of the bond is $959.71. After three more months go by, what would you expect the dirty price to be?

Accepted Answer

A)  $978.71 
B)  $969.21 
C)  $997.71 
D)  Cannot be determined from information given. 
A)  $978.71 
B)  $969.21 
C)  $997.71 
D)  Cannot be determined from information given.

Question 8

Under what situation should the clean price, dirty price, and the price calculated by the basic annuity and present value (PV) equations for a bond be equal?

Accepted Answer

Typically, while drawing the timeline fo

Question 9

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 10

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 5 years. The bond certificate indicates that the stated coupon rate for this bond is 10.0% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 7.5%, then this bond will trade at ________.

Accepted Answer

A)  par 
B)  a discount 
C)  a premium 
D)  none of the above 
A)  par 
B)  a discount 
C)  a premium 
D)  none of the above

Question 11

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 12

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 5.6% (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 AA rating, the number of bonds that Luther must issue to raise the needed $25 million is closest to ________.

Accepted Answer

A)  27,848 
B)  33,417 
C)  38,987 
D)  22,278 
A)  27,848 
B)  33,417 
C)  38,987 
D)  22,278

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 7.5% (annual payments). The following table summarizes the YTM for similar ten-year corporate bonds of various credit ratings:   Assuming that Luther's bonds are rated AAA, their price will be closest to ________.

Accepted Answer

A)  $1064 
B)  $1277 
C)  $1490 
D)  $852 
A)  $1064 
B)  $1277 
C)  $1490 
D)  $852

Question 14

Under what situation can a zero-coupon bond be selling at a premium?

Accepted Answer

Unlike a coupon bond, a zero-coupon bond

Question 15

A company releases a five-year bond with a face value of $1000 and coupons paid semiannually. 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)  5% 
C)  6% 
D)  7% 
A)  3% 
B)  5% 
C)  6% 
D)  7%

Question 16

A firm issues 5-year bonds with a coupon rate of 4.7%, paid semiannually. The credit spread for this firm's 5-year debt is 1.2%. New 5-year Treasury notes are being issued at par with a coupon rate of 5.1%. What should the price of the firm's outstanding 5-year bonds be if their face value is $1,000?

Accepted Answer

A)  $932.28 
B)  $12.00 
C)  $1305.19 
D)  $745.82 
A)  $932.28 
B)  $12.00 
C)  $1305.19 
D)  $745.82

Question 17

What must be the price of a $1000 bond with a 5.8% coupon rate, annual coupons, and 20 years to maturity if YTM is 7.8% APR?

Accepted Answer

A)  $960.82 
B)  1120.95 
C)  $800.68 
D)  $640.54 
A)  $960.82 
B)  1120.95 
C)  $800.68 
D)  $640.54

Question 18

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 semiannually?

Accepted Answer

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

Question 19

What issues should one be careful of when calculating the bond price from its yield to maturity using the "time value of money" (TVM) keys of a financial calculator?

Accepted Answer

It is quite simple to transfer the bond

Question 20

Which of the following is true about the face value of a bond?

Accepted Answer

A)  It is the notional amount we use to compute coupon payments. 
B)  It is the amount that is repaid at maturity. 
C)  It is usually denominated in standard increments, such as $1,000. 
D)  All of the above are true. 
A)  It is the notional amount we use to compute coupon payments. 
B)  It is the amount that is repaid at maturity. 
C)  It is usually denominated in standard increments, such as $1,000. 
D)  All of the above are true.

Exam 6: Bonds

Consider the following yields to maturity on various one-year, zero-coupon securities: The credit spread of the B corporate bond is closest to ________.

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 BBB rating is closest to ________.

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?

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

Treasury bonds have original maturities from one to ten years, while Treasury notes have original maturities of more than ten years.

A 20-year bond with a $1,000 face value was issued with a yield to maturity of 4.3% and pays coupons semi-annually. After ten years, the yield to maturity is still 4.3% and the clean price of the bond is $959.71. After three more months go by, what would you expect the dirty price to be?

Under what situation should the clean price, dirty price, and the price calculated by the basic annuity and present value (PV) equations for a bond be equal?

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

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

Under what situation can a zero-coupon bond be selling at a premium?

A company releases a five-year bond with a face value of $1000 and coupons paid semiannually. If market interest rates imply a YTM of 6%, what should be the coupon rate offered if the bond is to trade at par?

What must be the price of a $1000 bond with a 5.8% coupon rate, annual coupons, and 20 years to maturity if YTM is 7.8% APR?

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 semiannually?

What issues should one be careful of when calculating the bond price from its yield to maturity using the "time value of money" (TVM) keys of a financial calculator?

Which of the following is true about the face value of a bond?

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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