Exam 12: Bond Fundamentals and Valuation

A 6.5 percent coupon bond issued by the State of California sells for $1,000. What coupon rate on a corporate bond selling at $1,000 par value would produce the same after-tax return to the investor as the municipal bond if the investor is in the 26 percent marginal tax bracket?

For a bond, the present value model incorporates both the coupon receipts and the capital gain or loss.

Most U.S. municipal bonds are serial issues that are subject to state and local taxes when they are issued in the investor's home state.

Consider a 10 percent, 15-year bond that pays interest annually quarterly, and its current price is $1060. What is the promised yield to maturity?

You purchase a 10 3/8s February $10,000 par Treasury note at 103:11 and hold it for exactly one year at which time you sell it. What is your rate of return if your selling price is 101:13?

Collateralized Mortgage obligations are

A security that has a coupon that is periodically adjusted is a(n)

Which of the four major yield spreads defines the difference in yields between pure government agency bonds and corporate bonds?

The institutions that invest most heavily in corporate bond issues are

If the price before yields changed was $975, what is the resulting price?

Calculate the yield to maturity of a zero-coupon bond with a face value of $1000, maturing in 10 years, and selling for a price of $628.72.

Which of the following statements is not true regarding bond ratings?

There is a direct relationship between coupon and price.

When a bond issue is secured by a legal claim on equipment it is known as a(n)

If the coupon payments are NOT reinvested during the life of the issue, then the

According to the segmented market hypothesis, yields for a particular maturity segment depend on supply and demand within the maturity segment.

An 8.5 percent coupon bond issued by the State of Ohio sells for $1,000. What coupon rate on a corporate bond selling at $1,000 par value would produce the same after-tax return to the investor as the municipal bond if the investor is in the 25 percent marginal tax bracket?

Assume that you purchase a three-year, $1,000 par value bond, with an 8 percent coupon and a yield of 10 percent. After you purchase the bond, one-year interest rates are as follows: year 1 = 10 percent, year 2 = 8 percent, year 3 = 6 percent (these are the reinvestment rates). Calculate the realized horizon yield if you hold the bond to maturity. Interest is paid annually.

If an investor buys a high coupon bond, and rates then fall, the investor has "locked up" that high yield as a realized yield.

Consider a bond with a 9 percent coupon and a current yield of 8 1/2 percent. What is this bond's price?