Exam 12: Bond Fundamentals and Valuation

A 7.0 percent coupon bond issued by the State of Tennessee 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 29 percent marginal tax bracket?

Consider a 15 percent, 20-year bond that pays interest annually, and its current price is $850. What is the promised yield to maturity?

Public bonds differ from other debt because they are sold to the public rather than to a single investor.

The annual interest paid on a bond relative to its prevailing market price is called its ____.

A bond's maturity is affected by call features, non-refunding provisions, and sinking fund provisions.

What was developed in the early 1980s to offset some of the problems with traditional mortgage pass-throughs?

Treasury Inflation-Protected Securities (TIPS) are inflation-indexed bonds in which the bond principal and interest payments are indexed to the consumer price index.

Consider a bond portfolio manager who expects interest rates to decline and must choose between the following two bonds. Bond A: 10 years to maturity, 5 percent coupon, 5 percent yield to maturity Bond B: 10 years to maturity, 3 percent coupon, 4 percent yield to maturity

The importance of the reinvestment assumption increases with a ____ coupon and a ____ term to maturity.

Which term-structure hypothesis suggests that any long-term interest rate simply represents the geometric mean of current and future on-year interest rates expected to prevail over the maturity of the issue?

If the price before yields changed was $925, what is the resulting price?

There are four major factors accounting for the existence of yield differentials. Which of the following is NOT a factor?

The fundamental determinants of interest rates are the real risk-free rate, inflation, and the risk premium.

If the price before yields changed was $950, what is the resulting price?

Bond ratings are positively related to

You purchase an 8 1/2s February $10,000 par Treasury note at 105:16 and hold it for exactly one year at which time you sell it. What is your rate of return if your selling price is 105:16?

If the coupon payments are not reinvested during the life of the issue then the

At what point would an investor be indifferent between a Bridgford corporate bond yielding 8.0 percent and a tax-free municipal bond of equal financial strength if the investor's marginal tax rate is 25 percent?

The refunding provision of an indenture allows bonds to be retired EXCEPT if

Which bond provision would be considered the riskiest for an investor who is concerned that market interest rates will drop dramatically over the life of the bond?