Exam 12: Bond Fundamentals and Valuation

Suppose you have a 10 percent, 20-year bond traded at $1,120. If it is callable in 5 years at $1,150, what is the bond's approximate yield to call? Interest is paid quarterly.

In the case of a bond, the only contractual factor is the amount of interest payments, as beginning and ending bond prices are determined by market forces.

Revenue bonds are essentially backed by the full faith and credit of the issuer and its entire taxing power.

Consider a bond with a current yield of 8 percent and a price of $1,250. What is this bond's coupon?

General obligation bonds are

Bonds can have different types of collateral and can be secured, unsecured, or registered bonds.

When a borrower pledges financial assets as collateral for a bond it is called a(n)

According to the expectations hypothesis, a rising yield curve indicates that investors expect

The three major theories explaining the term structure of interest rates are the expectations hypothesis, the liquidity differential hypothesis, and the segmented quality hypothesis.

A 15-year bond has a $1,000 par value bond, a 4 percent coupon, and a yield to maturity of 3.3 percent. Interest is paid annually. The bond's current yield is

Calculate the yield to maturity of a zero-coupon bond with a face value of $1000, maturing in 15 years and selling for a price of $525.75.

General obligation bonds (GOs) are serviced by the income generated from specific revenue-producing projects of the municipality.

According to the segmented-market hypothesis, a rising yield curve indicates that

The yield to call is a more conservative yield measure whenever the price of a callable bond is quoted at a value

A 9.0 percent coupon bond issued by the State of Iowa 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 30 percent marginal tax bracket?

You purchase an 11 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 100:13?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 12.1. What price would you pay in dollars to purchase this bond?

For bonds A and B below find the values of X and Y assuming each is a zero-coupon bond with a $1,000 face value (semiannual compounding).

Assume that you purchase a 10-year, $1,000 par value bond, with a 12 percent coupon and a yield of 9 percent. Immediately after you purchase the bond, yields fall to 8 percent and remain at that level to maturity. Calculate the realized horizon yield, if you hold the bond for five years and then sell. Interest is paid annually.

A nonrefunding provision prohibits a call and premature retirement of an issue from the proceeds of a lower-coupon refunding bond.