Question 1

All U.S. municipalities are required to buy insurance when they issue bonds.

Accepted Answer

A) True 
 B)False

Question 2

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). $\begin{array}{|c|c|c|c|}
\hline \text { Bond } & \begin{array}{c}
\text { Maturity } \
\text { (Years) }
\end{array} & \begin{array}{c}
\text { Yield } \
\text { (Percent) }
\end{array} & \begin{array}{c}
\text { Price } \
(\$ \$)
\end{array} \
\hline \mathrm{A} & \mathrm{X} & 10 & 458.10 \
\hline \mathrm{B} & 9 & \mathrm{Y} & 212.00 \
\hline
\end{array}$

Accepted Answer

A)  8 years and 4% 
B)  10 years and 8% 
C)  12 years and 10% 
D)  14 years and 12% 
E)  8 years and 18% 
A)  8 years and 4% 
B)  10 years and 8% 
C)  12 years and 10% 
D)  14 years and 12% 
E)  8 years and 18%

Question 3

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

Accepted Answer

A)  Promised yield. 
B)  Yield to maturity. 
C)  Coupon rate. 
D)  Effective yield. 
E)  Current yield. 
A)  Promised yield. 
B)  Yield to maturity. 
C)  Coupon rate. 
D)  Effective yield. 
E)  Current yield.

Question 4

The major owners of high-yield bonds have been

Accepted Answer

A)  Chartered banks. 
B)  Credit Unions. 
C)  Mutual funds. 
D)  Insurance companies. 
E)  European banks. 
A)  Chartered banks. 
B)  Credit Unions. 
C)  Mutual funds. 
D)  Insurance companies. 
E)  European banks.

Question 5

You purchase a 9 3/4s 2009 Feb. $10,000 par Treasury Note at 101:11 and hold it for exactly one year at which time you sell it. What is your rate of return if your selling price is 101:17?

Accepted Answer

A)  8.14% 
B)  8.75% 
C)  9.75% 
D)  9.81% 
E)  10.47% 
A)  8.14% 
B)  8.75% 
C)  9.75% 
D)  9.81% 
E)  10.47%

Question 6

Exhibit 11-1
USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT PROBLEM(S) $\begin{array}{ccccccccc}
& & & &&&&& \text { Est } \$ \
& & & & \text { Last } & \text { Last } & \text { EST } && \mathrm{Vol} \
\text { Company } & \text { Ticker } & \text { Coupon } & \text { Maturity } & \text { Price } & \text { Yield } & \text { Spread } & \text { UST } & (000 ' s) \
\hline \text { Gen Elec } & f^{\prime} E^{\prime} & 475 & 9 / 15 / 2014 & 99544 & 4808 &62&10& 158736
\end{array}$
-Refer to Exhibit 11-1. What is the capital gains/loss yield on this bond?

Accepted Answer

A)  -0.038% 
B)  0.456% 
C)  0.038% 
D)  -0.456% 
E)  None of the above 
A)  -0.038% 
B)  0.456% 
C)  0.038% 
D)  -0.456% 
E)  None of the above

Question 7

A 4.75% coupon bond issued by the provincial government of Quebec 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 tax-free municipal bond if the investor is in the 28% marginal tax bracket?

Accepted Answer

A)  1.1% 
B)  5.8% 
C)  6.6% 
D)  7.3% 
E)  9.7% 
A)  1.1% 
B)  5.8% 
C)  6.6% 
D)  7.3% 
E)  9.7%

Question 8

A 6.5% coupon bond issued by the provincial government of Ontario 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 tax-free municipal bond if the investor is in the 26% marginal tax bracket?

Accepted Answer

A)  1.69% 
B)  11.25% 
C)  8.78% 
D)  14.63% 
E)  25% 
A)  1.69% 
B)  11.25% 
C)  8.78% 
D)  14.63% 
E)  25%

Question 9

You purchase a 11 3/8s 2009Feb. $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?

Accepted Answer

A)  10.14% 
B)  11.75% 
C)  8.22% 
D)  8.32% 
E)  8.16% 
A)  10.14% 
B)  11.75% 
C)  8.22% 
D)  8.32% 
E)  8.16%

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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.

Accepted Answer

A)  5.62% 
B)  4.38% 
C)  8.74% 
D)  15.26% 
E)  16.27% 
A)  5.62% 
B)  4.38% 
C)  8.74% 
D)  15.26% 
E)  16.27%

Question 12

The face value of a Canadian government agency security

Accepted Answer

A)  Is always $1000. 
B)  Ranges from $1000 to $5000. 
C)  Ranges from $1000 to $100,000. 
D)  Ranges from $1000 to $50,000. 
E)  Is always $10,000. 
A)  Is always $1000. 
B)  Ranges from $1000 to $5000. 
C)  Ranges from $1000 to $100,000. 
D)  Ranges from $1000 to $50,000. 
E)  Is always $10,000.

Question 13

A bond's price is determined by the issue's coupon rate, length to maturity, and the prevailing yield in the market.

Accepted Answer

A) True 
 B)False

Question 14

Which bond market segments tend to be highly correlated and move together?

Accepted Answer

A)  Short and long term bonds. 
B)  Short and intermediate term bonds. 
C)  Intermediate and long term bonds. 
D)  Short, intermediate and long term bonds. 
E)  None of the above. 
A)  Short and long term bonds. 
B)  Short and intermediate term bonds. 
C)  Intermediate and long term bonds. 
D)  Short, intermediate and long term bonds. 
E)  None of the above.

Question 15

Inflation-indexed bonds ensure that investors will received the promised yield in real terms by indexing bond principal and interest payments to the stock market.

Accepted Answer

A) True 
 B)False

Question 16

Government bond issues require an annual sinking fund payment of not less than one percent of the outstanding issue.

Accepted Answer

A) True 
 B)False

Question 17

Wealthy individual investors typically account for 90 to 95% of investors in the bond market.

Accepted Answer

A) True 
 B)False

Question 18

What is the value of a zero coupon bond with a yield to maturity of 9%, a par value of $1,000, and 10 years to maturity? (Assume semi-annual compounding)

Accepted Answer

A)  $208.29 
B)  $414.64 
C)  $422.41 
D)  $643.93 
E)  $910.00 
A)  $208.29 
B)  $414.64 
C)  $422.41 
D)  $643.93 
E)  $910.00

Question 19

The institutions which invest most heavily in corporate bond issues are

Accepted Answer

A)  Life insurance companies and commercial banks. 
B)  Life insurance companies and property and liability insurance companies. 
C)  Life insurance companies and pension funds. 
D)  Commercial banks and property and liability insurance companies. 
E)  Commercial banks and pension funds. 
A)  Life insurance companies and commercial banks. 
B)  Life insurance companies and property and liability insurance companies. 
C)  Life insurance companies and pension funds. 
D)  Commercial banks and property and liability insurance companies. 
E)  Commercial banks and pension funds.

Question 20

How much would you expect to pay for a $10,000 Treasury note quoted at 96:27?

Accepted Answer

A)  $9,627.00 
B)  $10,000.00 
C)  $968.44 
D)  $9,684.38 
E)  None of the above 
A)  $9,627.00 
B)  $10,000.00 
C)  $968.44 
D)  $9,684.38 
E)  None of the above

Exam 11: Bond Fundamentals

All U.S. municipalities are required to buy insurance when they issue bonds.

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

The major owners of high-yield bonds have been

You purchase a 9 3/4s 2009 Feb. $10,000 par Treasury Note at 101:11 and hold it for exactly one year at which time you sell it. What is your rate of return if your selling price is 101:17?

Exhibit 11-1 USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT PROBLEM(S) Est \ Last Last EST Company Ticker Coupon Maturity Price Yield Spread UST (00s) Gen Elec 475 9/15/2014 99544 4808 62 10 158736 -Refer to Exhibit 11-1. What is the capital gains/loss yield on this bond?

A 4.75% coupon bond issued by the provincial government of Quebec 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 tax-free municipal bond if the investor is in the 28% marginal tax bracket?

A 6.5% coupon bond issued by the provincial government of Ontario 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 tax-free municipal bond if the investor is in the 26% marginal tax bracket?

You purchase a 11 3/8s 2009Feb. $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?

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

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.

The face value of a Canadian government agency security

A bond's price is determined by the issue's coupon rate, length to maturity, and the prevailing yield in the market.

Which bond market segments tend to be highly correlated and move together?

Inflation-indexed bonds ensure that investors will received the promised yield in real terms by indexing bond principal and interest payments to the stock market.

Government bond issues require an annual sinking fund payment of not less than one percent of the outstanding issue.

Wealthy individual investors typically account for 90 to 95% of investors in the bond market.

What is the value of a zero coupon bond with a yield to maturity of 9%, a par value of $1,000, and 10 years to maturity? (Assume semi-annual compounding)

The institutions which invest most heavily in corporate bond issues are

How much would you expect to pay for a $10,000 Treasury note quoted at 96:27?

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Securities Markets and the Economy

Efficient Capital Markets

An Introduction to Portfolio Management

Asset Pricing Models: Capm and Apt

Economic and Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

The Analysis and Valuation of Bonds

An Introduction to Derivative Markets and Securities

Derivatives: Analysis and Valuation

Equity Portfolio Management Strategies

Bond Portfolio Management Strategies

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Analysis of Financial Statements

An Introduction to Security Valuation

Web Appendix: A Review of Statistics and the Security Market Line

Web Appendix: A Review of Statistics and the Security Market Line

Appendix: Objectives and Constraints of Institutional Investors

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