Question 1

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

Accepted Answer

A)  Promised yield is greater than realized yield. 
B)  Promised yield is less than realized yield. 
C)  Nominal yield declines. 
D)  Nominal yield is greater than promised yield. 
E)  Current yield equals the yield to maturity. 
A)  Promised yield is greater than realized yield. 
B)  Promised yield is less than realized yield. 
C)  Nominal yield declines. 
D)  Nominal yield is greater than promised yield. 
E)  Current yield equals the yield to maturity. A

Question 2

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

Accepted Answer

A)  3.7% 
B)  4.0% 
C)  3.3% 
D)  7.3% 
E)  None of the above 
A)  3.7% 
B)  4.0% 
C)  3.3% 
D)  7.3% 
E)  None of the above A

Question 3

Assume that you purchase a 10-year $1,000 par value bond, with a 12% coupon, and a yield of 9%. Immediately after you purchase the bond, yields fall to 8% and remain at that level to maturity. Calculate the realized horizon yield, if you hold the bond for 5 years and then sell. Interest is paid annually.

Accepted Answer

A)  16.25% 
B)  12.15% 
C)  7.75% 
D)  10.05% 
E)  9.34% 
A)  16.25% 
B)  12.15% 
C)  7.75% 
D)  10.05% 
E)  9.34% E

Question 4

Consider a zero coupon bond that has a current price of $436.19 and matures in 10 years. What is its yield to maturity?

Accepted Answer

A)  0.86% 
B)  8.65% 
C)  8.00% 
D)  58.80% 
E)  6.564% 
A)  0.86% 
B)  8.65% 
C)  8.00% 
D)  58.80% 
E)  6.564%

Question 5

Zappo Corporation just issued $1,000 face value bonds that will mature in 20 years and have a 7% coupon rate. Interest is paid semi-annually and the required rate of return is 9% for these bonds. The bonds have a 5 year call provision that will pay a call premium of $1,050 if they are called in. What is the price of the Zappo Corporation bond?

Accepted Answer

A)  $815.98 
B)  $817.43 
C)  $826.35 
D)  $920.87 
E)  $953.07 
A)  $815.98 
B)  $817.43 
C)  $826.35 
D)  $920.87 
E)  $953.07

Question 6

What is the current price of a zero coupon bond with a 6% yield to maturity that matures in 15 years?

Accepted Answer

A)  $4.17 
B)  $41.27 
C)  $417.27 
D)  $4,172.00 
E)  None of the above 
A)  $4.17 
B)  $41.27 
C)  $417.27 
D)  $4,172.00 
E)  None of the above

Question 7

Consider a bond with a duration of 7 years having a yield to maturity of 7% and interest rates are expected to rise by 50 basis points. What is the percentage change in the price of the bond?

Accepted Answer

A)  3.62% 
B)  3.45% 
C)  -3.38% 
D)  3.38% 
E)  -3.62% 
A)  3.62% 
B)  3.45% 
C)  -3.38% 
D)  3.38% 
E)  -3.62%

Question 8

An interest rate is the price of loanable funds.

Accepted Answer

A) True 
 B)False

Question 9

If you expected interest rates to rise, you would prefer to own bonds with

Accepted Answer

A)  short maturities and low coupons. 
B)  long maturities and high coupons. 
C)  long maturities and low coupons. 
D)  short maturities and high coupons. 
E)  None of the above. 
A)  short maturities and low coupons. 
B)  long maturities and high coupons. 
C)  long maturities and low coupons. 
D)  short maturities and high coupons. 
E)  None of the above.

Question 10

The nominal yield of a bond is the

Accepted Answer

A)  Annual coupon as a percent of the current price. 
B)  Annual rate earned including the capital gain or loss. 
C)  Rate earned giving consideration to coupon reinvestment. 
D)  Coupon rate. 
E)  Promised yield to maturity. 
A)  Annual coupon as a percent of the current price. 
B)  Annual rate earned including the capital gain or loss. 
C)  Rate earned giving consideration to coupon reinvestment. 
D)  Coupon rate. 
E)  Promised yield to maturity.

Question 11

Which of the following is not a major risk premium component for bond investors?

Accepted Answer

A)  Quality differentials. 
B)  Term to maturity. 
C)  Indenture provisions. 
D)  Yield to maturity. 
E)  Exchange rate risk differences. 
A)  Quality differentials. 
B)  Term to maturity. 
C)  Indenture provisions. 
D)  Yield to maturity. 
E)  Exchange rate risk differences.

Question 12

Exhibit 12-1
THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
A $1000 par value bond with 5 years to maturity and a 6% coupon has a yield to maturity of 8%. Interest is paid semiannually.
-Refer to Exhibit 12-1. Calculate the Macaulay duration for the bond.

Accepted Answer

A)  4.19 years 
B)  4.36 years 
C)  8.72 years 
D)  8.38 years 
E)  9.52 years 
A)  4.19 years 
B)  4.36 years 
C)  8.72 years 
D)  8.38 years 
E)  9.52 years

Question 13

For a given change in yield bond price volatility is inversely related to term to maturity.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A)  10.23% 
B)  18.45% 
C)  2.31% 
D)  17.77% 
E)  9.26% 
A)  10.23% 
B)  18.45% 
C)  2.31% 
D)  17.77% 
E)  9.26%

Question 15

Consider a bond with a duration of 6 years having a yield to maturity of 8% and interest rates are expected to rise by 50 basis points. What is the percentage change in the price of the bond?

Accepted Answer

A)  2.88% 
B)  3.45% 
C)  -3.89% 
D)  -3.45% 
E)  -2.88% 
A)  2.88% 
B)  3.45% 
C)  -3.89% 
D)  -3.45% 
E)  -2.88%

Question 16

The realized yield measures the expected rate of return of a bond that you expect to sell prior to its maturity.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A)  Equal to or greater than par plus one year's interest. 
B)  Equal to par. 
C)  Equal to par less one year's interest. 
D)  Less than par. 
E)  Five percent over par. 
A)  Equal to or greater than par plus one year's interest. 
B)  Equal to par. 
C)  Equal to par less one year's interest. 
D)  Less than par. 
E)  Five percent over par.

Question 18

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

Accepted Answer

A)  Segments 
B)  Sectors 
C)  Coupons 
D)  Seasoning 
E)  Maturity 
A)  Segments 
B)  Sectors 
C)  Coupons 
D)  Seasoning 
E)  Maturity

Question 19

Calculate the duration of a 6%, $1,000 par bond maturing in three years if the yield to maturity is 10% and interest is paid semiannually.

Accepted Answer

A)  1.35 years 
B)  1.78 years 
C)  2.50 years 
D)  2.78 years 
E)  2.95 years 
A)  1.35 years 
B)  1.78 years 
C)  2.50 years 
D)  2.78 years 
E)  2.95 years

Question 20

What is the current price of a zero coupon bond with a 7% yield to maturity that matures in 20 years?

Accepted Answer

A)  $1,000 
B)  $2,582 
C)  $25.82 
D)  $258.42 
E)  $100.00 
A)  $1,000 
B)  $2,582 
C)  $25.82 
D)  $258.42 
E)  $100.00

Exam 12: The Analysis and Valuation of Bonds

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

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

Consider a zero coupon bond that has a current price of $436.19 and matures in 10 years. What is its yield to maturity?

What is the current price of a zero coupon bond with a 6% yield to maturity that matures in 15 years?

Consider a bond with a duration of 7 years having a yield to maturity of 7% and interest rates are expected to rise by 50 basis points. What is the percentage change in the price of the bond?

An interest rate is the price of loanable funds.

If you expected interest rates to rise, you would prefer to own bonds with

The nominal yield of a bond is the

Which of the following is not a major risk premium component for bond investors?

Exhibit 12-1 THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S) A $1000 par value bond with 5 years to maturity and a 6% coupon has a yield to maturity of 8%. Interest is paid semiannually. -Refer to Exhibit 12-1. Calculate the Macaulay duration for the bond.

For a given change in yield bond price volatility is inversely related to term to maturity.

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

Consider a bond with a duration of 6 years having a yield to maturity of 8% and interest rates are expected to rise by 50 basis points. What is the percentage change in the price of the bond?

The realized yield measures the expected rate of return of a bond that you expect to sell prior to its maturity.

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

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

Calculate the duration of a 6%, $1,000 par bond maturing in three years if the yield to maturity is 10% and interest is paid semiannually.

What is the current price of a zero coupon bond with a 7% yield to maturity that matures in 20 years?

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

Bond Fundamentals

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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