Exam 10: Bond Prices and Yields

Consider a newly issued TIPS bond with a 3-year maturity, par value of $1,000, and coupon rate of 5%. Assume annual coupon payments. What is the nominal rate of return on the TIPS bond in the first year?

To earn a high rating from the bond rating agencies, a company would want to have: I. A low times-interest-earned ratio II. A low debt-to-equity ratio III. A high quick ratio

You hold a subordinated debenture in a firm. In the event of bankruptcy you will be paid off before which one of the following?

Consider a newly issued TIPS bond with a 3-year maturity, par value of $1,000, and coupon rate of 5%. Assume annual coupon payments. What is the real rate of return on the TIPS bond in the first year?

Which of the following bonds would most likely sell at the lowest yield?

You would typically find all but which one of the following in a bond contract?

A coupon bond that pays semiannual interest is reported in the Wall Street Journal as having an ask price of 117% of its $1,000 par value. If the last interest payment was made 2 months ago and the coupon rate is 6%, the invoice price of the bond will be ________.

You buy a 10-year $1,000 par value zero-coupon bond priced to yield 6%. You do not sell the bond. If you are in a 28% tax bracket, you will owe taxes on this investment after the first year equal to ________.

A coupon bond that pays interest of $60 annually has a par value of $1,000, matures in 5 years, and is selling today at a $75.25 discount from par value. The current yield on this bond is ________.

The issuer of ________ bond may choose to pay interest either in cash or in additional bonds.

The bonds of Elbow Grease Dishwashing Company have received a rating of C by Moody's. The C rating indicates that the bonds are ________.

A ________ bond gives the issuer an option to retire the bond before maturity at a specific price after a specific date.

A bond has a 5% coupon rate. The coupon is paid semiannually, and the last coupon was paid 35 days ago. If the bond has a par value of $1,000, what is the accrued interest?

In an era of particularly low interest rates, which of the following bonds is most likely to be called?

A bond has a flat price of $985, and it pays an annual coupon. The last coupon payment was made 90 days ago. What is the invoice price if the annual coupon is $69?

Under the pure expectations hypothesis and constant real interest rates for different maturities, an upward-sloping yield curve would indicate ________.

Which one of the following statements is correct?

If the coupon rate on a bond is 4.5% and the bond is selling at a premium, which of the following is the most likely yield to maturity on the bond?

If you are holding a premium bond, you must expect a ________ each year until maturity. If you are holding a discount bond, you must expect a ________ each year until maturity. (In each case assume that the yield to maturity remains stable over time.)

On May 1, 2007, Joe Hill is considering one of the following newly issued 10-year AAA corporate bonds. If interest rates are expected to rise, then Joe Hill should ________.