Question 1

Assuming that this bond trades for $1,035.44, then the YTM for this bond is equal to ________.

Accepted Answer

FV = $1,000
PMT = 40 (80 / 2)
N = 30 (15 × 2)
PV = -$1,035.44
Compute I = 3.8 × 2 = 7.6 or 7.6%

Question 2

A mining company needs to raise $100 million in order to begin open-pit mining of a coal seam. The company will fund this by issuing 30-year bonds with a face value of $1,000 and a coupon rate of 6.5%, paid annually. The above table shows the yield to maturity for similar 30-year corporate bonds of different ratings. If the company's bonds are rated A, what will be their selling price?

Accepted Answer

A)  $1265.37 
B)  $1476.27 
C)  $1054.48 
D)  $843.58 
A)  $1265.37 
B)  $1476.27 
C)  $1054.48 
D)  $843.58 C

Question 3

The coupon value of a bond is the face value of the bond.

Accepted Answer

A) True 
 B)False  False

Question 4

Treasury bonds have original maturities from one to ten years, while Treasury notes have original maturities of more than ten years.

Accepted Answer

A) True 
 B)False

Question 5

If the yield to maturity of all of the following bonds is 6%, which will trade at the greatest premium per $100 face value?

Accepted Answer

A)  a bond with a $10,000 face value, four years to maturity and 6.2% semiannual coupon payments 
B)  a bond with a $500 face value, seven years to maturity and 5.2% annual coupon payments 
C)  a bond with a $5,000 face value, seven years to maturity and 5.5% annual coupon payments 
D)  a bond with a $1,000 face value, five years to maturity and 6.3% annual coupon payments 
A)  a bond with a $10,000 face value, four years to maturity and 6.2% semiannual coupon payments 
B)  a bond with a $500 face value, seven years to maturity and 5.2% annual coupon payments 
C)  a bond with a $5,000 face value, seven years to maturity and 5.5% annual coupon payments 
D)  a bond with a $1,000 face value, five years to maturity and 6.3% annual coupon payments

Question 6

A $1000 bond with a coupon rate of 6.2% paid semiannually has eight years to maturity and a yield to maturity of 8.3%. If interest rates rise and the yield to maturity increases to 8.6%, what will happen to the price of the bond?

Accepted Answer

A)  The price of the bond will fall by $18.93. 
B)  The price of the bond will fall by $15.78. 
C)  The price of the bond will rise by $15.78. 
D)  The price of the bond will not change. 
A)  The price of the bond will fall by $18.93. 
B)  The price of the bond will fall by $15.78. 
C)  The price of the bond will rise by $15.78. 
D)  The price of the bond will not change.

Question 7

Which of the following statements regarding bonds and their terms is FALSE?

Accepted Answer

A)  The amount of each coupon payment is determined by the coupon rate of the bond. 
B)  Prior to its maturity date, the price of a zero-coupon bond is always greater than its face value. 
C)  The zero-coupon bond has no periodic interest payments. 
D)  Treasury bills are U.S. government bonds with a maturity of up to one year. 
A)  The amount of each coupon payment is determined by the coupon rate of the bond. 
B)  Prior to its maturity date, the price of a zero-coupon bond is always greater than its face value. 
C)  The zero-coupon bond has no periodic interest payments. 
D)  Treasury bills are U.S. government bonds with a maturity of up to one year.

Question 8

The Sisyphean Company has a bond outstanding with a face value of $5000 that matures in 10 years. The bond certificate indicates that the stated coupon rate for this bond is 8.9% and that the coupon payments are to be made semiannually. How much will each semiannual coupon payment be?

Accepted Answer

A)  $445.0 
B)  $222.5 
C)  $667.5 
D)  $890.0 
A)  $445.0 
B)  $222.5 
C)  $667.5 
D)  $890.0

Question 9

Luther Industries needs to raise $25 million to fund a new office complex. The company plans on issuing ten-year bonds with a face value of $1,000 and a coupon rate of 7.5% (annual payments). The following table summarizes the YTM for similar ten-year corporate bonds of various credit ratings:
 
Assuming that Luther's bonds are rated AAA, their price will be closest to ________.

Accepted Answer

A)  $1064 
B)  $1277 
C)  $1490 
D)  $852 
A)  $1064 
B)  $1277 
C)  $1490 
D)  $852

Question 10

The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face value):
 
Based upon the information provided in the table above, you can conclude ________.

Accepted Answer

A)  that the yield curve is flat 
B)  nothing about the shape of the yield curve 
C)  that the yield curve is downward sloping 
D)  that the yield curve is upward sloping 
A)  that the yield curve is flat 
B)  nothing about the shape of the yield curve 
C)  that the yield curve is downward sloping 
D)  that the yield curve is upward sloping

Question 11

A company releases a five-year bond with a face value of $1000 and coupons paid semiannually. If market interest rates imply a YTM of 8%, which of the following coupon rates will cause the bond to be issued at a premium?

Accepted Answer

A)  7% 
B)  6% 
C)  8% 
D)  10% 
A)  7% 
B)  6% 
C)  8% 
D)  10%

Question 12

Before it matures, the price of any bond is always less than its face value.

Accepted Answer

A) True 
 B)False

Question 13

A bond is currently trading below par. Which of the following must be true about that bond?

Accepted Answer

A)  The bond's yield to maturity is less than its coupon rate. 
B)  The bond is a zero-coupon bond. 
C)  The bond's yield to maturity is greater than its coupon rate. 
D)  B or C above 
A)  The bond's yield to maturity is less than its coupon rate. 
B)  The bond is a zero-coupon bond. 
C)  The bond's yield to maturity is greater than its coupon rate. 
D)  B or C above

Question 14

A risk-free, zero-coupon bond with a $5000 face value has 15 years to maturity. The bond currently trades at $3750. What is the yield to maturity of this bond?

Accepted Answer

A)  1.936% 
B)  0.968% 
C)  62.500% 
D)  75.000% 
A)  1.936% 
B)  0.968% 
C)  62.500% 
D)  75.000%

Question 15

Which of the following statements regarding bonds and their terms is FALSE?

Accepted Answer

A)  The bond certificate typically specifies that the coupons will be paid periodically until the maturity date of the bond. 
B)  The bond certificate indicates the amounts and dates of all payments to be made. 
C)  The only cash payments the investor will receive from a zero-coupon bond are the interest payments that are paid up until the maturity date. 
D)  The face value of a bond is repaid at maturity. 
A)  The bond certificate typically specifies that the coupons will be paid periodically until the maturity date of the bond. 
B)  The bond certificate indicates the amounts and dates of all payments to be made. 
C)  The only cash payments the investor will receive from a zero-coupon bond are the interest payments that are paid up until the maturity date. 
D)  The face value of a bond is repaid at maturity.

Question 16

A company issues a ten-year $1,000 face value bond at par with a coupon rate of 6.7% paid semiannually. The YTM at the beginning of the third year of the bond (8 years left to maturity) is 8.1%. What was the percentage change in the price of the bond over the past two years?

Accepted Answer

A)  -6.50% 
B)  -9.75% 
C)  -8.13% 
D)  -11.38% 
A)  -6.50% 
B)  -9.75% 
C)  -8.13% 
D)  -11.38%

Question 17

Consider the following yields to maturity on various one-year, zero-coupon securities:
 
The price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating is closest to ________.

Accepted Answer

A)  113.53 
B)  132.45 
C)  75.69 
D)  94.61 
A)  113.53 
B)  132.45 
C)  75.69 
D)  94.61

Question 18

Luther Industries needs to raise $25 million to fund a new office complex. The company plans on issuing ten-year bonds with a face value of $1,000 and a coupon rate of 6.0% (annual payments). The following table summarizes the YTM for similar ten-year corporate bonds of various credit ratings:
 
Assuming that Luther's bonds receive a AA rating, the price of the bonds will be closest to ________.

Accepted Answer

A)  $1129 
B)  $941 
C)  $1318 
D)  $753 
A)  $1129 
B)  $941 
C)  $1318 
D)  $753

Question 19

A bond will trade at a discount if its coupon rate is less than its yield to maturity.

Accepted Answer

A) True 
 B)False

Question 20

A $5000 bond with a coupon rate of 5.7% paid semiannually has ten years to maturity and a yield to maturity of 6.4%. If interest rates fall and the yield to maturity decreases by 0.8%, what will happen to the price of the bond?

Accepted Answer

A)  The price of the bond will fall by $293.50. 
B)  The price of the bond will fall by $352.20. 
C)  The price of the bond will rise by $410.90. 
D)  The price of the bond will rise by $293.50. 
A)  The price of the bond will fall by $293.50. 
B)  The price of the bond will fall by $352.20. 
C)  The price of the bond will rise by $410.90. 
D)  The price of the bond will rise by $293.50.

Exam 6: Bonds

Assuming that this bond trades for $1,035.44, then the YTM for this bond is equal to ________.

The coupon value of a bond is the face value of the bond.

Treasury bonds have original maturities from one to ten years, while Treasury notes have original maturities of more than ten years.

If the yield to maturity of all of the following bonds is 6%, which will trade at the greatest premium per $100 face value?

A $1000 bond with a coupon rate of 6.2% paid semiannually has eight years to maturity and a yield to maturity of 8.3%. If interest rates rise and the yield to maturity increases to 8.6%, what will happen to the price of the bond?

Which of the following statements regarding bonds and their terms is FALSE?

The Sisyphean Company has a bond outstanding with a face value of $5000 that matures in 10 years. The bond certificate indicates that the stated coupon rate for this bond is 8.9% and that the coupon payments are to be made semiannually. How much will each semiannual coupon payment be?

The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face value): Based upon the information provided in the table above, you can conclude ________.

A company releases a five-year bond with a face value of $1000 and coupons paid semiannually. If market interest rates imply a YTM of 8%, which of the following coupon rates will cause the bond to be issued at a premium?

Before it matures, the price of any bond is always less than its face value.

A bond is currently trading below par. Which of the following must be true about that bond?

A risk-free, zero-coupon bond with a $5000 face value has 15 years to maturity. The bond currently trades at $3750. What is the yield to maturity of this bond?

Which of the following statements regarding bonds and their terms is FALSE?

A company issues a ten-year $1,000 face value bond at par with a coupon rate of 6.7% paid semiannually. The YTM at the beginning of the third year of the bond (8 years left to maturity) is 8.1%. What was the percentage change in the price of the bond over the past two years?

Consider the following yields to maturity on various one-year, zero-coupon securities: The price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating is closest to ________.

A bond will trade at a discount if its coupon rate is less than its yield to maturity.

A $5000 bond with a coupon rate of 5.7% paid semiannually has ten years to maturity and a yield to maturity of 6.4%. If interest rates fall and the yield to maturity decreases by 0.8%, what will happen to the price of the bond?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

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