Question 1

The credit spread of a bond shrinks if it is perceived that the probability of the issuer defaulting increases.

Accepted Answer

A) True 
 B)False

Question 2

Bond traders generally quote bond yields rather than bond prices, since yield to maturity depends on the face value of the bond.

Accepted Answer

A) True 
 B)False

Question 3

Under what situation can a zero-coupon bond be selling at a premium?

Accepted Answer

Unlike a coupon bond, a zero-coupon bond

Question 4

What is the coupon rate of an eight-year, $10,000 bond with semiannual coupons and a price of $9006.6568, if it has a yield to maturity of 6.5%?

Accepted Answer

A)  4.888% 
B)  5.87% 
C)  6.84% 
D)  3.91% 
A)  4.888% 
B)  5.87% 
C)  6.84% 
D)  3.91%

Question 5

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

Accepted Answer

A)  Zero-coupon bonds are also called pure discount bonds. 
B)  The internal rate of return (IRR) of an investment opportunity is the discount rate at which the net present value (NPV) of the investment opportunity is equal to zero. 
C)  The yield to maturity for a zero-coupon bond is the return you will earn as an investor from holding the bond to maturity and receiving the promised face value payment. 
D)  When prices are quoted in the bond market, they are conventionally quoted in increments of $1,000. 
A)  Zero-coupon bonds are also called pure discount bonds. 
B)  The internal rate of return (IRR) of an investment opportunity is the discount rate at which the net present value (NPV) of the investment opportunity is equal to zero. 
C)  The yield to maturity for a zero-coupon bond is the return you will earn as an investor from holding the bond to maturity and receiving the promised face value payment. 
D)  When prices are quoted in the bond market, they are conventionally quoted in increments of $1,000.

Question 6

The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 5 years. The bond certificate indicates that the stated coupon rate for this bond is 10.0% and that the coupon payments are to be made semiannually.
Assuming the appropriate YTM on the Sisyphean bond is 7.5%, then this bond will trade at ________.

Accepted Answer

A)  par 
B)  a discount 
C)  a premium 
D)  none of the above 
A)  par 
B)  a discount 
C)  a premium 
D)  none of the above

Question 7

Which of the following bonds will be most sensitive to a change in interest rates?

Accepted Answer

A)  a ten-year bond with a $2,000 face value whose yield to maturity is 5.8% and coupon rate is 5.8% APR paid semiannually 
B)  a 15-year bond with a $5,000 face value whose yield to maturity is 7.4% and coupon rate is 6.2% APR paid annually 
C)  a 20-year bond with a $3,000 face value whose yield to maturity is 6.0% and coupon rate is 5.4% APR paid semiannually 
D)  a 30-year bond with a $1,000 face value whose yield to maturity is 5.5% and coupon rate is 6.4% APR paid annually 
A)  a ten-year bond with a $2,000 face value whose yield to maturity is 5.8% and coupon rate is 5.8% APR paid semiannually 
B)  a 15-year bond with a $5,000 face value whose yield to maturity is 7.4% and coupon rate is 6.2% APR paid annually 
C)  a 20-year bond with a $3,000 face value whose yield to maturity is 6.0% and coupon rate is 5.4% APR paid semiannually 
D)  a 30-year bond with a $1,000 face value whose yield to maturity is 5.5% and coupon rate is 6.4% APR paid annually

Question 8

Use the figure for the question(s) below.  
-The current zero-coupon yield curve for risk-free bonds is shown above. What is the price of a zero-coupon, four-year, risk-free bond of $100?

Accepted Answer

A)  $85.64 
B)  $87.99 
C)  $92.15 
D)  $96.67 
A)  $85.64 
B)  $87.99 
C)  $92.15 
D)  $96.67

Question 9

The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face value):
 
The yield to maturity for the four-year zero-coupon bond is closest to ________.

Accepted Answer

A)  5.20% 
B)  2.60% 
C)  10.40% 
D)  0.18% 
A)  5.20% 
B)  2.60% 
C)  10.40% 
D)  0.18%

Question 10

Consider a zero-coupon bond with a $1000 face value and 15 years left until maturity. If the bond is currently trading for $431, then the yield to maturity on this bond is closest to ________.

Accepted Answer

A)  2.89% 
B)  56.90% 
C)  43.10% 
D)  5.77% 
A)  2.89% 
B)  56.90% 
C)  43.10% 
D)  5.77%

Question 11

Under what situation should the clean price, dirty price, and the price calculated by the basic annuity and present value (PV) equations for a bond be equal?

Accepted Answer

Typically, while drawing the timeline fo

Question 12

The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 10 years. The bond certificate indicates that the stated coupon rate for this bond is 8.2% and that the coupon payments are to be made semiannually.
Assuming the appropriate YTM on the Sisyphean bond is 7.3%, then the price that this bond trades for will be closest to ________.

Accepted Answer

A)  $1063 
B)  $850 
C)  $1276 
D)  $1488 
A)  $1063 
B)  $850 
C)  $1276 
D)  $1488

Question 13

How can the financial calculator be used to calculate the price of a coupon bond from its yield to maturity?

Accepted Answer

Most popular financial calcula

Question 14

Which of the following bonds is trading at par?

Accepted Answer

A)  a bond with a $2,000 face value trading at $1,987 
B)  a bond with a $1,000 face value trading at $999 
C)  a bond with a $1,000 face value trading at $1,000 
D)  a bond with a $2,000 face value trading at $2,012 
A)  a bond with a $2,000 face value trading at $1,987 
B)  a bond with a $1,000 face value trading at $999 
C)  a bond with a $1,000 face value trading at $1,000 
D)  a bond with a $2,000 face value trading at $2,012

Question 15

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

Accepted Answer

A)  Bonds are securities sold by governments and corporations to raise money from investors today in exchange for a promised future payment. 
B)  By convention, the coupon rate is expressed as an effective annual rate. 
C)  Bonds typically make two types of payments to their holders. 
D)  The time remaining until the repayment date is known as the term of the bond. 
A)  Bonds are securities sold by governments and corporations to raise money from investors today in exchange for a promised future payment. 
B)  By convention, the coupon rate is expressed as an effective annual rate. 
C)  Bonds typically make two types of payments to their holders. 
D)  The time remaining until the repayment date is known as the term of the bond.

Question 16

How are the cash flows of a zero-coupon bond different from those of a coupon bond?

Accepted Answer

A zero-coupon bond has only two cash flo

Question 17

The only cash payment an investor in a zero-coupon bond receives is the face value of the bond on its maturity date.

Accepted Answer

A) True 
 B)False

Question 18

Under what situation can a zero-coupon bond be selling at par to its face value?

Accepted Answer

Unlike a coupon bond, a zero-coupon bond

Question 19

Use the information for the question(s) below.
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 7.0% (annual payments). The following table summarizes the YTM for similar ten-year corporate bonds of various credit ratings:
  
-What rating must Luther receive on these bonds if they want the bonds to be issued at par?

Accepted Answer

A)  A 
B)  B 
C)  BBB 
D)  AA 
A)  A 
B)  B 
C)  BBB 
D)  AA

Question 20

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 BBB rating is closest to ________.

Accepted Answer

A)  112.68 
B)  131.46 
C)  75.12 
D)  93.90 
A)  112.68 
B)  131.46 
C)  75.12 
D)  93.90

Exam 6: Bonds

The credit spread of a bond shrinks if it is perceived that the probability of the issuer defaulting increases.

Bond traders generally quote bond yields rather than bond prices, since yield to maturity depends on the face value of the bond.

Under what situation can a zero-coupon bond be selling at a premium?

What is the coupon rate of an eight-year, $10,000 bond with semiannual coupons and a price of $9006.6568, if it has a yield to maturity of 6.5%?

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

Which of the following bonds will be most sensitive to a change in interest rates?

Use the figure for the question(s) below. -The current zero-coupon yield curve for risk-free bonds is shown above. What is the price of a zero-coupon, four-year, risk-free bond of $100?

The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face value): The yield to maturity for the four-year zero-coupon bond is closest to ________.

Consider a zero-coupon bond with a $1000 face value and 15 years left until maturity. If the bond is currently trading for $431, then the yield to maturity on this bond is closest to ________.

Under what situation should the clean price, dirty price, and the price calculated by the basic annuity and present value (PV) equations for a bond be equal?

How can the financial calculator be used to calculate the price of a coupon bond from its yield to maturity?

Which of the following bonds is trading at par?

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

How are the cash flows of a zero-coupon bond different from those of a coupon bond?

The only cash payment an investor in a zero-coupon bond receives is the face value of the bond on its maturity date.

Under what situation can a zero-coupon bond be selling at par to its face value?

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 BBB rating is closest to ________.

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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