Question 1

A Treasury bond due in one year has a yield of 5.7%; a Treasury bond due in 5 years has a yield of 6.2%.A bond issued by Ford Motor Company due in 5 years has a yield of 7.5%; a bond issued by Shell Oil due in one year has a yield of 6.5%.The default risk premiums on the bonds issued by Shell and Ford, respectively, are

Accepted Answer

A) 1.0% and 1.2%. 
B) 0.7% and 1.5%. 
C) 1.2% and 1.0%. 
D) 0.8% and 1.3%.

Question 2

A 10% coupon bond maturing in 10 years that requires annual payments is expected to make all coupon payments but to pay only 50% of par value at maturity.What is the expected yield on this bond if the bond is purchased for $975?

Accepted Answer

A) 10.00% 
B) 6.68% 
C) 11.00% 
D) 8.68%

Question 3

A zero-coupon bond has a yield to maturity of 9% and a par value of $1,000.If the bond matures in eight years, the bond should sell for a price of _______ today.

Accepted Answer

A) $422.41 
B) $501.87 
C) $513.16 
D) $483.49

Question 4

You have just purchased a 7-year zero-coupon bond with a yield to maturity of 11% and a par value of $1,000.What would your rate of return at the end of the year be if you sell the bond? Assume the yield to maturity on the bond is 9% at the time you sell.

Accepted Answer

A) 10.00% 
B) 23.8% 
C) 13.8% 
D) 1.4%

Question 5

Of the following five investments, ________ is (are) considered the least risky.

Accepted Answer

A) Treasury bills 
B) corporate bonds 
C) U.S.agency issues 
D) Treasury bonds

Question 6

What should happen to prices of zero-coupon securities as time passes?

Accepted Answer

A) Prices increase. 
B) Prices should approach par value. 
C) Prices decrease. 
D) Prices remain unchanged.

Question 7

The yield to maturity of a 20-year zero-coupon bond that is selling for $372.50 with a value at maturity of $1,000 is

Accepted Answer

A) 5.1%. 
B) 8.8%. 
C) 10.8%. 
D) 13.4%.

Question 8

You have just purchased a 12-year zero-coupon bond with a yield to maturity of 9% and a par value of $1,000.What would your rate of return at the end of the year be if you sell the bond? Assume the yield to maturity on the bond is 10% at the time you sell.

Accepted Answer

A) 10.00% 
B) 20.42% 
C) -1.4% 
D) 1.4%

Question 9

Consider the following $1,000-par-value zero-coupon bonds:  The yield to maturity on bond B is

Accepted Answer

A) 10%. 
B) 11%. 
C) 12%. 
D) 14%.

Question 10

A coupon bond that pays interest annually has a par value of $1,000, matures in eight years, and has a yield to maturity of 9%.The intrinsic value of the bond today will be ______ if the coupon rate is 6%.

Accepted Answer

A) $833.96 
B) $620.92 
C) $1,123.01 
D) $886.28

Question 11

A convertible bond has a par value of $1,000 and a current market value of $1,150.The current price of the issuing firm's stock is $65, and the conversion ratio is 15 shares.The bond's conversion premium is

Accepted Answer

A) $40. 
B) $150. 
C) $175. 
D) $200.

Question 12

Altman's Z scores are assigned based on a firm's financial characteristics and are used to predict

Accepted Answer

A) required coupon rates for new bond issues. 
B) bankruptcy risk. 
C) the likelihood of a firm becoming a takeover target. 
D) the probability of a bond issue being called.

Question 13

A coupon bond pays annual interest, has a par value of $1,000, matures in four years, has a coupon rate of 8.25%, and has a yield to maturity of 8.64%.The current yield on this bond is

Accepted Answer

A) 8.65%. 
B) 8.45%. 
C) 7.95%. 
D) 8.36%.

Question 14

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in seven years, and has a yield to maturity of 9.3%.The intrinsic value of the bond today will be ________ if the coupon rate is 9.5%.

Accepted Answer

A) $922.77 
B) $1,010.12 
C) $1,075.80 
D) $1,077.22

Question 15

Consider the following $1,000-par-value zero-coupon bonds:  The yield to maturity on bond A is

Accepted Answer

A) 10%. 
B) 11%. 
C) 12%. 
D) 14%.

Question 16

The process of retiring high-coupon debt and issuing new bonds at a lower coupon to reduce interest payments is called

Accepted Answer

A) deferral. 
B) reissue. 
C) repurchase. 
D) refunding.

Question 17

You purchased an annual interest coupon bond one year ago that had nine years remaining to maturity at that time.The coupon interest rate was 10%, and the par value was $1,000.At the time you purchased the bond, the yield to maturity was 8%.If you sold the bond after receiving the first interest payment and the yield to maturity continued to be 8%, your annual total rate of return on holding the bond for that year would have been

Accepted Answer

A) 8.00%. 
B) 7.82%. 
C) 7.00%. 
D) 11.95%.

Question 18

If a 7.5% coupon bond is trading for $1,050.00, it has a current yield of

Accepted Answer

A) 7.0%. 
B) 7.4%. 
C) 7.1%. 
D) 6.9%.

Question 19

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in five years, and has a yield to maturity of 10%.The intrinsic value of the bond today will be ________ if the coupon rate is 12%.

Accepted Answer

A) $922.77 
B) $924.16 
C) $1,075.80 
D) $1,077.22

Question 20

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in seven years, and has a yield to maturity of 11%.The intrinsic value of the bond today will be __________ if the coupon rate is 8.8%.

Accepted Answer

A) $922.78 
B) $894.51 
C) $1,075.80 
D) $1,077.20

Exam 14: Bond Prices and Yields