Question 1

A coupon bond is reported as having an ask price of 113% of the $1,000 par value in the Wall Street Journal.If the last interest payment was made two months ago and the coupon rate is 12%, the invoice price of the bond will be

Accepted Answer

A) $1,100. 
B) $1,110. 
C) $1,150. 
D) $1,160.

Question 2

To earn a high rating from the bond-rating agencies, a firm should have

Accepted Answer

A) a low times-interest-earned ratio. 
B) a low debt-to-equity ratio. 
C) a high quick ratio. 
D) a low debt-to-equity ratio and a high quick ratio.

Question 3

A coupon bond that pays interest 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) $1,075.82 
D) $1,077.20

Question 4

A coupon bond pays annual interest, has a par value of $1,000, matures in 12 years, has a coupon rate of 11%, and has a yield to maturity of 12%.The current yield on this bond is

Accepted Answer

A) 10.39%. 
B) 10.43%. 
C) 10.58%. 
D) 11.73%.

Question 5

A coupon bond pays interest semi-annually, matures in five years, has a par value of $1,000, a coupon rate of 12%, and an effective annual yield to maturity of 10.25%.The price the bond should sell for today is

Accepted Answer

A) $922.77. 
B) $924.16. 
C) $1,075.80. 
D) $1,077.20.

Question 6

A Treasury bond due in one year has a yield of 4.3%; a Treasury bond due in five years has a yield of 5.06%.A bond issued by Boeing due in five years has a yield of 7.63%; a bond issued by Caterpillar due in one year has a yield of 7.16%.The default risk premiums on the bonds issued by Boeing and Caterpillar, respectively, are

Accepted Answer

A) 3.33% and 2.10%. 
B) 2.57% and 2.86%. 
C) 1.2% and 1.0%. 
D) 0.76% and 0.47%.

Question 7

The ______ is a measure of the average rate of return an investor will earn if the investor buys the bond now and holds until maturity.

Accepted Answer

A) current yield 
B) dividend yield 
C) P/E ratio 
D) yield to maturity

Question 8

A bond has a par value of $1,000, a time to maturity of 20 years, a coupon rate of 10% with interest paid annually, a current price of $850, and a yield to maturity of 12%.Intuitively and without using calculations, if interest payments are reinvested at 10%, the realized compound yield on this bond must be

Accepted Answer

A) 10.00%. 
B) 10.9%. 
C) 12.0%. 
D) 12.4%.

Question 9

A convertible bond has a par value of $1,000 and a current market price of $1,105.The current price of the issuing firm's stock is $20, and the conversion ratio is 35 shares.The bond's market conversion value is

Accepted Answer

A) $700. 
B) $810. 
C) $870. 
D) $1,000.

Question 10

If a 6.75% coupon bond is trading for $1,016.00, it has a current yield of

Accepted Answer

A) 7.38%. 
B) 6.64%. 
C) 7.25%. 
D) 8.53%.

Exam 14: Bond Prices and Yields