Question 1

A semiannual 5.4 percent coupon bond currently sells for par value.What is the maturity on this bond?

Accepted Answer

A) The bond must mature in one year. 
B) The bond could have any maturity date. 
C) The bond must be maturing today. 
D) The bond must mature in 10 years. 
E) The bond must be a perpetual security.

Question 2

Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value?

Accepted Answer

A) Interest rate risk premium 
B) Inflation premium 
C) Liquidity premium 
D) Taxability premium 
E) Default risk premium

Question 3

Bond ratings classify bonds based on:

Accepted Answer

A) liquidity, market, and default risk. 
B) liquidity, interest rate, and default risk. 
C) default risk only. 
D) interest rate, inflation rate, and default risk. 
E) default and liquidity risks.

Question 4

If your nominal rate of return is 8.68 percent and your real rate of return is 2.05 percent, what is the inflation rate?

Accepted Answer

A) 5.32 percent 
B) 6.50 percent 
C) 6.29 percent 
D) 6.63 percent 
E) 16.77 percent

Question 5

The 6.9 percent bond of Peters Pickles has a face value of $1,000, a maturity of 15 years, semiannual interest payments, and a yield to maturity of 7.11 percent.What is the current market price of the bond?

Accepted Answer

A) $990.80 
B) $987.95 
C) $980.82 
D) $1,081.28 
E) $952.60

Question 6

The term structure of interest rates represents the relationship between which of the following?

Accepted Answer

A) Nominal rates on risk-free and risky bonds 
B) Real rates on risk-free and risky bonds 
C) Nominal and real rates on default-free, pure discount bonds 
D) Market and coupon rates on default-free, pure discount bonds 
E) Nominal rates on default-free, pure discount bonds and time to maturity

Question 7

A corporate bond pays 6.25 percent interest.How much would a municipal bond have to pay to be equivalent to this on an after tax basis if you are in the 28 marginal percent tax bracket?

Accepted Answer

A) 7.82 percent 
B) 5.79 percent 
C) 4.50 percent 
D) 7.26 percent 
E) 8.38 percent

Question 8

Municipal bonds are:

Accepted Answer

A) generally purchased by tax-exempt investors. 
B) risk-free. 
C) issued by federal, state, and local governmental bodies. 
D) zero coupon bonds. 
E) generally callable.

Question 9

A fourteen-year, semiannual coupon bond is selling for $ 898.56.The bond has a face value of $1,000 and a yield to maturity of 6.03 percent.What is the coupon rate?

Accepted Answer

A) 9.54 percent 
B) 4.23 percent 
C) 6.03 percent 
D) 4.95 percent 
E) 10.54 percent

Question 10

Miller Farm Products is issuing a 15-year, unsecured bond.Based on this information, you know that this debt can be described as a:

Accepted Answer

A) note. 
B) bearer form bond. 
C) debenture. 
D) registered form bond. 
E) call protected bond.

Question 11

A floating-rate bond frequently has a:

Accepted Answer

A) flexible deferred call period. 
B) fixed yield to maturity but a flexible coupon payment. 
C) government guarantee. 
D) fixed-dollar obligation. 
E) put provision.

Question 12

Phili Manufacturing, Inc.bonds have a face value of $1,000, a coupon rate of 6.5 percent, semiannual interest payments, and mature in 19 years.What is the current price of these bonds if the yield to maturity is 6.65 percent?

Accepted Answer

A) $972.46 
B) $989.56 
C) $983.95 
D) $639.17 
E) $1,001.28

Question 13

The written agreement that contains the specific details related to a bond issue is called the bond:

Accepted Answer

A) indenture. 
B) debenture. 
C) document. 
D) registration statement. 
E) issue paper.

Question 14

A bond trader just purchased and resold a bond.The amount of profit earned by the trader from this purchase and resale is referred to as the:

Accepted Answer

A) market yield. 
B) yield-to-call. 
C) bid-ask spread. 
D) current yield. 
E) bond premium.

Question 15

The 6.4 percent bond of Berberich, Inc.has a yield to maturity of 6.9 percent.The bond matures in eleven years, has a face value of $1,000, and pays semiannual interest payments.What is the amount of each coupon payment?

Accepted Answer

A) $30.00 
B) $32.00 
C) $34.50 
D) $69.00 
E) $64.00

Question 16

The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of those securities.

Accepted Answer

A) face value 
B) market price 
C) maturity 
D) coupon rate 
E) issue date

Question 17

A $1,000 face value bond currently has a yield to maturity of 7.14 percent.The bond matures in sixteen years and pays interest semiannually.The coupon rate is 6.95 percent.What is the current price of this bond?

Accepted Answer

A) $987.42 
B) $988.57 
C) $1,001.52 
D) $982.05 
E) $1,138.63

Question 18

An unexpected decrease in market interest rates will cause a:

Accepted Answer

A) coupon bond's current yield to increase. 
B) zero coupon bond's price to decrease. 
C) fixed-rate bond's coupon rate to decrease. 
D) zero coupon bond's current yield to decrease. 
E) coupon bond's yield to maturity to decrease.

Question 19

Clock and Cane Company.has 6.8 percent, semiannual coupon bonds on the market with twelve years left to maturity.If the bond currently sells for $989.45, what is its YTM?

Accepted Answer

A) 8.02 percent 
B) 7.90 percent 
C) 8.10 percent 
D) 6.93 percent 
E) 6.78 percent

Question 20

The App Store needs to raise $2.8 million for expansion.The firm wants to raise this money by selling 20-year, zero-coupon bonds with a par value of $1,000.The market yield on similar bonds is 6.49 percent.How many bonds must the company sell to raise the money it needs? Assume semiannual compounding.

Accepted Answer

A) 2,800 bonds 
B) 9,450 bonds 
C) 11,508 bonds 
D) 10,315 bonds 
E) 10,044 bonds

Exam 6: Interest Rates and Bond Valuation