Question 1

You own a 6.5%, semiannual coupon bond that matures in 12 years. The par value is $1,000 and the current yield to maturity is 6.4%. What will the percentage change in the price of your bond be if the yield to maturity suddenly increases by 25 basis points?

Accepted Answer

A) −2.04% 
B) −2.11% 
C) −2.26% 
D) −2.31% 
E) −2.44%

Question 2

Allen Roofing Materials has 6.5% bonds outstanding that are currently priced at $1,044 each. The bonds pay interest on December 1 and June 1. What is the dirty price of this bond if today's date is April 1? Assume a 360-day year.

Accepted Answer

A) $1,039.25 
B) $1,051.75 
C) $1,065.67 
D) $1,110.25 
E) $1,124.50

Question 3

A bond has a par value of $1,000, a market price of $1,130, and a coupon rate of 6.5%. What is the current yield?

Accepted Answer

A) 5.68% 
B) 5.71% 
C) 5.75% 
D) 5.78% 
E) 5.83%

Question 4

Sam owns a 12-year, 7% bond with a make-whole call provision that is being called today. Interest is paid semiannually. What is the current call price if the applicable discount rate is 6.50% and the make-whole call provision applies?

Accepted Answer

A) $960.29 
B) $1,000.00 
C) $1,041.22 
D) $1,060.35 
E) $1,069.05

Question 5

Two bonds have a coupon rate of 4.25%, semiannual payments, face values of $1,000, and yields to maturity of 5.1%. Bond D matures in 4 years and bond J matures in 8 years. What is the difference in the current prices of these bonds?

Accepted Answer

A) $24.86 
B) $25.78 
C) $26.40 
D) $27.38 
E) $28.02

Question 6

A bond has a Macaulay duration of 4.0, a yield to maturity of 4.5%, a coupon rate of 5.0%, and semiannual interest payments. What is the bond's modified duration?

Accepted Answer

A) 3.91 years 
B) 4.39 years 
C) 4.41 years 
D) 4.46 years 
E) 4.89 years

Question 7

You want to buy a bond that has a quoted price of $923. The bond pays interest semiannually on April 1 and October 1. The coupon rate is 6%. What is the clean price of this bond if today's date is June 1? Assume a 360-day year.

Accepted Answer

A) $927.62 
B) $923.00 
C) $923.23 
D) $936.85 
E) $1,076.83

Question 8

Which one of the following statements is correct concerning premium bonds?

Accepted Answer

A) The premium increases when interest rates increase. 
B) The coupon rate is less than the current yield. 
C) As the time to maturity decreases, the premium increases. 
D) The yield to maturity is less than the coupon rate. 
E) The par value exceeds the face value.

Question 9

Which one of the following statements applies to a par value bond?

Accepted Answer

A) The current yield is less than the coupon rate. 
B) The yield to maturity equals the risk-free, or Treasury bill, rate. 
C) The par value exceeds the market price. 
D) The current yield, coupon rate, and yield to maturity are equal. 
E) The dirty price equals the clean price.

Question 10

Castle's Furniture Outlet is issuing 20-year, 8% callable bonds. These bonds are callable in 5 years with a call premium of $40. The bonds are being issued at par and pay interest semiannually. What is the yield to call?

Accepted Answer

A) 7.94% 
B) 8.66% 
C) 9.00% 
D) 9.47% 
E) 10.08%

Question 11

Which one of the following statements is correct?

Accepted Answer

A) Investors know the rate of return they will earn with certainty provided they hold bonds until they mature. 
B) Reinvestment risk causes realized yields to differ from promised yields. 
C) Realized yields generally equal promised yields as long as a bond is not called. 
D) Redeeming a bond early helps ensure an investor earns the promised yield. 
E) Realized yields cannot exceed promised yields.

Question 12

A bond has a dollar value of an 01 of .0710. What is the yield value of a 32nd?

Accepted Answer

A) .4008 
B) .4178 
C) .4229 
D) .4347 
E) .4401

Question 13

Two bonds have a coupon rate of 5.25%, semiannual payments, face values of $1,000, and yields to maturity of 6.1%. Bond B matures in 5 years and bond Q matures in 10 years. What is the difference in the current prices of these bonds?

Accepted Answer

A) $25.26 
B) $26.78 
C) $27.40 
D) $28.38 
E) $29.02

Question 14

A bond has a $1,000 par value, semiannual interest payments of $45, and a current market value of $1,045. The bonds mature in 11.5 years. The coupon rate is ________%, the current yield is ________%, and the yield to maturity is ________%.

Accepted Answer

A) 9.00; 8.61; 8.38 
B) 9.00; 8.72; 8.64 
C) 9.00; 8.59; 8.33 
D) 9.50; 8.87; 8.73 
E) 9.50; 9.12; 9.19

Question 15

Which one of the following is the risk that market rates may increase causing the price of a bond to decline?

Accepted Answer

A) inflation risk 
B) reinvestment risk 
C) yield risk 
D) interest rate risk 
E) default risk

Question 16

Which one of the following prices is equal to the present value of a bond's future cash flows and is paid when a bond is redeemed prior to maturity?

Accepted Answer

A) call protected 
B) face value 
C) make-whole call 
D) tender-offer 
E) deferred

Question 17

The price of a bond, net of accrued interest, is referred to as the bond's:

Accepted Answer

A) dirty price. 
B) par value. 
C) clean price. 
D) maturity value. 
E) discount value.

Question 18

The yield that a bond will earn given that it is bought back by the issuer at the earliest possible date is the:

Accepted Answer

A) market yield. 
B) current yield. 
C) yield to maturity. 
D) yield to put. 
E) yield to call.

Question 19

John owns a bond that has a modified duration of 5.29 and a yield to maturity of 6.1%. If interest rates increase by 50 basis points, the bond's price will change by ________.

Accepted Answer

A) −2.65% 
B) −.54% 
C) −.41% 
D) +.41% 
E) +2.65%

Question 20

A bond pays interest semiannually on February 1 and August 1. Assume today is October 1. How many months of accrued interest are included in the clean price of this bond?

Accepted Answer

A) zero 
B) two 
C) three 
D) four 
E) five

Exam 10: Bond Prices and Yields