Question 1

A $1,000 face value bond is currently callable at a quoted price of 101.What is the amount of the call premium?

Accepted Answer

A)  $1.00
B)  $) 0101
C)  $10.00
D)  $1.01
E)  $10.10 C

Question 2

A $1,000 face value bond matures in 16 years,pays interest semiannually,and has a market quote of 102.0562.The coupon rate is 5.5 percent,the current yield is ________ percent,and the yield to maturity is ________ percent.

Accepted Answer

A)  5) 39;5.31
B)  5) 61;5.74
C)  5) 42;5.28
D)  5) 78;5.84
E)  5) 44;5.61 A

Question 3

The yield to maturity on a bond is the rate

Accepted Answer

A)  computed as the annual interest divided by the bond's market price.
B)  an investor earns if the bond is sold prior to the maturity date.
C)  of annual interest initially offered when the bond was issued.
D)  of return currently required by the market.
E)  of annual interest paid on the bond. D

Question 4

Roy's Welding's bond has an annual rate of return of 5.97 percent and a face value of $1,000.The current rate of inflation is 3.02 percent.What is the real rate of return on these bonds?

Accepted Answer

A)  3) 31%
B)  2) 86%
C)  3) 09%
D)  3) 48%
E)  2) 94%

Question 5

A crossover bond is a bond that

Accepted Answer

A)  was previously in default but is now current with its debt obligations.
B)  was issued by a non-U.S.entity but is held by a U.S.party.
C)  has both an investment-grade and a low-grade rating.
D)  was issued as investment-grade but is currently rated as low-grade.
E)  is rated by both a U.S.and a non-U.S.rating agency.

Question 6

All else constant,as the market price of a bond increases the current yield ________ and the yield to maturity ________.

Accepted Answer

A)  decreases;decreases
B)  increases;decreases
C)  increases;increases
D)  decreases;increases
E)  remains constant;increases

Question 7

A Treasury bond is quoted at a price of 99.4062 with a current yield of 3.17 percent.What is the coupon rate?

Accepted Answer

A)  3) 315%
B)  3) 068%
C)  3) 151%
D)  3) 077%
E)  3) 102%

Question 8

Interest rate risk ________ as the time to maturity increases.

Accepted Answer

A)  increases at an increasing rate
B)  increases at a decreasing rate
C)  increases at a constant rate
D)  decreases at an increasing rate
E)  decreases at a decreasing rate

Question 9

LIAS Inc.bonds have a face value of $1,000,mature in 17 years,pay interest semiannually,and have a coupon rate of 6.35 percent.The next interest payment will be paid 4 months from today.What is the clean price of this bond if the market rate of return is 6.5 percent?

Accepted Answer

A)  $995.28
B)  $993.40
C)  $989.55
D)  $979.45
E)  $984.70

Question 10

Assume an investor has a tax rate of 33 percent.What municipal bond rate is equivalent to a corporate rate of 7.8 percent for this investor?

Accepted Answer

A)  5) 86%
B)  4) 37%
C)  5) 23%
D)  6) 08%
E)  3) 64%

Question 11

All else constant,a coupon bond that is selling at a premium,must have

Accepted Answer

A)  a yield to maturity that is less than the coupon rate.
B)  a coupon rate that is equal to the yield to maturity.
C)  a market price that is less than par value.
D)  semiannual interest payments.
E)  a coupon rate that is less than the yield to maturity.

Question 12

Floating-rate bonds generally have

Accepted Answer

A)  an unlimited variable rate of interest.
B)  a fixed coupon rate and a variable principal balance.
C)  both a call and a put provision.
D)  both a put provision and a collar.
E)  a collar only on the bond's principal.

Question 13

A zero coupon bond with a face value of $1,000 is issued at an initial price of $474.20 and a 25-year maturity.What is the implicit interest,in dollars,for the first year of the bond's life? Assume semiannual interest.

Accepted Answer

A)  $14.44
B)  $17.58
C)  $14.37
D)  $21.03
E)  $20.25

Question 14

The ________ premium is that portion of a nominal interest rate or bond yield that represents compensation for the possibility of nonpayment by the bond issuer.

Accepted Answer

A)  interest rate risk
B)  taxability
C)  liquidity
D)  inflation
E)  default risk

Question 15

A General Co.bond has a coupon rate of 6 percent and pays interest annually.The face value is $1,000,and the current market price is $1,006.49.The bond matures in 16 years.What is the yield to maturity?

Accepted Answer

A)  6) 08%
B)  5) 94%
C)  6) 11%
D)  6) 03%
E)  5) 97%

Question 16

Last year,Theo purchased a fixed-rate,7-year bond at par that has a coupon rate of 6.5 percent.If the current market rate for this type and quality of bond is 6.8 percent,then he should expect

Accepted Answer

A)  his interest payments to increase.
B)  the bond's yield to maturity to remain constant.
C)  the current yield today to be less than 6.5 percent.
D)  the bond's current market price to exceed its face value.
E)  to realize a capital loss if he sold the bond at today's market price.

Question 17

ABC bonds have a coupon rate of 9 percent,pay interest semiannually,and sell at par.Each of these bonds has a market price of ________ and interest payments of ________.

Accepted Answer

A)  $1,045;$90
B)  $1,045;$45
C)  $1,090;$90
D)  $1,000;$90
E)  $1,000;$45

Question 18

You require a 3.2 percent real rate of return.If the inflation rate is 3.6 percent,what nominal rate must you earn?

Accepted Answer

A)  6) 80%
B)  6) 92%
C)  6) 85%
D)  6) 88%
E)  6) 95%

Question 19

The parts of an indenture that protect the interests of the lender by limiting certain actions that a company might take during the term of the loan are called

Accepted Answer

A)  deferred call provisions.
B)  sinking funds provisions.
C)  protective covenants.
D)  trustee relationships.
E)  bond ratings.

Question 20

A $1,000 face value bond has a bid quote of 100.6794 and a bid-ask spread of 0.0155.If you were to purchase this bond,what clean price would you pay?

Accepted Answer

A)  $1,011.23
B)  $1,004.33
C)  $1,009.18
D)  $1,006.95
E)  $1,008.56

Exam 5: Interest Rates AMCQ Bomcq Valuation