Question 1

The Lo Sun Corporation offers a 8% bond with a current market price of $875.05. The yield to maturity is 9.18%. The face value is $1,000. Interest is paid semiannually. How many years is it until this bond matures?

Accepted Answer

A)  40 years 
B)  52 years 
C)  60 years 
D)  65 years 
E)  80 years

Question 2

The principal amount of a bond that is repaid at the end of the loan term is called the bond's:

Accepted Answer

A)  coupon. 
B)  face value. 
C)  maturity. 
D)  yield to maturity. 
E)  coupon ratE.

Question 3

If its yield to maturity is less than its coupon rate,a bond will sell at a _____,and increases in market interest rates will _____.

Accepted Answer

A)  discount; decrease this discount 
B)  discount; increase this discount 
C)  premium; decrease this premium 
D)  premium; increase this premium 
E)  None of these.

Question 4

Consider a bond which pays 8% semiannually and has 8 years to maturity. The market requires an interest rate of 10% on bonds of this risk. What is this bond's price?

Accepted Answer

A)  $530.58 
B)  $891.62 
C)  $893.30 
D)  $3129.17 
E)  None of these.

Question 5

The relationship between nominal rates,real rates,and inflation is known as the:

Accepted Answer

A)  Miller and Modigliani theorem. 
B)  Fisher effect. 
C)  Gordon growth model. 
D)  term structure of interest rates. 
E)  interest rate risk premium.

Question 6

All else constant,a bond will sell at _____ when the yield to maturity is _____ the coupon rate.

Accepted Answer

A)  a premium; higher than 
B)  a premium; equal to 
C)  at par; higher than 
D)  at par; less than 
E)  a discount; higher than

Question 7

Moonhigh,Inc. has a 5%,semiannual coupon bond with a current market price of $988.52. The bond has a par value of $1,000 and a yield to maturity of 5.29%. How many years is it until this bond matures?

Accepted Answer

A)  4.0 years 
B)  4.5 years 
C)  6.5 years 
D)  8.0 years 
E)  9.0 years

Question 8

Aspens is preparing a bond offering with an 8% coupon rate. The bonds will be repaid in 10 years. The company plans to issue the bonds at par value and pay interest semiannually. Given this,which of the following statements are correct?
I. The initial selling price of each bond will be $1,000.
II. After the bonds have been outstanding for 1 year,you should use 9 as the number of compounding periods when calculating the market value of the bond.
III. Each interest payment per bond will be $40.
IV. The yield to maturity when the bonds are first issued is 8%.

Accepted Answer

A)  I and II only 
B)  II and III only 
C)  II, III, and IV only 
D)  I, II, and III only 
E)  I, III, and IV only

Question 9

The "EST SPREAD" shown in The Wall Street Journal listing of corporate bonds represents the estimated:

Accepted Answer

A)  yield to maturity. 
B)  difference between the current yield and the yield to maturity. 
C)  difference between the bond's yield and the yield of a particular Treasury issue. 
D)  range of yields to maturity provided by the bond over its life to date. 
E)  difference between the yield to call and the yield to maturity.

Question 10

Moonhigh,Inc. has a 6%,semiannual coupon bond with a current market price of $988.52. The bond has a par value of $1,000 and a yield to maturity of 6.31%. How many years is it until this bond matures?

Accepted Answer

A)  4.0 years 
B)  4.28 years 
C)  6.32 years 
D)  8.56 years 
E)  9.0 years

Question 11

Guggenheim,Inc. offers a 9% coupon bond with annual payments. The yield to maturity is 8.13% and the maturity date is 9 years. What is the market price of a $1,000 face value bond?

Accepted Answer

A)  $833.41 
B)  $982.12 
C)  $1000.00 
D)  $1,054.06 
E)  $1,056.13

Question 12

Why do corporations issue 100-year bonds,knowing that interest rate risk is highest for very long-term bonds?
 How does the interest rate risk affect the issuer?

Accepted Answer

The answer of Why do corporations issue 100-year bonds,knowing that...

Question 13

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

Accepted Answer

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

Question 14

The bonds of Jerrod's Welding,Inc. pay an 8% coupon,have a 7.98% yield to maturity and have a face value of $1,000. The current rate of inflation is 2.5%. What is the real rate of return on these bonds?

Accepted Answer

A)  5.32% 
B)  5.35% 
C)  5.37% 
D)  5.42% 
E)  5.48%

Question 15

A bond that makes no coupon payments and is initially priced at a deep discount is called a _____ bond.

Accepted Answer

A)  Treasury 
B)  municipal 
C)  floating-rate 
D)  junk 
E)  zero coupon

Question 16

Face value is:

Accepted Answer

A)  always higher than current price. 
B)  always lower than current price. 
C)  the same as the current price. 
D)  the coupon amount. 
E)  None of these.

Question 17

A bond is listed in The Wall Street Journal as a 12 3/4s of July 2009. This bond pays:

Accepted Answer

A)  $127.50 in July and January. 
B)  $63.75 in July and January. 
C)  $127.50 in July. 
D)  $63.75 in July. 
E)  None of these.

Question 18

You own a bond that has a 7% coupon and matures in 12 years. You purchased this bond at par value when it was originally issued. If the current market rate for this type and quality of bond is 7.5%,then you would expect:

Accepted Answer

A)  the bond issuer to increase the amount of each interest payment on these bonds. 
B)  the yield to maturity to remain constant due to the fixed coupon rate. 
C)  to realize a capital loss if you sold the bond at the market price today. 
D)  today's market price to exceed the face value of the bond. 
E)  the current yield today to be less than 7%.

Question 19

The total interest paid on a zero-coupon bond is equal to:

Accepted Answer

A)  zero. 
B)  the face value minus the issue price. 
C)  the face value minus the market price on the maturity date. 
D)  $1,000 minus the face value. 
E)  $1,000 minus the par valuE.

Question 20

The discussion of asset pricing in the text suggests that an investor will be indifferent between two bonds which have equal yields to maturity as long as they have equivalent default risk. Can you think of any real-world factors which might make a given investor prefer one of these bonds over the other?

Accepted Answer

The answer of The discussion of asset pricing in the...

Exam 8: Interest Rates and Bond Valuation