Question 1

You purchased an annual interest coupon bond one year ago with 6 years remaining to maturity at the time of purchase.The coupon interest rate is 10% and par value is $1,000.At the time you purchased the bond,the yield to maturity was 8%.If you sold the bond after receiving the first interest payment and the bond's yield to maturity had changed to 7%,your annual total rate of return on holding the bond for that year would have been _________.

Accepted Answer

A)   7.00%
B)   8.00%
C)   9.95%
D)   11.95%
E)   none of these D

Question 2

Subordination clauses in bond indentures

Accepted Answer

A)   may restrict the amount of additional borrowing the firm can undertake.
B)   are sometimes referred to as "me-first" rules.
C)   provide higher priority to senior creditors in the event of bankruptcy.
D)   all of these are true.
E)   both b and c are true. D

Question 3

A 12% coupon bond,semiannual payments,is callable in 5 years.The call price is $1,120;if the bond is selling today for $1,110,what is the yield to call?

Accepted Answer

A)   12.03%.
B)   10.86%.
C)   10.95%.
D)   9.14%.
E)   none of these. C

Question 4

A convertible bond has a par value of $1,000 and a current market price of $850.The current price of the issuing firm's stock is $29 and the conversion ratio is 30 shares.The bond's market conversion value is ______.

Accepted Answer

A)   $729
B)   $810
C)   $870
D)   $1,000
E)   none of these

Question 5

A Treasury bill with a par value of $100,000 due one month from now is selling today for $99,010.The effective annual yield is __________.

Accepted Answer

A)   12.40%
B)   12.55%
C)   12.62%
D)   12.68%
E)   none of these

Question 6

A convertible bond has a par value of $1,000 and a current market value of $850.The current price of the issuing firm's stock is $27 and the conversion ratio is 30 shares.The bond's conversion premium is _________.

Accepted Answer

A)   $40
B)   $150
C)   $190
D)   $200
E)   none of these

Question 7

You purchased an annual interest coupon bond one year ago that had 9 years remaining to maturity at that time.The coupon interest rate was 10% and the par value was $1,000.At the time you purchased the bond,the yield to maturity was 8%.If you sold the bond after receiving the first interest payment and the yield to maturity continued to be 8%,your annual total rate of return on holding the bond for that year would have been _________.

Accepted Answer

A)   8.00%
B)   7.82%
C)   7.00%
D)   11.95%
E)   None of these is correct.

Question 8

RRB are

Accepted Answer

A)   securities formed from the coupon payments only of government bonds.
B)   securities formed from the principal payments only of government bonds.
C)   government bonds with par value linked to the general level of prices.
D)   government bonds with coupon rate linked to the general level of prices.
E)   zero-coupon government bonds.

Question 9

Of the following four investments,________ is considered to be the safest.

Accepted Answer

A)   commercial paper
B)   corporate bonds
C)   Treasury bills
D)   Treasury bonds
E)   U.S.Agency issues

Question 10

A Treasury bill with a par value of $100,000 due two months from now is selling today for $98,039,with an effective annual yield of _________.

Accepted Answer

A)   12.40%
B)   12.55%
C)   12.62%
D)   12.68%
E)   none of these

Question 11

Which one of the following statements about convertibles is true?

Accepted Answer

A)   The longer the call protection on a convertible,the less the security is worth.
B)   The more volatile the underlying stock,the greater the value of the conversion feature.
C)   The smaller the spread between the dividend yield on the stock and the yield-to-maturity on the bond,the more the convertible is worth.
D)   The collateral that is used to secure a convertible bond is one reasons convertibles are more attractive than the underlying stock.
E)   Convertibles are not callable.

Question 12

A coupon bond is reported as having an ask price of 113% of the $1,000 par value.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
E)   none of these

Question 13

A coupon bond that pays interest annually has a par value of $1,000,matures in 5 years,and has a yield to maturity of 10%.The intrinsic value of the bond today will be ______ if the coupon rate is 7%.

Accepted Answer

A)   $712.99
B)   $620.92
C)   $1,123.01
D)   $886.28
E)   $1,000.00

Question 14

A bond will sell at a discount when __________.

Accepted Answer

A)   the coupon rate is greater than the current yield and the current yield is greater than yield to maturity
B)   the coupon rate is greater than yield to maturity
C)   the coupon rate is less than the current yield and the current yield is greater than the yield to maturity
D)   the coupon rate is less than the current yield and the current yield is less than yield to maturity
E)   none of these are true.

Question 15

The _________ is used to calculate the present value of a bond.

Accepted Answer

A)   nominal yield
B)   current yield
C)   yield to maturity
D)   yield to call
E)   none of these

Question 16

The invoice price of a bond that a buyer would pay is equal to

Accepted Answer

A)   the asked price plus accrued interest.
B)   the asked price less accrued interest.
C)   the bid price plus accrued interest.
D)   the bid price less accrued interest.
E)   the bid price.

Question 17

The bond market

Accepted Answer

A)   can be quite "thin".
B)   primarily consists of a network of bond dealers in the over the counter market.
C)   consists of many investors on any given day.
D)   a and b.
E)   b and c.

Question 18

One year ago,you purchased a newly issued real return bond that has a 6% coupon rate,five years to maturity,and a par value of $1,000.The average inflation rate over the year was 4.2%.What is the amount of the coupon payment you will receive and what is the current face value of the bond?

Accepted Answer

A)   $60.00,$1,000
B)   $42.00,$1,042
C)   $60.00,$1,042
D)   $62.52,$1,042
E)   $102.00,$1,000

Question 19

Consider the following $1,000 par value zero-coupon bonds: $$\begin{array} { l c c } 
\text { Bond } &\text { Years to Maturity } & \text { Price } \
\hline \text { A } & 1 & \$ 909.09 \
\text { B } & 2 & \$ 811.62 \
\text { C } & 3 & \$ 711.78 \
\text { D } & 4 & \$ 635.52
\end{array}$$
The yield to maturity on bond C is ____________.

Accepted Answer

A)   10%
B)   11%
C)   12%
D)   14%
E)   none of these

Question 20

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 the use 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%
E)   none of these

Exam 12: Macroeconomic and Industry Analysis