Question 1

The outstanding bonds of International Plastics mature in 6 years and pay semiannual interest payments of $33.50 on a $1,000 face value bond.The bonds are currently selling for $1,008.64.The coupon rate is ________ percent,the current yield is ________ percent,and the yield to maturity is ________ percent.

Accepted Answer

A)  6.70; 6.64; 6.52 
B)  6.70; 6.78; 6.57 
C)  6.64; 6.83; 6.57 
D)  6.55; 6.86; 6.60 
E)  6.55; 6.91; 6.75

Question 2

You are considering two bonds.Both have semi-annual,8 percent coupons,$1,000 face values,and yields to maturity of 7.5 percent.Bond S matures in 4 years and Bond L matures in 8 years.What is the difference in the current prices of these bonds?

Accepted Answer

A)  $10.51 
B)  $11.33 
C)  $11.52 
D)  $12.67 
E)  $12.88

Question 3

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 4

A $1,000 face value bond is selling for $1,016.36.The bond pays interest semiannually and has 3.5 years to maturity.The yield to maturity is 5.48 percent.The current yield is ________ percent and the coupon rate is ________ percent.

Accepted Answer

A)  5.86; 5.90 
B)  5.90; 6.00 
C)  5.90; 5.86 
D)  6.00; 5.90 
E)  6.00; 5.86

Question 5

Which one of the following measures a bond's sensitivity to changes in market interest rates?

Accepted Answer

A)  yield to call 
B)  yield to market 
C)  duration 
D)  immunization 
E)  target date valuation

Question 6

Two bonds have a coupon rate of 4.25 percent,semi-annual payments,face values of $1,000,and yields to maturity of 5.1 percent.Bond S matures in 4 years and bond L 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 7

For a premium bond,the:

Accepted Answer

A)  current yield is equal to the coupon rate but less than the yield to maturity. 
B)  yield to maturity exceeds both the coupon rate and the current yield. 
C)  coupon rate is equal to the yield to maturity but less than the current yield. 
D)  current yield is less than either the coupon rate or the yield to maturity. 
E)  coupon rate exceeds both the yield to maturity and the current yield.

Question 8

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 9

Which one of the following will decrease the current yield of a bond?

Accepted Answer

A)  increase in the face value 
B)  change from semi-annual to annual coupon payments 
C)  decrease in the call premium 
D)  decrease in the coupon rate 
E)  decrease in the bond price

Question 10

A 6 percent,semiannual coupon bond has a yield to maturity of 7.4 percent and a Macaulay duration of 5.7.The bond has a modified duration of ________ and will have a ________ percentage increase in price in response to a 25 basis point decrease in the yield to maturity.

Accepted Answer

A)  5.4829; 1.35 
B)  5.4966; 1.32 
C)  5.4966; 1.37 
D)  5.3073; 1.33 
E)  5.3073; 1.38

Question 11

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 12

Periodically rebalancing a portfolio so that the duration continues to match the target date is called:

Accepted Answer

A)  risk assessment. 
B)  duration testing. 
C)  dedication matching. 
D)  portfolio matching. 
E)  dynamic immunization.

Question 13

Dynamic immunization is primarily aimed at reducing which one of the following risks?

Accepted Answer

A)  default 
B)  liquidity 
C)  reinvestment 
D)  inflation 
E)  taxation

Question 14

Castle's Furniture Outlet is issuing 20-year,8 percent 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 semi-annually.What is the yield to call?

Accepted Answer

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

Question 15

A $1,000 par value 4.75 percent Treasury bond pays interest semiannually and matures in 10.5 years.What is the yield to maturity if the bond is currently quoted at a price of 110.5?

Accepted Answer

A)  1.54 percent 
B)  1.68 percent 
C)  1.77 percent 
D)  3.28 percent 
E)  3.54 percent

Question 16

A dedicated portfolio is a bond portfolio created to:

Accepted Answer

A)  maximize current interest income. 
B)  provide an increasing steady stream of income. 
C)  maximize the return given declining interest rates. 
D)  fund a future cash outlay. 
E)  avoid taxation.

Question 17

Which of the following will increase if the coupon rate increases?
I.face value
II.market value
III.yield-to-maturity
IV.current yield

Accepted Answer

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

Question 18

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 ________ percent,the current yield is ________ percent,and the yield to maturity is ________ percent.

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 19

Which one of the following statements is correct concerning a callable bond that is currently selling below face value? Assume there is no risk of default.Also assume the issuer only calls bonds when they can be refinanced at a lower rate of interest.

Accepted Answer

A)  The bond will most likely be called while the bonds are selling at a discount. 
B)  The yield-to-maturity is presently more relevant to an investor than the yield-to-call. 
C)  The bond is likely going to be called due to the low current interest rates. 
D)  The bond is currently paying a premium. 
E)  The bond issue will most likely be replaced with a new bond issue.

Question 20

The dirty price of a bond is the:

Accepted Answer

A)  invoice price. 
B)  quoted price. 
C)  issue price. 
D)  average of the bid and asked prices. 
E)  dealer purchase price.

Exam 10: Bond Prices and Yields

The outstanding bonds of International Plastics mature in 6 years and pay semiannual interest payments of $33.50 on a $1,000 face value bond.The bonds are currently selling for $1,008.64.The coupon rate is percent,the current yield is percent,and the yield to maturity is percent.