Question 1

A bond has a Macaulay duration of 4.5,a yield to maturity of 5.1 percent,a coupon rate of 6.0 percent,and semiannual interest payments.What is the bond's modified duration?

Accepted Answer

A)  6.11 years 
B)  6.39 years 
C)  6.92 years 
D)  7.06 years 
E)  7.26 years

Question 2

Which one of the following increases the probability that a bond will be called?

Accepted Answer

A)  The call premium is relatively high. 
B)  The bond is within the call protection period. 
C)  The bond was issued within the past year. 
D)  Market interest rates decline. 
E)  The bond is selling at par.

Question 3

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 4

One year ago,you purchased a $1,000 face value bond at a yield to maturity of 9.45 percent.The bond has a 9 percent coupon and pays interest semiannually.When you purchased the bond,it had 12 years left until maturity.You are selling the bond today when the yield to maturity is 8.20 percent.What is your realized yield on this bond?

Accepted Answer

A)  14.54 percent 
B)  15.27 percent 
C)  16.35 percent 
D)  17.60 percent 
E)  18.11 percent

Question 5

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

Question 6

Davidson Industrial bonds have a current market price of $992 and a 5 percent coupon.The bonds pay interest semi-annually on March 1 and September 1.Assume today is January 1.How many months of accrued interest are included in the dirty price of these bonds?

Accepted Answer

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

Question 7

A bond has a face value of $1,000 and a coupon rate of 5.5 percent.What is your annual interest payment if you own 8 of these bonds?

Accepted Answer

A)  $110 
B)  $220 
C)  $330 
D)  $440 
E)  $880

Question 8

All else constant,which of the following will decrease the Macaulay duration of a straight bond?
I.reducing the coupon payment
II.shortening the time to maturity
III.lowering the yield to maturity

Accepted Answer

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

Question 9

The Seaside Inn has bonds outstanding with a par value of $1,000 each and a 4.30 percent coupon.The bonds mature in 7.5 years and pay interest semiannually.What is the current value of each of these bonds if the yield to maturity is 5.0 percent?

Accepted Answer

A)  $938.40 
B)  $956.67 
C)  $988.55 
D)  $1,004.36 
E)  $1,009.47

Question 10

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

Accepted Answer

A)  The current yield is less than the yield to maturity. 
B)  The bonds will be redeemed at maturity for less than face value. 
C)  The coupon rate is greater than the current yield. 
D)  The clean price is greater than the dirty price. 
E)  Only zero-coupon bonds sell at a discount.

Question 11

An 8.5 percent coupon bond pays interest semiannually and has 10.5 years to maturity.The bond has a face value of $1,000 and a market value of $878.50.What is the yield to maturity?

Accepted Answer

A)  5.16 percent 
B)  8.37 percent 
C)  8.78 percent 
D)  10.43 percent 
E)  11.21 percent

Question 12

Last year,you created an immunized portfolio with an average maturity date of 14.5 years,a yield-to-maturity of 9.8 percent,and a duration of 9.6 years.According to the policy of dynamic immunization,you should now modify your portfolio in which one of the following ways?

Accepted Answer

A)  modify the yield-to-maturity to 9.1 percent 
B)  modify the portfolio so the average maturity remains at 14.5 years 
C)  modify the portfolio so the average maturity becomes 13.5 years 
D)  modify the portfolio so the duration remains at 9.6 years 
E)  modify the portfolio so the duration becomes 8.6 years

Question 13

Ferris Metals has bonds outstanding which it is calling today under the make-whole call provision.The bonds mature in 7 years,have a 9 percent coupon,pay interest semiannually,and have a par value of $1,000.What is today's call price given that the applicable discount rate is 7.05 percent?

Accepted Answer

A)  $879.12 
B)  $968.35 
C)  $1,015.55 
D)  $1,106.30 
E)  $1,172.71

Question 14

A $1,000 par value bond is currently valued at $1,050.The bond pays interest semi-annually,has 9 years to maturity,and has a yield to maturity of 7.72 percent.The coupon rate is ________ percent and the current yield is ________ percent.

Accepted Answer

A)  7.80; 6.21 
B)  8.00; 7.31 
C)  8.00; 7.51 
D)  8.08; 7.66 
E)  8.50; 8.10

Question 15

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 16

A callable bond:

Accepted Answer

A)  can be paid off early at either the issuer's or the bondholder's request. 
B)  can be redeemed early if the bondholder so requests. 
C)  can have its maturity date extended by the issuer. 
D)  can be redeemed by the issuer prior to maturity. 
E)  is a bond that pays a variable interest payment.

Question 17

Which one of the following statements is correct concerning Macaulay duration?

Accepted Answer

A)  The duration of a zero coupon bond is equal to the time to maturity. 
B)  Most bonds have durations in excess of 15 years. 
C)  The duration of a coupon bond is a linear function between the time to maturity and the duration. 
D)  The duration of a coupon bond is greater than that of a zero coupon bond given equal maturity dates. 
E)  The percentage change in a bond's price is approximately equal to the change in the yield to maturity multiplied by (-1 × Macaulay duration).

Question 18

Hallmark's Furniture Outlet is issuing 15-year,7.5 percent callable bonds.These bonds are callable in 5 years with a call premium of $37.50.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)  8.12 percent 
C)  9.00 percent 
D)  9.47 percent 
E)  10.08 percent

Question 19

Allen Roofing Materials has 6.5 percent 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 20

A zero-coupon bond has a par value of $1,000 and matures in 6.5 years.The yield to maturity is 5.5 percent.What is the Macaulay duration?

Accepted Answer

A)  5.67 years 
B)  5.81 years 
C)  5.92 years 
D)  6.26 years 
E)  6.50 years

Exam 10: Bond Prices and Yields