Question 1

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 2

A $1,000 par value bond is currently valued at $1,037.84.The bond pays interest semi-annually,has 7 years to maturity,and has a yield to maturity of 7.3 percent.The coupon rate is _____ percent and the current yield is _____ percent.

Accepted Answer

A) 6.80; 7.21 
B) 8.00; 7.71 
C) 8.00; 7.81 
D) 8.50; 8.22 
E) 8.50; 8.30

Question 3

Ted owns a bond which is callable in 2.5 years.The bond has a 6 percent coupon,pays interest semiannually,has a par value of $1,000,and has a yield to call of 6.3 percent.What is the call premium if the bond currently sells for $1,044.54?

Accepted Answer

A) $50 
B) $60 
C) $70 
D) $75 
E) $80

Question 4

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 5

Jefferson-Smith bonds are quoted at a price of $952.42 for a $1,000 face value bond.These bonds have a modified duration of 9.84.What is the dollar value of an 01?

Accepted Answer

A) $0.0977 
B) $0.0963 
C) $0.1028 
D) $0.9372 
E) $0.9767

Question 6

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 7

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 8

Which one of the following statements is correct?

Accepted Answer

A) Investors know the rate of return they will earn with certainty provided they hold bonds until they mature. 
B) Reinvestment risk causes realized yields to differ from promised yields. 
C) Realized yields generally equal promised yields as long as a bond is not called. 
D) Redeeming a bond early helps ensure an investor earns the promised yield. 
E) Realized yields cannot exceed promised yields.

Question 9

Two bonds have a coupon rate of 6.5 percent,semi-annual payments,face values of $1,000,and yields to maturity of 7.1 percent.Bond S matures in 6 years and bond L matures in 12 years.What is the difference in the current prices of these bonds?

Accepted Answer

A) $15.26 
B) $16.19 
C) $17.40 
D) $18.38 
E) $19.02

Question 10

The outstanding bonds of Alpha Extracts have a yield to maturity of 8.4 percent and a modified duration of 10.8.If the yield to maturity instantly decreased to 7.5 percent,the bond's price would increase/decrease by _____ percent.

Accepted Answer

A) -10.08 
B) -9.67 
C) 8.45 
D) 9.72 
E) 10.08

Question 11

Assuming there is no default risk,both a premium bond and a discount bond must share which one of the following characteristics?

Accepted Answer

A) market price less than a par value bond 
B) yield-to-maturity less than the coupon rate 
C) maturity value equal to a par value bond 
D) current yield equal to that of a par value bond 
E) coupon rate exceeding the yield-to-maturity

Question 12

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 13

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 14

Phil owns a 7 percent,semiannual coupon bond that has a face value of $1,000 and matures in 16 years.The bond has a current yield to maturity of 7.1 percent.What will the percentage change in the price of his bond be if interest rates decrease by 50 basis points?

Accepted Answer

A) 4.33 percent 
B) 4.68 percent 
C) 4.91 percent 
D) 5.17 percent 
E) 5.26 percent

Question 15

Josh is saving money to purchase a home in 9 years.Explain why Josh should create a coupon bond portfolio with a duration of 9 years,rather than purchasing coupon bonds that mature in 9 years.

Accepted Answer

The answer of Josh is saving money to purchase a...

Question 16

Alex purchased a $1,000 par value bond one year ago at a price of $1,016.At the time of purchase,the bond had 12 years to maturity and a 5 percent,semiannual coupon.Today,the bond has a yield to maturity of 5.25 percent.What is his realized yield as of today?

Accepted Answer

A) 0.43 percent 
B) 0.86 percent 
C) 1.19 percent 
D) 1.32 percent 
E) 2.60 percent

Question 17

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 18

According to Malkiel's theorems,bond prices and bond yields are:

Accepted Answer

A) inversely related. 
B) uncorrelated. 
C) positively related. 
D) directly related. 
E) independent of each other.

Question 19

Explain the conditions under which an investor should place more reliance on the yield-to-call than on the yield-to-maturity.

Accepted Answer

The answer of Explain the conditions under which an investor...

Question 20

An issuer has a bond outstanding that matures in 18 years.Which one of the following prevents the issuer from buying back that bond today?

Accepted Answer

A) make-whole provision 
B) call protection period 
C) newly issued provision 
D) put provision 
E) call premium

Exam 10: Bond Prices and Yields