Question 1

The $1,000 face value bonds of Shonesy International have a 7.5 percent coupon and pay interest annually.Currently,the bonds are quoted at 95.27 and mature in 3.5 years.What is the yield to maturity?

Accepted Answer

A)  7.88 percent
B)  8.02 percent
C)  8.18 percent
D)  8.79 percent
E)  9.14 percentF) B) and E)
G) B) and C)

Question 2

The inflation premium:

Accepted Answer

A)  increases the real return.
B)  is inversely related to the time to maturity.
C)  remains constant over time.
D)  rewards investors for accepting interest rate risk.
E)  compensates investors for expected price increases.F) B) and C)
G) B) and E)

Question 3

Dexter,Inc.has a bond issue outstanding.The issue's indenture provision prohibits the firm from redeeming the bonds during the first three years.This provision is referred to as the _____ provision.

Accepted Answer

A)  safeguard
B)  market
C)  liquidity
D)  deferred call
E)  sinking fundF) A) and D)
G) B) and E)

Question 4

The value of a bond is dependent on the:

Accepted Answer

A)  coupon rate and the current yield.
B)  coupon rate and the yield to maturity.
C)  current yield and the yield to maturity.
D)  coupon rate but neither the current yield nor the yield to maturity.
E)  yield to maturity but neither the current yield nor the coupon rate.F) B) and D)
G) A) and E)

Question 5

A corporate bond pays 6 percent interest.How much would a municipal bond have to pay to be equivalent to this on an after-tax basis if you are in the 15 percent tax bracket?

Accepted Answer

A)  3.96 percent
B)  4.28 percent
C)  5.10 percent
D)  9.75 percent
E)  11.47 percentF) A) and B)
G) B) and E)

Question 6

What term is used to describe an account that a bond trustee manages for the sole purpose of redeeming bonds early?

Accepted Answer

A)  Registered account
B)  Bearer account
C)  Call account
D)  Sinking fund
E)  Premium fundF) A) and B)
G) B) and D)

Question 7

A bond has an 8 percent coupon rate,a face value of $1,000,semiannual payments,and sells at par.The current yield is _____ percent and the effective annual yield is _____ percent.

Accepted Answer

A)  6.76; 6.87
B)  6.76; 6.96
C)  7.00; 7.00
D)  8.00; 8.16
E)  7.23; 7.23F) C) and D)
G) A) and B)

Question 8

If Treasury bills are currently paying 3.2 percent and the inflation rate is 2.8 percent,what is the approximate real rate of interest? The exact real rate?

Accepted Answer

A)  0.40 percent; 3.89 percent
B)  0.40 percent; 3.98 percent
C)  6.00 percent; 5.67 percent
D)  6.00 percent; 5.87 percent
E)  6.00 percent; 5.92 percentF) B) and E)
G) B) and D)

Question 9

You purchase a bond with an invoice price of $1,120.The bond has a coupon rate of 8.5 percent,semiannual coupons,and there are three months to the next coupon date.What is the clean price of the bond?

Accepted Answer

A)  $1,086.35
B)  $1,098.75
C)  $1,105.20
D)  $1,132.50
E)  $1,157.50F) B) and C)
G) A) and B)

Question 10

The price at which an investor can purchase a bond from a dealer is called the _____ price.

Accepted Answer

A)  asked
B)  coupon
C)  call
D)  face
E)  bidF) B) and E)
G) D) and E)

Question 11

A $1,000 face value bond currently has a yield to maturity of 6.69 percent.The bond matures in three years and pays interest annually.The coupon rate is 7 percent.What is the current price of this bond?

Accepted Answer

A)  $948.01
B)  $949.60
C)  $1,005.26
D)  $1,008.18
E)  $1,010.13F) B) and D)
G) None of the above

Question 12

Over the next three years,you expect the rate of inflation to decrease,but yet remain positive.After that,you expect inflation to increase steadily for the next several years.Draw a term structure of interest rates graph based on this assumption and identify all the components of that structure.

Accepted Answer

The term structure (nominal rate)should ...

Question 13

A real rate of return is defined as a rate that has been adjusted for which one of the following?

Accepted Answer

A)  Inflation
B)  Interest rate risk
C)  Taxes
D)  Liquidity
E)  Default riskF) A) and B)
G) A) and C)

Question 14

Which one of the following statements is true?

Accepted Answer

A)  The current yield on a par value bond will exceed the bond's yield to maturity.
B)  The yield to maturity on a premium bond exceeds the bond's coupon rate.
C)  The current yield on a premium bond is equal to the bond's coupon rate.
D)  A premium bond has a current yield that exceeds the bond's coupon rate.
E)  A discount bond has a coupon rate that is less than the bond's yield to maturity.F) D) and E)
G) B) and C)

Question 15

List the various determinants of bond yields and indicate the type of situation that would cause each determinant to increase the yield on a bond.

Accepted Answer

The answer of List the various determinants of bond yields...

Question 16

Zero coupon bonds:

Accepted Answer

A)  are valued using simple interest.
B)  are issued only by the U.S. Treasury.
C)  create a tax deduction for the issuer only at maturity.
D)  are issued at a premium.
E)  create annual taxable income to individual bondholders.F) A) and C)
G) A) and B)

Question 17

A $100,000 Treasury bond has a bid price quote of 115.20 and an asked quote of 115.23.In dollars,what is the value of the bid-ask spread on this bond?

Accepted Answer

A)  $0.93
B)  $9.36
C)  $93.75
D)  $937.50
E)  $9,375.00F) C) and D)
G) A) and E)

Question 18

When a bond's yield to maturity is less than the bond's coupon rate,the bond:

Accepted Answer

A)  had to be recently issued.
B)  is selling at a premium.
C)  has reached its maturity date.
D)  is priced at par.
E)  is selling at a discount.F) A) and C)
G) A) and E)

Question 19

The App Store needs to raise $2.2 million for an expansion project.The firm wants to raise this money by selling zero coupon bonds with a par value of $1,000 that mature in 20 years.The market yield on similar bonds is 8.8 percent.How many bonds must The App Store sell to raise the money it needs? (Assume semiannual compounding.)

Accepted Answer

A)  2,200 bonds
B)  3,450 bonds
C)  11,508 bonds
D)  11,797 bonds
E)  12,315 bondsF) A) and B)
G) B) and E)

Question 20

If inflation is expected to steadily decrease in the future,the term structure of interest rates will most likely be:

Accepted Answer

A)  upward sloping.
B)  flat.
C)  humped.
D)  downward sloping.
E)  double-humped.F) A) and B)
G) All of the above

Exam 6: Interest Rates and Bond Valuation

Zero coupon bonds:

Correct Answer
verified

Over the next three years,you expect the rate of inflation to decrease,but yet remain positive.After that,you expect inflation to increase steadily for the next several years.Draw a term structure of interest rates graph based on this assumption and identify all the components of that structure.

Correct Answer
verified
The term structure (nominal rate)should ...
View Answer

A $100,000 Treasury bond has a bid price quote of 115.20 and an asked quote of 115.23.In dollars,what is the value of the bid-ask spread on this bond?

Correct Answer
verified

A corporate bond pays 6 percent interest.How much would a municipal bond have to pay to be equivalent to this on an after-tax basis if you are in the 15 percent tax bracket?

Correct Answer
verified

The value of a bond is dependent on the:

Correct Answer
verified

When a bond's yield to maturity is less than the bond's coupon rate,the bond:

Correct Answer
verified

Dexter,Inc.has a bond issue outstanding.The issue's indenture provision prohibits the firm from redeeming the bonds during the first three years.This provision is referred to as the _____ provision.

Correct Answer
verified

You purchase a bond with an invoice price of $1,120.The bond has a coupon rate of 8.5 percent,semiannual coupons,and there are three months to the next coupon date.What is the clean price of the bond?

Correct Answer
verified

The inflation premium:

Correct Answer
verified

If Treasury bills are currently paying 3.2 percent and the inflation rate is 2.8 percent,what is the approximate real rate of interest? The exact real rate?

Correct Answer
verified

The price at which an investor can purchase a bond from a dealer is called the _____ price.

Correct Answer
verified

Correct Answer
verified

If inflation is expected to steadily decrease in the future,the term structure of interest rates will most likely be:

Correct Answer
verified

A real rate of return is defined as a rate that has been adjusted for which one of the following?

Correct Answer
verified

What term is used to describe an account that a bond trustee manages for the sole purpose of redeeming bonds early?

Correct Answer
verified

A $1,000 face value bond currently has a yield to maturity of 6.69 percent.The bond matures in three years and pays interest annually.The coupon rate is 7 percent.What is the current price of this bond?

Correct Answer
verified

The $1,000 face value bonds of Shonesy International have a 7.5 percent coupon and pay interest annually.Currently,the bonds are quoted at 95.27 and mature in 3.5 years.What is the yield to maturity?

Correct Answer
verified

A bond has an 8 percent coupon rate,a face value of $1,000,semiannual payments,and sells at par.The current yield is _ percent and the effective annual yield is _ percent.

Correct Answer
verified

Which one of the following statements is true?

Correct Answer
verified

List the various determinants of bond yields and indicate the type of situation that would cause each determinant to increase the yield on a bond.

Correct Answer
verified

Exam 6: Interest Rates and Bond Valuation

Zero coupon bonds:

Correct AnswerverifiedShow Answer

Over the next three years,you expect the rate of inflation to decrease,but yet remain positive.After that,you expect inflation to increase steadily for the next several years.Draw a term structure of interest rates graph based on this assumption and identify all the components of that structure.

Correct AnswerverifiedThe term structure (nominal rate)should ...View AnswerShow Answer

A $100,000 Treasury bond has a bid price quote of 115.20 and an asked quote of 115.23.In dollars,what is the value of the bid-ask spread on this bond?

Correct AnswerverifiedShow Answer

A corporate bond pays 6 percent interest.How much would a municipal bond have to pay to be equivalent to this on an after-tax basis if you are in the 15 percent tax bracket?

Correct AnswerverifiedShow Answer

The value of a bond is dependent on the:

Correct AnswerverifiedShow Answer

When a bond's yield to maturity is less than the bond's coupon rate,the bond:

Correct AnswerverifiedShow Answer

Dexter,Inc.has a bond issue outstanding.The issue's indenture provision prohibits the firm from redeeming the bonds during the first three years.This provision is referred to as the _____ provision.

Correct AnswerverifiedShow Answer

You purchase a bond with an invoice price of $1,120.The bond has a coupon rate of 8.5 percent,semiannual coupons,and there are three months to the next coupon date.What is the clean price of the bond?

Correct AnswerverifiedShow Answer

The inflation premium:

Correct AnswerverifiedShow Answer

If Treasury bills are currently paying 3.2 percent and the inflation rate is 2.8 percent,what is the approximate real rate of interest? The exact real rate?

Correct AnswerverifiedShow Answer

The price at which an investor can purchase a bond from a dealer is called the _____ price.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If inflation is expected to steadily decrease in the future,the term structure of interest rates will most likely be:

Correct AnswerverifiedShow Answer

A real rate of return is defined as a rate that has been adjusted for which one of the following?

Correct AnswerverifiedShow Answer

What term is used to describe an account that a bond trustee manages for the sole purpose of redeeming bonds early?

Correct AnswerverifiedShow Answer

A $1,000 face value bond currently has a yield to maturity of 6.69 percent.The bond matures in three years and pays interest annually.The coupon rate is 7 percent.What is the current price of this bond?

Correct AnswerverifiedShow Answer

The $1,000 face value bonds of Shonesy International have a 7.5 percent coupon and pay interest annually.Currently,the bonds are quoted at 95.27 and mature in 3.5 years.What is the yield to maturity?

Correct AnswerverifiedShow Answer

A bond has an 8 percent coupon rate,a face value of $1,000,semiannual payments,and sells at par.The current yield is _____ percent and the effective annual yield is _____ percent.

Correct AnswerverifiedShow Answer

Which one of the following statements is true?

Correct AnswerverifiedShow Answer

List the various determinants of bond yields and indicate the type of situation that would cause each determinant to increase the yield on a bond.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
The term structure (nominal rate)should ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

A bond has an 8 percent coupon rate,a face value of $1,000,semiannual payments,and sells at par.The current yield is _ percent and the effective annual yield is _ percent.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified