Question 1

A zero coupon bond with a face value of $1,000 is issued with an initial price of $212.56. The bond matures in 25 years. What is the implicit interest, in dollars, for the first year of the bond's life?

Accepted Answer

A)  $12.72
B)  $13.58
C)  $13.90
D)  $15.63
E)  $15.89F) A) and E)
G) C) and D)

Question 2

Which one of the following risks would a floating-rate bond tend to have less of as compared to a fixed-rate coupon bond?

Accepted Answer

A)  real rate risk
B)  interest rate risk
C)  default risk
D)  liquidity risk
E)  taxability riskF) C) and D)
G) A) and D)

Question 3

An indenture is:

Accepted Answer

A)  another name for a bond's coupon.
B)  the written record of all the holders of a bond issue.
C)  a bond that is past its maturity date but has yet to be repaid.
D)  a bond that is secured by the inventory held by the bond's issuer.
E)  the legal agreement between the bond issuer and the bondholders.F) D) and E)
G) A) and E) E

Question 4

A "fallen angel" is a bond that has moved from:

Accepted Answer

A)  being publicly traded to being privately traded.
B)  being a long-term obligation to being a short-term obligation.
C)  having a yield-to-maturity in excess of the coupon rate to having a yield-to- maturity that is less than the coupon rate.
D)  senior status to junior status for liquidation purposes.
E)  investment grade to speculative grade.F) C) and D)
G) A) and D)

Question 5

Protective covenants:

Accepted Answer

A)  apply to short-term debt issues but not to long-term debt issues.
B)  only apply to privately issued bonds.
C)  are a feature found only in government-issued bond indentures.
D)  only apply to bonds that have a deferred call provision.
E)  are primarily designed to protect bondholders.F) B) and E)
G) A) and B)

Question 6

Dexter Mills issued 20-year bonds a year ago at a coupon rate of 11.4 percent. The bonds make semiannual payments. The yield-to-maturity on these bonds is 9.2 percent. What is the current bond price?

Accepted Answer

A)  $985.55
B)  $991.90
C)  $1,192.16
D)  $1,195.84
E)  $1,198.00F) B) and C)
G) B) and D)

Question 7

The yield to maturity on a bond is currently 8.46 percent. The real rate of return is 3.22 percent. What is the rate of inflation?

Accepted Answer

A)  5.08 percent
B)  5.64 percent
C)  6.24 percent
D)  6.53 percent
E)  6.71 percentF) A) and B)
G) A) and C) A

Question 8

Roadside Markets has a 6.75 percent coupon bond outstanding that matures in 10.5 years. The bond pays interest semiannually. What is the market price per bond if the face value is $1,000 and the yield to maturity is 6.69 percent?

Accepted Answer

A)  $999.80
B)  $999.85
C)  $1,003.42
D)  $1,004.47
E)  $1,007.52F) A) and C)
G) All of the above D

Question 9

A U.S. Treasury bond that is quoted at 100: 11 is selling:

Accepted Answer

A)  for 11 percent more than par value.
B)  at an 11 percent discount.
C)  for 100.11 percent of face value.
D)  at par and pays an 11 percent coupon.
E)  for 100 and 11/32nds percent of face value.F) B) and D)
G) None of the above

Question 10

The bonds issued by Stainless Tubs bear a 6 percent coupon, payable semiannually. The bonds mature in 11 years and have a $1,000 face value. Currently, the bonds sell for $989. What is the yield to maturity?

Accepted Answer

A)  5.87 percent
B)  5.92 percent
C)  6.08 percent
D)  6.14 percent
E)  6.20 percentF) B) and C)
G) A) and B)

Question 11

You are purchasing a 25-year, zero-coupon bond. The yield to maturity is 8.68 percent and the face value is $1,000. What is the current market price?

Accepted Answer

A)  $106.67
B)  $108.18
C)  $119.52
D)  $121.50
E)  $128.47F) C) and E)
G) A) and B)

Question 12

Inflation has remained low for the past three years but you have come to the conclusion that trend is ending and inflation will increase significantly over the next 18 months. Assume you have reached this conclusion prior to other investors reaching the same conclusion. What adjustments should you make to your bond portfolio in light of your conclusions?

Accepted Answer

Increases in inflation will increase int...

Question 13

The current yield is defined as the annual interest on a bond divided by which one of the following?

Accepted Answer

A)  coupon
B)  face value
C)  market price
D)  call price
E)  dirty priceF) D) and E)
G) A) and C)

Question 14

Describe the relationships that exist between the coupon rate, the yield to maturity, and the current yield for both a discount bond and a premium bond.

Accepted Answer

Discount bond: Yield to maturi...

Question 15

"Cat" bonds are primarily designed to help:

Accepted Answer

A)  municipalities survive economic recessions.
B)  corporations respond to overseas competition.
C)  the federal government cope with huge deficits.
D)  corporations recover from involuntary reorganizations.
E)  insurance companies fund excessive claims.F) A) and E)
G) B) and C)

Question 16

Al is retired and enjoys his daily life. His one concern is that his bonds provide a steady stream of income that will continue to allow him to have the money he desires to continue his active lifestyle without lowering his present standard of living. Although he has sufficient principal to live on, he only wants to spend the interest income provided by his holdings and thus is concerned about the purchasing power of that income. Which one of the following bonds should best ease Al's concerns?

Accepted Answer

A)  6-year, putable, high coupon bond
B)  5-year TIPS
C)  10-year AAA coupon bond
D)  5-year municipal bond
E)  7- year income bondF) A) and C)
G) None of the above

Question 17

The specified date on which the principal amount of a bond is payable is referred to as which one of the following?

Accepted Answer

A)  coupon date
B)  yield date
C)  maturity
D)  dirty date
E)  clean dateF) C) and D)
G) B) and E)

Question 18

A Treasury bond is quoted as 99: 11 asked and 99:
09 bid. What is the bid-ask spread in dollars on a $5,000 face value bond?

Accepted Answer

A)  $0.03
B)  $0.63
C)  $1.00
D)  $3.13
E)  $6.25F) B) and E)
G) A) and C)

Question 19

Sylvan Trees has a 7 percent coupon bond on the market with ten years left to maturity. The bond makes annual payments and currently sells for $861.20. What is the yield-to-maturity?

Accepted Answer

A)  8.50 percent
B)  8.68 percent
C)  8.92 percent
D)  9.18 percent
E)  9.27 percentF) None of the above
G) A) and C)

Question 20

Last year, Lexington Homes issued $1 million in unsecured, non-callable debt. This debt pays an annual interest payment of $55 and matures 6 years from now. The face value is $1,000 and the market price is $1,020. Which one of these terms correctly describes a feature of this debt?

Accepted Answer

A)  semi-annual coupon
B)  discount bond
C)  note
D)  trust deed
E)  collateralizedF) A) and C)
G) A) and D)

Exam 7: Interest Rates and Bond Valuation

A zero coupon bond with a face value of $1,000 is issued with an initial price of $212.56. The bond matures in 25 years. What is the implicit interest, in dollars, for the first year of the bond's life?

Correct Answer
verified

Which one of the following risks would a floating-rate bond tend to have less of as compared to a fixed-rate coupon bond?

Correct Answer
verified

An indenture is:

Correct Answer
verified
E

A "fallen angel" is a bond that has moved from:

Correct Answer
verified

Protective covenants:

Correct Answer
verified

Dexter Mills issued 20-year bonds a year ago at a coupon rate of 11.4 percent. The bonds make semiannual payments. The yield-to-maturity on these bonds is 9.2 percent. What is the current bond price?

Correct Answer
verified

The yield to maturity on a bond is currently 8.46 percent. The real rate of return is 3.22 percent. What is the rate of inflation?

Correct Answer
verified
A

Roadside Markets has a 6.75 percent coupon bond outstanding that matures in 10.5 years. The bond pays interest semiannually. What is the market price per bond if the face value is $1,000 and the yield to maturity is 6.69 percent?

Correct Answer
verified
D

A U.S. Treasury bond that is quoted at 100: 11 is selling:

Correct Answer
verified

The bonds issued by Stainless Tubs bear a 6 percent coupon, payable semiannually. The bonds mature in 11 years and have a $1,000 face value. Currently, the bonds sell for $989. What is the yield to maturity?

Correct Answer
verified

You are purchasing a 25-year, zero-coupon bond. The yield to maturity is 8.68 percent and the face value is $1,000. What is the current market price?

Correct Answer
verified

Correct Answer
verified
Increases in inflation will increase int...
View Answer

The current yield is defined as the annual interest on a bond divided by which one of the following?

Correct Answer
verified

Describe the relationships that exist between the coupon rate, the yield to maturity, and the current yield for both a discount bond and a premium bond.

Correct Answer
verified
Discount bond: Yield to maturi...
View Answer

"Cat" bonds are primarily designed to help:

Correct Answer
verified

Correct Answer
verified

The specified date on which the principal amount of a bond is payable is referred to as which one of the following?

Correct Answer
verified

A Treasury bond is quoted as 99: 11 asked and 99: 09 bid. What is the bid-ask spread in dollars on a $5,000 face value bond?

Correct Answer
verified

Sylvan Trees has a 7 percent coupon bond on the market with ten years left to maturity. The bond makes annual payments and currently sells for $861.20. What is the yield-to-maturity?

Correct Answer
verified

Last year, Lexington Homes issued $1 million in unsecured, non-callable debt. This debt pays an annual interest payment of $55 and matures 6 years from now. The face value is $1,000 and the market price is $1,020. Which one of these terms correctly describes a feature of this debt?

Correct Answer
verified

Exam 7: Interest Rates and Bond Valuation

A zero coupon bond with a face value of $1,000 is issued with an initial price of $212.56. The bond matures in 25 years. What is the implicit interest, in dollars, for the first year of the bond's life?

Correct AnswerverifiedShow Answer

Which one of the following risks would a floating-rate bond tend to have less of as compared to a fixed-rate coupon bond?

Correct AnswerverifiedShow Answer

An indenture is:

Correct AnswerverifiedE

A "fallen angel" is a bond that has moved from:

Correct AnswerverifiedShow Answer

Protective covenants:

Correct AnswerverifiedShow Answer

Dexter Mills issued 20-year bonds a year ago at a coupon rate of 11.4 percent. The bonds make semiannual payments. The yield-to-maturity on these bonds is 9.2 percent. What is the current bond price?

Correct AnswerverifiedShow Answer

The yield to maturity on a bond is currently 8.46 percent. The real rate of return is 3.22 percent. What is the rate of inflation?

Correct AnswerverifiedA

Roadside Markets has a 6.75 percent coupon bond outstanding that matures in 10.5 years. The bond pays interest semiannually. What is the market price per bond if the face value is $1,000 and the yield to maturity is 6.69 percent?

Correct AnswerverifiedD

A U.S. Treasury bond that is quoted at 100: 11 is selling:

Correct AnswerverifiedShow Answer

The bonds issued by Stainless Tubs bear a 6 percent coupon, payable semiannually. The bonds mature in 11 years and have a $1,000 face value. Currently, the bonds sell for $989. What is the yield to maturity?

Correct AnswerverifiedShow Answer

You are purchasing a 25-year, zero-coupon bond. The yield to maturity is 8.68 percent and the face value is $1,000. What is the current market price?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedIncreases in inflation will increase int...View AnswerShow Answer

The current yield is defined as the annual interest on a bond divided by which one of the following?

Correct AnswerverifiedShow Answer

Describe the relationships that exist between the coupon rate, the yield to maturity, and the current yield for both a discount bond and a premium bond.

Correct AnswerverifiedDiscount bond: Yield to maturi...View AnswerShow Answer

"Cat" bonds are primarily designed to help:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The specified date on which the principal amount of a bond is payable is referred to as which one of the following?

Correct AnswerverifiedShow Answer

A Treasury bond is quoted as 99: 11 asked and 99: 09 bid. What is the bid-ask spread in dollars on a $5,000 face value bond?

Correct AnswerverifiedShow Answer

Sylvan Trees has a 7 percent coupon bond on the market with ten years left to maturity. The bond makes annual payments and currently sells for $861.20. What is the yield-to-maturity?

Correct AnswerverifiedShow Answer

Last year, Lexington Homes issued $1 million in unsecured, non-callable debt. This debt pays an annual interest payment of $55 and matures 6 years from now. The face value is $1,000 and the market price is $1,020. Which one of these terms correctly describes a feature of this debt?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
E

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A

Correct Answer
verified
D

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Increases in inflation will increase int...
View Answer

Correct Answer
verified

Correct Answer
verified
Discount bond: Yield to maturi...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified