Question 1

The zero coupon bonds of Markco,Inc.have a market price of $370.67,a face value of $1,000,and a yield to maturity of 6.84% (annual) .How many years is it until this bond matures?

Accepted Answer

A)  7 years
B)  10 years
C)  15 years
D)  18 years
E)  20 yearsF) A) and B)
G) None of the above

Question 2

Which one of the following statements concerning bond ratings is correct?

Accepted Answer

A)  Standard and Poor's and Value Line are the primary bond rating agencies.
B)  Bond ratings are solely an assessment of the creditworthiness of the bond issuer.
C)  Investment grade bonds include only those bonds receiving one of the highest three bond ratings.
D)  Bond ratings evaluate the expected price volatility of a bond issue.
E)  All bonds receive the same rating classification from all rating agencies.F) C) and E)
G) A) and E) B

Question 3

A bond that makes no coupon payments and is initially priced at a deep discount is called a _____ bond.

Accepted Answer

A)  Treasury
B)  municipal
C)  floating-rate
D)  zero coupon
E)  junkF) All of the above
G) C) and D)

Question 4

A bond is listed in The Wall Street Journal as a 12 3/4s of July 2009.This bond pays

Accepted Answer

A)  $127.50 in July and January.
B)  $63.75 in July and January.
C)  $127.50 in July.
D)  $63.75 in July.
E)  None of the above.F) C) and D)
G) A) and D)

Question 5

High Noon Sun,Inc.has a 5%,semiannual coupon bond with a current market price of $988.52.The bond has a par value of $1,000 and a yield to maturity of 5.29%.How many years is it until this bond matures?

Accepted Answer

A)  4.0 years
B)  4.5 years
C)  6.5 years
D)  8.0 years
E)  9.0 yearsF) B) and D)
G) A) and B)

Question 6

A convertible bond is a bond that can be:

Accepted Answer

A)  exchanged for cash at prescribed points in time.
B)  submitted to the issuer for redemption at the discretion of the bondholder.
C)  submitted for payment any time the economy converts into a recessionary period.
D)  exchanged for a stated number of shares of common stock of the bond issuer.
E)  modified from a fixed coupon bond into a floating coupon bond at prescribed points in time.F) A) and B)
G) A) and C)

Question 7

The rate of return required by investors in the market for owning a bond is called the:

Accepted Answer

A)  coupon.
B)  face value.
C)  maturity.
D)  yield to maturity.
E)  coupon rate.F) None of the above
G) C) and E)

Question 8

Interest rates or rates of return on investments that have not been adjusted for the effects of inflation are called _____ rates.

Accepted Answer

A)  coupon
B)  stripped
C)  effective
D)  real
E)  nominalF) C) and D)
G) A) and B)

Question 9

A corporate bond with a face value of $1,000 matures in 5 years and has a 6% coupon paid at the end of each year.The current price of the bond is $1,105.What is the yield to maturity for this bond?

Accepted Answer

A)  2.60%
B)  3.66%
C)  3.86%
D)  4.20%
E)  4.95%F) A) and B)
G) B) and C)

Question 10

A "fallen angel" is a bond that:

Accepted Answer

A)  has moved from being an investment-grade bond to being a junk bond.
B)  has moved from being a long-term obligation to being a short-term obligation.
C)  has moved from 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)  lowered its annual interest payment.
E)  is rated as Ba by one rating agency and rated as BB by another rating agency.F) B) and E)
G) All of the above

Question 11

Winston Enterprises has a 15-year bond issue outstanding that pays a 9 % coupon.The bond is currently priced at $894.60 and has a par value of $1,000.Interest is paid semiannually.What is the yield to maturity?

Accepted Answer

A)  8.67%
B)  10.13%
C)  10.16%
D)  10.40%
E)  10.45%F) A) and D)
G) B) and C)

Question 12

All else constant,as the market price of a bond increases the current yield _____ and the yield to maturity _____

Accepted Answer

A)  increases; increases.
B)  increases; decreases.
C)  decreases; decreases.
D)  decreases; increases.
E)  remains constant; increases.F) B) and D)
G) A) and C)

Question 13

Calculate the YTM on a bond priced at $1,036 which has 2 years to maturity,a 10% annual coupon rate,and a return of $1,000 at maturity.

Accepted Answer

$1,036 = $100/(1+YTM)¹+ $1,100/...

Question 14

Bonds issued by the U.S.government:
I.are considered to be free of default risk.
II.are considered to be free of interest rate risk.
III.provide totally tax-free income.
IV.pay interest that is exempt from federal income taxes.

Accepted Answer

A)  I only
B)  I and III only
C)  I and IV only
D)  II and III only
E)  II and IV onlyF) A) and B)
G) None of the above

Question 15

The increase you realize in buying power as a result of owning a bond is referred to as the _____ rate of return.

Accepted Answer

A)  real
B)  realized
C)  nominal
D)  inflated
E)  risk-freeF) All of the above
G) A) and E)

Question 16

One basis point is equal to:

Accepted Answer

A)  .01%.
B)  .10%.
C)  1.0%.
D)  10%.
E)  100%.F) A) and D)
G) B) and E)

Question 17

The collar of a floating-rate bond refers to the minimum and maximum:

Accepted Answer

A)  call periods.
B)  maturity dates.
C)  coupon rates.
D)  market prices.
E)  yields to maturity.F) B) and E)
G) C) and E) C

Question 18

Why do corporations issue 100-year bonds,knowing that interest rate risk is highest for very long-term bonds?
 How does the interest rate risk affect the issuer?

Accepted Answer

Essentially,the issuer takes the opposit...

Question 19

A corporate bond is quoted at a price of 98.625 with a 7.500 coupon.The bond pays interest semiannually.What is the current yield on one of these bonds?

Accepted Answer

A)  7.50%
B)  7.60%
C)  7.88%
D)  7.97%
E)  7.98%F) A) and E)
G) A) and D) B

Question 20

Today,August 13,you want to buy a bond with a quoted price of 101.5.The bond pays interest on February 1 and August 1.The price you will pay to purchase this bond is equal to the:

Accepted Answer

A)  clean price.
B)  muddy price.
C)  dirty price.
D)  par value price.
E)  bid price.F) D) and E)
G) B) and D)

Exam 5: Interest Rate and Bond Valuation

The zero coupon bonds of Markco,Inc.have a market price of $370.67,a face value of $1,000,and a yield to maturity of 6.84% (annual) .How many years is it until this bond matures?

Correct AnswerverifiedShow Answer

Which one of the following statements concerning bond ratings is correct?

Correct AnswerverifiedB

A bond that makes no coupon payments and is initially priced at a deep discount is called a _____ bond.

Correct AnswerverifiedShow Answer

A bond is listed in The Wall Street Journal as a 12 3/4s of July 2009.This bond pays

Correct AnswerverifiedShow Answer

High Noon Sun,Inc.has a 5%,semiannual coupon bond with a current market price of $988.52.The bond has a par value of $1,000 and a yield to maturity of 5.29%.How many years is it until this bond matures?

Correct AnswerverifiedShow Answer

A convertible bond is a bond that can be:

Correct AnswerverifiedShow Answer

The rate of return required by investors in the market for owning a bond is called the:

Correct AnswerverifiedShow Answer

Interest rates or rates of return on investments that have not been adjusted for the effects of inflation are called _____ rates.

Correct AnswerverifiedShow Answer

A corporate bond with a face value of $1,000 matures in 5 years and has a 6% coupon paid at the end of each year.The current price of the bond is $1,105.What is the yield to maturity for this bond?

Correct AnswerverifiedShow Answer

A "fallen angel" is a bond that:

Correct AnswerverifiedShow Answer

Winston Enterprises has a 15-year bond issue outstanding that pays a 9 % coupon.The bond is currently priced at $894.60 and has a par value of $1,000.Interest is paid semiannually.What is the yield to maturity?

Correct AnswerverifiedShow Answer

All else constant,as the market price of a bond increases the current yield _____ and the yield to maturity _____

Correct AnswerverifiedShow Answer

Calculate the YTM on a bond priced at $1,036 which has 2 years to maturity,a 10% annual coupon rate,and a return of $1,000 at maturity.

Correct Answerverified$1,036 = $100/(1+YTM)1+ $1,100/...View AnswerShow Answer

Bonds issued by the U.S.government: I.are considered to be free of default risk. II.are considered to be free of interest rate risk. III.provide totally tax-free income. IV.pay interest that is exempt from federal income taxes.

Correct AnswerverifiedShow Answer

The increase you realize in buying power as a result of owning a bond is referred to as the _____ rate of return.

Correct AnswerverifiedShow Answer

One basis point is equal to:

Correct AnswerverifiedShow Answer

The collar of a floating-rate bond refers to the minimum and maximum:

Correct AnswerverifiedC

Why do corporations issue 100-year bonds,knowing that interest rate risk is highest for very long-term bonds? How does the interest rate risk affect the issuer?

Correct AnswerverifiedEssentially,the issuer takes the opposit...View AnswerShow Answer

A corporate bond is quoted at a price of 98.625 with a 7.500 coupon.The bond pays interest semiannually.What is the current yield on one of these bonds?

Correct AnswerverifiedB

Today,August 13,you want to buy a bond with a quoted price of 101.5.The bond pays interest on February 1 and August 1.The price you will pay to purchase this bond is equal to the:

Correct AnswerverifiedShow Answer

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All else constant,as the market price of a bond increases the current yield _ and the yield to maturity _

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$1,036 = $100/(1+YTM)¹+ $1,100/...
View Answer

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C

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Essentially,the issuer takes the opposit...
View Answer

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B

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