Question 1

-The zero coupon bonds of D&L Movers have a market price of $319.24,a face value of $1,000,and a yield to maturity of 8.45 percent.How many years is it until these bonds mature?

Accepted Answer

A)   11.92 years
B)   12.28 years
C)   13.80 years
D)   13.01 years
E)   27.59 yearsF) None of the above
G) B) and E)

Question 2

-A zero coupon bond with a face value of $1,000 is issued with an initial price of $212.56.The bond matures in 22 years.What is the implicit interest,in dollars,for the first year of the bond's life?

Accepted Answer

A)   $14.72
B)   $15.50
C)   $15.90
D)   $16.63
E)   $16.89F) None of the above
G) B) and E)

Question 3

The Walthers Company has a semi-annual coupon bond outstanding.An increase in the market rate of interest will have which one of the following effects on this bond?

Accepted Answer

A)   increase the coupon rate
B)   decrease the coupon rate
C)   increase the market price
D)   decrease the market price
E)   increase the time periodF) D) and E)
G) A) and E)

Question 4

Mary is a retired widow who is financially dependent upon the interest income produced by her bond portfolio.Which one of the following bonds is the least suitable for her to own?

Accepted Answer

A)   6-year,putable,high coupon bond
B)   5-year TIPS
C)   10-year AAA coupon bond
D)   5-year floating rate bond
E)   7- year income bondF) All of the above
G) A) and B)

Question 5

-Global Communications has a 7 percent,semiannual coupon bond outstanding with a current market price of $1,023.46.The bond has a par value of $1,000 and a yield to maturity of 6.72 percent.How many years is it until this bond matures?

Accepted Answer

A)   12.26 years
B)   12.53 years
C)   18.49 years
D)   24.37 years
E)   25.05 yearsF) A) and B)
G) A) and C)

Question 6

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

Accepted Answer

A)   Investment grade bonds are rated BB or higher by Standard & Poor's.
B)   Bond ratings assess both interest rate risk and default risk.
C)   Split rated bonds are called crossover bonds.
D)   The highest rating issued by Moody's is AAA.
E)   A "fallen angel" is a term applied to all "junk" bonds.F) B) and D)
G) B) and C)

Question 7

A 6-year,$1,000 face value bond issued by Taylor Tools pays interest semiannually on February 1 and August 1.Assume today is October 1.What will the difference,if any,be between this bond's clean and dirty prices today?

Accepted Answer

A)   no difference
B)   one month's interest
C)   two month's interest
D)   four month's interest
E)   five month's interestF) C) and D)
G) A) and B)

Question 8

"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 C)
G) B) and D)

Question 9

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

Accepted Answer

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

Question 10

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) C) and D)
G) A) and C)

Question 11

Mary just purchased a bond which pays $60 a year in interest.What is this $60 called?

Accepted Answer

A)   coupon
B)   face value
C)   discount
D)   call premium
E)   yieldF) C) and D)
G) B) and D)

Question 12

Last year,you purchased a "TIPS" at par.Since that time,both market interest rates and the inflation rate have increased by 0.25 percent.Your bond has most likely done which one of the following since last year?

Accepted Answer

A)   decreased in value due to the change in inflation rates
B)   experienced an increase in its bond rating
C)   maintained a fixed real rate of return
D)   increased in value in response to the change in market rates
E)   increased in value due to a decrease in time to maturityF) A) and E)
G) C) and D)

Question 13

-You purchased an investment which will pay you $8,000,in real dollars,a year for the next three years.Each payment will be received at the end of the period with the first payment occurring one year from today.The nominal discount rate is 7.5 percent and the inflation rate is 2.9 percent.What is the present value of these payments?

Accepted Answer

A)   $21,720
B)   $22,004
C)   $22,511
D)   $23,406
E)   $23,529F) C) and E)
G) A) and E)

Question 14

A bond that has only one payment,which occurs at maturity,defines which one of the following?

Accepted Answer

A)   debenture
B)   callable
C)   floating-rate
D)   junk
E)   zero couponF) C) and D)
G) A) and B)

Question 15

A Treasury yield curve plots Treasury interest rates relative to which one of the following?

Accepted Answer

A)   market rates
B)   comparable corporate bond rates
C)   the risk-free rate
D)   inflation
E)   maturityF) B) and D)
G) B) and E)

Question 16

A sinking fund is managed by a trustee for which one of the following purposes?

Accepted Answer

A)   paying interest payments
B)   early bond redemption
C)   converting bonds into equity securities
D)   paying preferred dividends
E)   reducing coupon ratesF) All of the above
G) C) and D)

Question 17

Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity.What is the $1,000 called?

Accepted Answer

A)   coupon
B)   face value
C)   discount
D)   yield
E)   dirty priceF) C) and D)
G) B) and C)

Question 18

-You have won a contest and will receive $2,500 a year in real terms for the next 3 years.Each payment will be received at the end of the period with the first payment occurring one year from today.The relevant nominal discount rate is 6.3 percent and the inflation rate is 3.1 percent.What are your winnings worth today?

Accepted Answer

A)   $7,057
B)   $7,367
C)   $7,401
D)   $7,500
E)   $7,838F) C) and D)
G) All of the above

Question 19

You own a bond that has a 6 percent annual coupon and matures 5 years from now.You purchased this 10-year bond at par value when it was originally issued.Which one of the following statements applies to this bond if the relevant market interest rate is now 5.8 percent?

Accepted Answer

A)   The current yield-to-maturity is greater than 6 percent.
B)   The current yield is 6 percent.
C)   The next interest payment will be $30.
D)   The bond is currently valued at one-half of its issue price.
E)   You will realize a capital gain on the bond if you sell it today.F) A) and E)
G) A) and B)

Question 20

A Treasury bond is quoted at a price of 106:23 with a 3.50 percent coupon.The bond pays interest semiannually.What is the current yield on one of these bonds?

Accepted Answer

A)   3.06 percent
B)   3.19 percent
C)   3.28 percent
D)   3.33 percent
E)   3.38 percentF) C) and D)
G) None of the above

Exam 7: Interest Rates and Bond Valuation

You own a bond that has a 6 percent annual coupon and matures 5 years from now.You purchased this 10-year bond at par value when it was originally issued.Which one of the following statements applies to this bond if the relevant market interest rate is now 5.8 percent?

Correct Answer
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Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity.What is the $1,000 called?

Correct Answer
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A sinking fund is managed by a trustee for which one of the following purposes?

Correct Answer
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The Walthers Company has a semi-annual coupon bond outstanding.An increase in the market rate of interest will have which one of the following effects on this bond?

Correct Answer
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Mary is a retired widow who is financially dependent upon the interest income produced by her bond portfolio.Which one of the following bonds is the least suitable for her to own?

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

Correct Answer
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Correct Answer
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Mary just purchased a bond which pays $60 a year in interest.What is this $60 called?

Correct Answer
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A Treasury yield curve plots Treasury interest rates relative to which one of the following?

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

Correct Answer
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A bond that has only one payment,which occurs at maturity,defines which one of the following?

Correct Answer
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-The zero coupon bonds of D&L Movers have a market price of $319.24,a face value of $1,000,and a yield to maturity of 8.45 percent.How many years is it until these bonds mature?

Correct Answer
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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
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-Global Communications has a 7 percent,semiannual coupon bond outstanding with a current market price of $1,023.46.The bond has a par value of $1,000 and a yield to maturity of 6.72 percent.How many years is it until this bond matures?

Correct Answer
verified

-A zero coupon bond with a face value of $1,000 is issued with an initial price of $212.56.The bond matures in 22 years.What is the implicit interest,in dollars,for the first year of the bond's life?

Correct Answer
verified

A Treasury bond is quoted at a price of 106:23 with a 3.50 percent coupon.The bond pays interest semiannually.What is the current yield on one of these bonds?

Correct Answer
verified

Last year,you purchased a "TIPS" at par.Since that time,both market interest rates and the inflation rate have increased by 0.25 percent.Your bond has most likely done which one of the following since last year?

Correct Answer
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"Cat" bonds are primarily designed to help:

Correct Answer
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A 6-year,$1,000 face value bond issued by Taylor Tools pays interest semiannually on February 1 and August 1.Assume today is October 1.What will the difference,if any,be between this bond's clean and dirty prices today?

Correct Answer
verified

Exam 7: Interest Rates and Bond Valuation

You own a bond that has a 6 percent annual coupon and matures 5 years from now.You purchased this 10-year bond at par value when it was originally issued.Which one of the following statements applies to this bond if the relevant market interest rate is now 5.8 percent?

Correct AnswerverifiedShow Answer

Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity.What is the $1,000 called?

Correct AnswerverifiedShow Answer

A sinking fund is managed by a trustee for which one of the following purposes?

Correct AnswerverifiedShow Answer

The Walthers Company has a semi-annual coupon bond outstanding.An increase in the market rate of interest will have which one of the following effects on this bond?

Correct AnswerverifiedShow Answer

Mary is a retired widow who is financially dependent upon the interest income produced by her bond portfolio.Which one of the following bonds is the least suitable for her to own?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Mary just purchased a bond which pays $60 a year in interest.What is this $60 called?

Correct AnswerverifiedShow Answer

A Treasury yield curve plots Treasury interest rates relative to which one of the following?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A bond that has only one payment,which occurs at maturity,defines which one of the following?

Correct AnswerverifiedShow Answer

-The zero coupon bonds of D&L Movers have a market price of $319.24,a face value of $1,000,and a yield to maturity of 8.45 percent.How many years is it until these bonds mature?

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

-Global Communications has a 7 percent,semiannual coupon bond outstanding with a current market price of $1,023.46.The bond has a par value of $1,000 and a yield to maturity of 6.72 percent.How many years is it until this bond matures?

Correct AnswerverifiedShow Answer

-A zero coupon bond with a face value of $1,000 is issued with an initial price of $212.56.The bond matures in 22 years.What is the implicit interest,in dollars,for the first year of the bond's life?

Correct AnswerverifiedShow Answer

A Treasury bond is quoted at a price of 106:23 with a 3.50 percent coupon.The bond pays interest semiannually.What is the current yield on one of these bonds?

Correct AnswerverifiedShow Answer

Last year,you purchased a "TIPS" at par.Since that time,both market interest rates and the inflation rate have increased by 0.25 percent.Your bond has most likely done which one of the following since last year?

Correct AnswerverifiedShow Answer

"Cat" bonds are primarily designed to help:

Correct AnswerverifiedShow Answer

A 6-year,$1,000 face value bond issued by Taylor Tools pays interest semiannually on February 1 and August 1.Assume today is October 1.What will the difference,if any,be between this bond's clean and dirty prices today?

Correct AnswerverifiedShow Answer

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