Question 1

Suppose the following bond quote for the Beta Company appears in the financial page of today's newspaper.Assume the bond has a face value of $1,000 and the current date is April 15, 2009.What is the yield to maturity on this bond?

Accepted Answer

A)  6.64 percent
B)  8.96 percent
C)  10.23 percent
D)  12.47 percent
E)  13.27 percentF) A) and B)
G) A) and C) E

Question 2

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) All of the above
G) A) and B)

Question 3

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 $842.10.What is the yield-to-maturity?

Accepted Answer

A)  8.50 percent
B)  8.68 percent
C)  8.92 percent
D)  9.52 percent
E)  9.68 percentF) A) and B)
G) A) and C)

Question 4

Soo Lee Imports issued 17-year bonds 2 years ago at a coupon rate of 10.3 percent.The bonds make semiannual payments.These bonds currently sell for 102 percent of par value.What is the yield-to-maturity?

Accepted Answer

A)  9.98 percent
B)  10.04 percent
C)  10.13 percent
D)  10.27 percent
E)  10.42 percentF) A) and E)
G) A) and D)

Question 5

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 C)
G) A) and E)

Question 6

Which of the following statements is correct concerning the term structure of interest rates?
I.Expectations of lower inflation rates in the future tend to lower the slope of the term structure of interest rates.
II.The term structure of interest rates includes both an inflation premium and an interest rate risk premium.
III.The real rate of return has minimal, if any, affect on the slope of the term structure of interest rates.
IV.The term structure of interest rates and the time to maturity are always directly related.

Accepted Answer

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

Question 7

Suppose the real rate is 9.5 percent and the inflation rate is 1.8 percent.What rate would you expect to see on a Treasury bill?

Accepted Answer

A)  9.50 percent
B)  11.30 percent
C)  11.47 percent
D)  11.56 percent
E)  11.60 percentF) B) and D)
G) B) and C)

Question 8

Which of the following statements concerning bonds are correct?
I.Bonds provide tax benefits to issuers.
II.The risk of a firm financially failing increases when the firm issues bonds.
III.Most long-term bond issues are referred to as unfunded debt.
IV.All bonds are treated equally in a bankruptcy proceeding.

Accepted Answer

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

Question 9

Atlas Entertainment has 15-year bonds outstanding.The interest payments on these bonds are sent directly to each of the individual bondholders.These direct payments are a clear indication that the bonds can accurately be defined as being issued:

Accepted Answer

A)  at par.
B)  in registered form.
C)  in street form.
D)  as debentures.
E)  as callable.F) A) and E)
G) A) and D)

Question 10

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) D) and E)
G) A) and D)

Question 11

A Treasury bond is quoted as 99:18 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)  $11.00
D)  $14.06
E)  $16.25F) A) and E)
G) A) and B)

Question 12

A bond that is payable to whomever has physical possession of the bond is said to be in:

Accepted Answer

A)  new-issue condition.
B)  registered form.
C)  bearer form.
D)  debenture status.
E)  collateral status.F) B) and D)
G) C) and D)

Question 13

A bond has a market price that exceeds its face value.Which of the following features currently apply to this bond?
I.discounted price
II.premium price
III.yield-to-maturity that exceeds the coupon rate
IV.yield-to-maturity that is less than the coupon rate

Accepted Answer

A)  III only
B)  I and III only
C)  I and IV only
D)  II and III only
E)  II and IV onlyF) B) and E)
G) C) and D) E

Question 14

Today, June 15, you want to buy a bond with a quoted price of 98.64.The bond pays interest on January 1 and July 1.Which one of the following prices represents your total cost of purchasing this bond today?

Accepted Answer

A)  clean price
B)  dirty price
C)  asked price
D)  quoted price
E)  bid priceF) A) and B)
G) A) and C)

Question 15

A bond that can be paid off early at the issuer's discretion is referred to as being which one of the following?

Accepted Answer

A)  zero coupon
B)  callable
C)  senior
D)  collateralized
E)  unsecuredF) B) and E)
G) B) and D)

Question 16

A corporate bond was quoted yesterday at 102.16 while today's quote is 102.19.What is the change in the value of a bond that has a face value of $5,000?

Accepted Answer

A)  $0.30
B)  $1.50
C)  $3.00
D)  $15.00
E)  $30.00F) B) and D)
G) A) and D)

Question 17

Bonds issued by the U.S.government:

Accepted Answer

A)  are considered to be free of interest rate risk.
B)  generally have higher coupons than those issued by an individual state.
C)  are considered to be free of default risk.
D)  pay interest that is exempt from federal income taxes.
E)  are called "munis".F) All of the above
G) A) and B)

Question 18

Which two of the following factors cause the yields on a corporate bond to differ from those on a comparable Treasury security?
I.inflation risk
II.interest rate risk
III.taxability
IV.default risk

Accepted Answer

A)  I and II only
B)  III and IV only
C)  I, II, and IV only
D)  II, III, and IV only
E)  I, II, III, and IVF) A) and D)
G) B) and D)

Question 19

A 16-year, 4.5 percent coupon bond pays interest annually.The bond has a face value of $1,000.What is the percentage change in the price of this bond if the market yield to maturity rises to 5.7 percent from the current rate of 5.5 percent?

Accepted Answer

A)  2.14 percent decrease
B)  1.97 percent decrease
C)  0.21 percent increase
D)  1.97 percent increase
E)  2.14 percent increaseF) B) and E)
G) All of the above

Question 20

The Leeward Company just issued 15-year, 8 percent, unsecured bonds at par.These bonds fit the definition of which one of the following terms?

Accepted Answer

A)  note
B)  discounted
C)  zero-coupon
D)  callable
E)  debentureF) A) and D)
G) D) and E)

Exam 7: Equity Valuation

Suppose the following bond quote for the Beta Company appears in the financial page of today's newspaper.Assume the bond has a face value of $1,000 and the current date is April 15, 2009.What is the yield to maturity on this bond?

Correct Answer
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E

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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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 $842.10.What is the yield-to-maturity?

Correct Answer
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Soo Lee Imports issued 17-year bonds 2 years ago at a coupon rate of 10.3 percent.The bonds make semiannual payments.These bonds currently sell for 102 percent of par value.What is the yield-to-maturity?

Correct Answer
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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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Correct Answer
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Suppose the real rate is 9.5 percent and the inflation rate is 1.8 percent.What rate would you expect to see on a Treasury bill?

Correct Answer
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Correct Answer
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B

Atlas Entertainment has 15-year bonds outstanding.The interest payments on these bonds are sent directly to each of the individual bondholders.These direct payments are a clear indication that the bonds can accurately be defined as being issued:

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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A Treasury bond is quoted as 99:18 asked and 99:09 bid.What is the bid-ask spread in dollars on a $5,000 face value bond?

Correct Answer
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A bond that is payable to whomever has physical possession of the bond is said to be in:

Correct Answer
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A bond has a market price that exceeds its face value.Which of the following features currently apply to this bond? I.discounted price II.premium price III.yield-to-maturity that exceeds the coupon rate IV.yield-to-maturity that is less than the coupon rate

Correct Answer
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E

Today, June 15, you want to buy a bond with a quoted price of 98.64.The bond pays interest on January 1 and July 1.Which one of the following prices represents your total cost of purchasing this bond today?

Correct Answer
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A bond that can be paid off early at the issuer's discretion is referred to as being which one of the following?

Correct Answer
verified

A corporate bond was quoted yesterday at 102.16 while today's quote is 102.19.What is the change in the value of a bond that has a face value of $5,000?

Correct Answer
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Bonds issued by the U.S.government:

Correct Answer
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Which two of the following factors cause the yields on a corporate bond to differ from those on a comparable Treasury security? I.inflation risk II.interest rate risk III.taxability IV.default risk

Correct Answer
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A 16-year, 4.5 percent coupon bond pays interest annually.The bond has a face value of $1,000.What is the percentage change in the price of this bond if the market yield to maturity rises to 5.7 percent from the current rate of 5.5 percent?

Correct Answer
verified

The Leeward Company just issued 15-year, 8 percent, unsecured bonds at par.These bonds fit the definition of which one of the following terms?

Correct Answer
verified

Exam 7: Equity Valuation

Suppose the following bond quote for the Beta Company appears in the financial page of today's newspaper.Assume the bond has a face value of $1,000 and the current date is April 15, 2009.What is the yield to maturity on this bond?

Correct AnswerverifiedE

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

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 $842.10.What is the yield-to-maturity?

Correct AnswerverifiedShow Answer

Soo Lee Imports issued 17-year bonds 2 years ago at a coupon rate of 10.3 percent.The bonds make semiannual payments.These bonds currently sell for 102 percent of par value.What is the yield-to-maturity?

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

Correct AnswerverifiedShow Answer

Suppose the real rate is 9.5 percent and the inflation rate is 1.8 percent.What rate would you expect to see on a Treasury bill?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedB

Atlas Entertainment has 15-year bonds outstanding.The interest payments on these bonds are sent directly to each of the individual bondholders.These direct payments are a clear indication that the bonds can accurately be defined as being issued:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A Treasury bond is quoted as 99:18 asked and 99:09 bid.What is the bid-ask spread in dollars on a $5,000 face value bond?

Correct AnswerverifiedShow Answer

A bond that is payable to whomever has physical possession of the bond is said to be in:

Correct AnswerverifiedShow Answer

A bond has a market price that exceeds its face value.Which of the following features currently apply to this bond? I.discounted price II.premium price III.yield-to-maturity that exceeds the coupon rate IV.yield-to-maturity that is less than the coupon rate

Correct AnswerverifiedE

Today, June 15, you want to buy a bond with a quoted price of 98.64.The bond pays interest on January 1 and July 1.Which one of the following prices represents your total cost of purchasing this bond today?

Correct AnswerverifiedShow Answer

A bond that can be paid off early at the issuer's discretion is referred to as being which one of the following?

Correct AnswerverifiedShow Answer

A corporate bond was quoted yesterday at 102.16 while today's quote is 102.19.What is the change in the value of a bond that has a face value of $5,000?

Correct AnswerverifiedShow Answer

Bonds issued by the U.S.government:

Correct AnswerverifiedShow Answer

Which two of the following factors cause the yields on a corporate bond to differ from those on a comparable Treasury security? I.inflation risk II.interest rate risk III.taxability IV.default risk

Correct AnswerverifiedShow Answer

A 16-year, 4.5 percent coupon bond pays interest annually.The bond has a face value of $1,000.What is the percentage change in the price of this bond if the market yield to maturity rises to 5.7 percent from the current rate of 5.5 percent?

Correct AnswerverifiedShow Answer

The Leeward Company just issued 15-year, 8 percent, unsecured bonds at par.These bonds fit the definition of which one of the following terms?

Correct AnswerverifiedShow Answer

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E

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B

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E

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