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A bond yielded a real rate of return of 3.87 percent for a time period when the inflation rate was 4.75 percent. What was the actual nominal rate of return?


A) 8.58 percent
B) 8.60 percent
C) 8.80 percent
D) 9.28 percent
E) 9.36 percent

F) C) and D)
G) None of the above

Correct Answer

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Which one of the following bonds is the least sensitive to changes in market interest rates?


A) Zero-coupon, 10 year
B) 6 percent annual coupon, 10 year
C) Zero-coupon, 4 year
D) 8 percent annual coupon, 4 year
E) 6 percent annual coupon, 4 year

F) A) and D)
G) None of the above

Correct Answer

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Changes in interest rates affect bond prices. Which one of the following compensates bond investors for this risk?


A) Taxability risk premium
B) Default risk premium
C) Interest rate risk premium
D) Real rate of return
E) Bond premium

F) A) and B)
G) C) and D)

Correct Answer

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Which one of the following is the price that an investor pays to purchase an outstanding bond?


A) Dirty price
B) Face value
C) Call price
D) Bid price
E) Clean price

F) A) and B)
G) A) and C)

Correct Answer

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What is the primary purpose of bond covenants?


A) Meet regulatory requirements
B) Describe repayment terms
C) Lender protection
D) Define a bond's rating
E) Increase a bond's seniority position

F) None of the above
G) A) and E)

Correct Answer

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A 12-year, semiannual coupon bond is priced at $1,102.60. The bond has a $1,000 face value and a yield to maturity of 5.33 percent. What is the coupon rate?


A) 5.00 percent
B) 5.25 percent
C) 5.50 percent
D) 6.00 percent
E) 6.50 percent

F) A) and D)
G) B) and E)

Correct Answer

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An upward-sloping term structure of interest rates indicates:


A) the real rate of return is lower for short-term bonds than for long-term bonds.
B) there is an indirect relationship between real interest rates and time to maturity.
C) there is an indirect relationship between nominal interest rates and time to maturity.
D) the nominal rate is declining as the real rate rises as the time to maturity increases.
E) the nominal rate is increasing even though the real rate is constant as the time to maturity increases.

F) All of the above
G) A) and D)

Correct Answer

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A corporate bond pays 7 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 28 percent tax bracket?


A) 1.96 percent
B) 2.28 percent
C) 5.04 percent
D) 9.72 percent
E) 11.47 percent

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

Correct Answer

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A bond dealer sells at the _____ price and buys at the _____ price.


A) clean; dirty
B) dirty; clean
C) bid; asked
D) asked; bid
E) asked; asked

F) B) and C)
G) C) and D)

Correct Answer

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The lowest rating a bond can receive from Moody's and still be classified as an investment-quality bond is:


A) BB.
B) BBB.
C) B
D) Ba.
E) Baa.

F) D) and E)
G) A) and B)

Correct Answer

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Which one of the following is the quoted price of a bond?


A) Par value
B) Discount price
C) Face value
D) Dirty price
E) Clean price

F) A) and E)
G) B) and E)

Correct Answer

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Jeffries, Inc. has 6 percent coupon bonds on the market that have 11 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 7.4 percent, what is the current bond price?


A) $895.88
B) $897.08
C) $903.14
D) $921.42
E) $933.33

F) A) and B)
G) B) and C)

Correct Answer

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Which one of the following bonds is most apt to have the smallest liquidity premium?


A) Treasury bill
B) Corporate bond issued by a new firm
C) Municipal bond issued by the State of New York
D) Municipal bond issued by a rural city in Alaska
E) Corporate bond issued by General Motors (GM)

F) A) and B)
G) A) and D)

Correct Answer

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Which one of the following terms applies to a junk bond that was originally issued with a bond rating of AA?


A) Debenture
B) Covenant
C) Fallen angel
D) Sinking
E) Triple B

F) None of the above
G) D) and E)

Correct Answer

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You are buying a bond at a clean price of $1,140. The bond has a face value of $1,000, an 8 percent coupon, and pays interest semiannually. The next coupon payment is 1 month from now. What is the dirty price of this bond?


A) $1,000.00
B) $1,146.67
C) $1,173.33
D) $1,176.67
E) $1,180.00

F) A) and B)
G) C) and E)

Correct Answer

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A callable bond:


A) is generally call protected during the entire term of the bond issue.
B) generally will have a call protection period during the final three years prior to maturity.
C) may be structured to pay bondholders the current value of the bond on the date of call.
D) is prohibited from having a sinking fund also.
E) is frequently called at a price that is less than par value.

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

Correct Answer

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Deltona Motors just issued 225,000 zero coupon bonds. These bonds mature in 20 years, have a par value of $1,000, and have a yield to maturity of 7.45 percent. What is the approximate total amount of money the company raised from issuing these bonds? (Assume semi-annual compounding)


A) $48.20 million
B) $52.10 million
C) $55.14 million
D) $162.08 million
E) $225.00 million

F) B) and E)
G) A) and B)

Correct Answer

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You've just found a 7 percent coupon bond on the market that sells for par value. What is the maturity on this bond?


A) The bond must mature in one year.
B) The bond could have any maturity date.
C) The bond must be maturing today.
D) The bond must mature in 10 years.
E) None of the other answers.

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

Correct Answer

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The call premium is the amount by which the:


A) market price exceeds the par value.
B) market price exceeds the call price.
C) face value exceeds the market price.
D) call price exceeds the par value.
E) call price exceeds the market price.

F) A) and B)
G) C) and D)

Correct Answer

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You own two bonds. Both bonds pay annual interest, have 6 percent annual coupons, $1,000 face values, and currently have 6 percent yields to maturity. Bond A has 12 years to maturity and Bond B has 4 years to maturity. If the market rate of interest rises unexpectedly to 7 percent, Bond _____ will be the most volatile with a price decrease of _____ percent.


A) A; 5.73
B) A; 6.08
C) A; 7.94
D) B; 3.39
E) B; 4.51

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

Correct Answer

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