Question 1

Bonner Metals wants to issue new 18-year bonds for some much-needed expansion projects.The company currently has 11 percent bonds on the market that sell for $1,459.51,make semiannual payments,and mature in 18 years.What should the coupon rate be on the new bonds if the firm wants to sell them at par?

Accepted Answer

A)  5.75 percent
B)  6.23 percent
C)  6.41 percent
D)  6.60 percent
E)  6.79 percentF) B) and C)
G) D) and E)

Question 2

A deferred call provision is which one of the following?

Accepted Answer

A)  requirement that a bond issuer pay the current market price, plus accrued interest, should the firm decide to call a bond
B)  ability of a bond issuer to delay repaying a bond until after the maturity date should the issuer so opt
C)  prohibition placed on an issuer which prevents that issuer from ever redeeming bonds prior to maturity
D)  prohibition which prevents bond issuers from redeeming callable bonds prior to a specified date
E)  requirement that a bond issuer pay a call premium which is equal to or greater than one year's coupon should that issuer decide to call a bondF) A) and B)
G) B) and C)

Question 3

Redesigned Computers has 6.5 percent coupon bonds outstanding with a current market price of $832.The yield to maturity is 16.28 percent and the face value is $1,000.Interest is paid semiannually.How many years is it until these bonds mature?

Accepted Answer

A)  2.10 years
B)  4.19 years
C)  7.41 years
D)  9.16 years
E)  18.32 yearsF) B) and C)
G) None of the above

Question 4

Bryceton,Inc.has bonds on the market with 13 years to maturity,a yield-to-maturity of 9.2 percent,and a current price of $802.30.The bonds make semiannual payments.What is the coupon rate?

Accepted Answer

A)  6.56 percent
B)  7.00 percent
C)  7.25 percent
D)  7.40 percent
E)  7.65 percentF) C) and D)
G) A) and C)

Question 5

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

Question 6

Which one of the following premiums is compensation for expected future inflation?

Accepted Answer

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

Question 7

Oil Well Supply offers 7.5 percent coupon bonds with semiannual payments and a yield to maturity of 7.68 percent.The bonds mature in 6 years.What is the market price per bond if the face value is $1,000?

Accepted Answer

A)  $989.70
B)  $991.47
C)  $996.48
D)  $1,002.60
E)  $1,013.48F) B) and D)
G) A) and B)

Question 8

You expect interest rates to decline in the near future even though the bond market is not indicating any sign of this change.Which one of the following bonds should you purchase now to maximize your gains if the rate decline does occur?

Accepted Answer

A)  short-term; low coupon
B)  short-term; high coupon
C)  long-term; zero coupon
D)  long-term; low coupon
E)  long-term; high couponF) B) and E)
G) A) and D)

Question 9

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

Question 10

All else constant,a bond will sell at _____ when the coupon rate is _____ the yield to maturity.

Accepted Answer

A)  a premium; less than
B)  a premium; equal to
C)  a discount; less than
D)  a discount; higher than
E)  par; less thanF) B) and E)
G) C) and E)

Question 11

An 8 percent corporate bond that pays interest semi-annually was issued last year.Which two of the following most likely apply to this bond today if the current yield-to-maturity is 7 percent?
I.a structure as an interest-only loan
II.a current yield that equals the coupon rate
III.a yield-to-maturity equal to the coupon rate
IV.a market price that differs from the face value

Accepted Answer

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

Question 12

A corporate bond is quoted at a price of 103.16 and carries a 5.20 percent coupon.The bond pays interest semiannually.What is the current yield on one of these bonds?

Accepted Answer

A)  4.24 percent
B)  5.04 percent
C)  5.36 percent
D)  5.62 percent
E)  5.66 percentF) B) and C)
G) A) and E)

Question 13

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) A) and B)
G) None of the above

Question 14

The Fisher effect is defined as the relationship between which of the following variables?

Accepted Answer

A)  default risk premium, inflation risk premium, and real rates
B)  nominal rates, real rates, and interest rate risk premium
C)  interest rate risk premium, real rates, and default risk premium
D)  real rates, inflation rates, and nominal rates
E)  real rates, interest rate risk premium, and nominal ratesF) A) and B)
G) None of the above

Question 15

Which of the following defines a note?
I.secured
II.unsecured
III.maturity less than 10 years
IV.maturity in excess of 10 years

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) A) and E)

Question 16

The Fisher Effect primarily emphasizes the effects of _____ on an investor's rate of return.

Accepted Answer

A)  default
B)  market
C)  interest rate
D)  inflation
E)  maturityF) B) and D)
G) B) and C)

Question 17

An investment offers a 10.5 percent total return over the coming year.Sam Bernanke thinks the total real return on this investment will be only 6.2 percent.What does Sam believe the inflation rate will be for the next year?

Accepted Answer

A)  5.60 percent
B)  5.67 percent
C)  4.05 percent
D)  6.00 percent
E)  6.21 percentF) A) and E)
G) A) and D)

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 E)
G) B) and D)

Question 19

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) B) and D)
G) D) and E)

Question 20

Dexter Mills issued 20-year bonds a year ago at a coupon rate of 10.2 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)  $1,042.16
D)  $1,089.02
E)  $1,098.00F) A) and C)
G) B) and D)

Exam 7: Interest Rates and Bond Valuation

Correct Answer
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Redesigned Computers has 6.5 percent coupon bonds outstanding with a current market price of $832.The yield to maturity is 16.28 percent and the face value is $1,000.Interest is paid semiannually.How many years is it until these bonds mature?

Correct Answer
verified

Correct Answer
verified

You expect interest rates to decline in the near future even though the bond market is not indicating any sign of this change.Which one of the following bonds should you purchase now to maximize your gains if the rate decline does occur?

Correct Answer
verified

A deferred call provision is which one of the following?

Correct Answer
verified

Bryceton,Inc.has bonds on the market with 13 years to maturity,a yield-to-maturity of 9.2 percent,and a current price of $802.30.The bonds make semiannual payments.What is the coupon rate?

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

Which of the following defines a note? I.secured II.unsecured III.maturity less than 10 years IV.maturity in excess of 10 years

Correct Answer
verified

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
verified

Oil Well Supply offers 7.5 percent coupon bonds with semiannual payments and a yield to maturity of 7.68 percent.The bonds mature in 6 years.What is the market price per bond if the face value is $1,000?

Correct Answer
verified

Which one of the following premiums is compensation for expected future inflation?

Correct Answer
verified

All else constant,a bond will sell at _ when the coupon rate is _ the yield to maturity.

Correct Answer
verified

Dexter Mills issued 20-year bonds a year ago at a coupon rate of 10.2 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

A corporate bond is quoted at a price of 103.16 and carries a 5.20 percent coupon.The bond pays interest semiannually.What is the current yield on one of these bonds?

Correct Answer
verified

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
verified

The Fisher Effect primarily emphasizes the effects of _____ on an investor's rate of return.

Correct Answer
verified

An investment offers a 10.5 percent total return over the coming year.Sam Bernanke thinks the total real return on this investment will be only 6.2 percent.What does Sam believe the inflation rate will be for the next year?

Correct Answer
verified

Protective covenants:

Correct Answer
verified

The Fisher effect is defined as the relationship between which of the following variables?

Correct Answer
verified

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
verified

Exam 7: Interest Rates and Bond Valuation

Correct AnswerverifiedShow Answer

Redesigned Computers has 6.5 percent coupon bonds outstanding with a current market price of $832.The yield to maturity is 16.28 percent and the face value is $1,000.Interest is paid semiannually.How many years is it until these bonds mature?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

You expect interest rates to decline in the near future even though the bond market is not indicating any sign of this change.Which one of the following bonds should you purchase now to maximize your gains if the rate decline does occur?

Correct AnswerverifiedShow Answer

A deferred call provision is which one of the following?

Correct AnswerverifiedShow Answer

Bryceton,Inc.has bonds on the market with 13 years to maturity,a yield-to-maturity of 9.2 percent,and a current price of $802.30.The bonds make semiannual payments.What is the coupon rate?

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

Which of the following defines a note? I.secured II.unsecured III.maturity less than 10 years IV.maturity in excess of 10 years

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

Oil Well Supply offers 7.5 percent coupon bonds with semiannual payments and a yield to maturity of 7.68 percent.The bonds mature in 6 years.What is the market price per bond if the face value is $1,000?

Correct AnswerverifiedShow Answer

Which one of the following premiums is compensation for expected future inflation?

Correct AnswerverifiedShow Answer

All else constant,a bond will sell at _____ when the coupon rate is _____ the yield to maturity.

Correct AnswerverifiedShow Answer

Dexter Mills issued 20-year bonds a year ago at a coupon rate of 10.2 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

A corporate bond is quoted at a price of 103.16 and carries a 5.20 percent coupon.The bond pays interest semiannually.What is the current yield on one of these bonds?

Correct AnswerverifiedShow Answer

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

The Fisher Effect primarily emphasizes the effects of _____ on an investor's rate of return.

Correct AnswerverifiedShow Answer

An investment offers a 10.5 percent total return over the coming year.Sam Bernanke thinks the total real return on this investment will be only 6.2 percent.What does Sam believe the inflation rate will be for the next year?

Correct AnswerverifiedShow Answer

Protective covenants:

Correct AnswerverifiedShow Answer

The Fisher effect is defined as the relationship between which of the following variables?

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

Correct Answer
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Correct Answer
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Correct Answer
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All else constant,a bond will sell at _ when the coupon rate is _ the yield to maturity.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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