Question 1

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

Question 2

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 E)
G) B) and D)

Question 3

The current yield is defined as the annual interest on a bond divided by which one of the following?

Accepted Answer

A)  coupon
B)  face value
C)  market price
D)  call price
E)  dirty priceF) None of the above
G) B) and E)

Question 4

You want to buy a bond from a dealer.Which one of the following prices will you pay?

Accepted Answer

A)  call price
B)  auction price
C)  bid price
D)  asked price
E)  bid-ask spreadF) B) and D)
G) A) and B)

Question 5

A Treasury bond is quoted at a price of 101: 14 with a current yield of 7.236 percent.What is the coupon rate?

Accepted Answer

A)  7.20 percent
B)  7.28 percent
C)  7.30 percent
D)  7.34 percent
E)  7.39 percentF) B) and E)
G) B) and D)

Question 6

Phil has researched TLM Technologies and believes the firm is poised to vastly increase in value.He wants to invest in this company.Phil has decided to purchase TLM Technologies bonds so that he can have a steady stream of interest income.However,he still wishes that he could share in the firm's success along with TLM's shareholders.Which one of the following bond features will help Phil fulfill his wish?

Accepted Answer

A)  put provision
B)  positive covenant
C)  warrant
D)  crossover rating
E)  call provisionF) A) and E)
G) None of the above

Question 7

The break-even tax rate between a taxable corporate bond yielding 7 percent and a comparable nontaxable municipal bond yielding 5 percent can be expressed as:

Accepted Answer

A)  0.05/(1 - t*)  = 0.07.
B)  0.05 - (1 - t*)  = 0.07.
C)  0.07 + (1 - t*)  = 0.05.
D)  0.05 × (1 - t*)  = 0.07.
E)  0.05 × (1 + t*)  = 0.07.F) A) and D)
G) A) and E)

Question 8

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 B)
G) A) and C)

Question 9

A U.S.Treasury bond that is quoted at 100: 11 is selling:

Accepted Answer

A)  for 11 percent more than par value.
B)  at an 11 percent discount.
C)  for 100.11 percent of face value.
D)  at par and pays an 11 percent coupon.
E)  for 100 and 11/32nds percent of face value.F) A) and C)
G) A) and B)

Question 10

Bond S is a 4 percent coupon bond.Bond T is a 10 percent coupon bond.Both bonds have 11 years to maturity,make semiannual payments,and have a yield-to-maturity of 7 percent.If interest rates suddenly rise by 2 percent,what will the percentage change in the price of Bond T be?

Accepted Answer

A)  -15.16 percent
B)  -14.87 percent
C)  -13.56 percent
D)  -12.92 percent
E)  -12.67 percentF) None of the above
G) A) and E)

Question 11

A "fallen angel" is a bond that has moved from:

Accepted Answer

A)  being publicly traded to being privately traded.
B)  being a long-term obligation to being a short-term obligation.
C)  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)  senior status to junior status for liquidation purposes.
E)  investment grade to speculative grade.F) B) and E)
G) A) and B)

Question 12

Greenbrier Industrial Products' bonds have a 7.60 percent coupon and pay interest annually.The face value is $1,000 and the current market price is $1,062.50 per bond.The bonds mature in 16 years.What is the yield to maturity?

Accepted Answer

A)  6.94 percent
B)  7.22 percent
C)  7.46 percent
D)  7.71 percent
E)  7.80 percentF) A) and E)
G) C) and D)

Question 13

The outstanding bonds of The River Front Ferry carry a 6.5 percent coupon.The bonds have a face value of $1,000 and are currently quoted at 102.9.What is the current yield on these bonds?

Accepted Answer

A)  1.60 percent
B)  2.37 percent
C)  6.32 percent
D)  6.49 percent
E)  6.88 percentF) A) and B)
G) D) and E)

Question 14

Describe the relationships that exist between the coupon rate,the yield to maturity,and the current yield for both a discount bond and a premium bond.

Accepted Answer

Discount bond: Yield to maturi...

Question 15

Which of the following are characteristics of a premium bond?
I.coupon rate  yield-to-maturity
III.coupon rate  current yield

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

Question 16

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

Question 17

Interest rates that include an inflation premium are referred to as:

Accepted Answer

A)  annual percentage rates.
B)  stripped rates.
C)  effective annual rates.
D)  real rates.
E)  nominal rates.F) D) and E)
G) C) and E)

Question 18

A 10-year,4.5 percent,semiannual coupon bond issued by Tyler Rentals has a $1,000 face value.The bond is currently quoted at 98.7.What is the clean price of this bond if the next interest payment will occur 2 months from today?

Accepted Answer

A)  $987.00
B)  $994.50
C)  $1,002.00
D)  $1,011.25
E)  $1,022.50F) A) and B)
G) A) and E)

Question 19

Municipal bonds:

Accepted Answer

A)  are totally risk-free.
B)  generally have higher coupon rates than corporate bonds.
C)  pay interest that is federally tax-free.
D)  are rarely callable.
E)  are free of default-risk.F) C) and E)
G) B) and D)

Question 20

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) All of the above
G) C) and E)

Exam 7: Interest Rates and Bond Valuation

The break-even tax rate between a taxable corporate bond yielding 7 percent and a comparable nontaxable municipal bond yielding 5 percent can be expressed as:

Correct Answer
verified

The outstanding bonds of The River Front Ferry carry a 6.5 percent coupon.The bonds have a face value of $1,000 and are currently quoted at 102.9.What is the current yield on these bonds?

Correct Answer
verified

A Treasury bond is quoted at a price of 101: 14 with a current yield of 7.236 percent.What is the coupon rate?

Correct Answer
verified

A "fallen angel" is a bond that has moved from:

Correct Answer
verified

Interest rates that include an inflation premium are referred to as:

Correct Answer
verified

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
verified

Greenbrier Industrial Products' bonds have a 7.60 percent coupon and pay interest annually.The face value is $1,000 and the current market price is $1,062.50 per bond.The bonds mature in 16 years.What is the yield to maturity?

Correct Answer
verified

Municipal bonds:

Correct Answer
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The current yield is defined as the annual interest on a bond divided by which one of the following?

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
verified

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
verified

A U.S.Treasury bond that is quoted at 100: 11 is selling:

Correct Answer
verified

Bond S is a 4 percent coupon bond.Bond T is a 10 percent coupon bond.Both bonds have 11 years to maturity,make semiannual payments,and have a yield-to-maturity of 7 percent.If interest rates suddenly rise by 2 percent,what will the percentage change in the price of Bond T be?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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
verified

Describe the relationships that exist between the coupon rate,the yield to maturity,and the current yield for both a discount bond and a premium bond.

Correct Answer
verified
Discount bond: Yield to maturi...
View Answer

A 10-year,4.5 percent,semiannual coupon bond issued by Tyler Rentals has a $1,000 face value.The bond is currently quoted at 98.7.What is the clean price of this bond if the next interest payment will occur 2 months from today?

Correct Answer
verified

Which of the following are characteristics of a premium bond? I.coupon rate < yield-to-maturity II.coupon rate > yield-to-maturity III.coupon rate < current yield IV.coupon rate > current yield

Correct Answer
verified

You want to buy a bond from a dealer.Which one of the following prices will you pay?

Correct Answer
verified

Exam 7: Interest Rates and Bond Valuation

The break-even tax rate between a taxable corporate bond yielding 7 percent and a comparable nontaxable municipal bond yielding 5 percent can be expressed as:

Correct AnswerverifiedShow Answer

The outstanding bonds of The River Front Ferry carry a 6.5 percent coupon.The bonds have a face value of $1,000 and are currently quoted at 102.9.What is the current yield on these bonds?

Correct AnswerverifiedShow Answer

A Treasury bond is quoted at a price of 101: 14 with a current yield of 7.236 percent.What is the coupon rate?

Correct AnswerverifiedShow Answer

A "fallen angel" is a bond that has moved from:

Correct AnswerverifiedShow Answer

Interest rates that include an inflation premium are referred to as:

Correct AnswerverifiedShow Answer

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

Greenbrier Industrial Products' bonds have a 7.60 percent coupon and pay interest annually.The face value is $1,000 and the current market price is $1,062.50 per bond.The bonds mature in 16 years.What is the yield to maturity?

Correct AnswerverifiedShow Answer

Municipal bonds:

Correct AnswerverifiedShow Answer

The current yield is defined as the annual interest on a bond divided by which one of the following?

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 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

A U.S.Treasury bond that is quoted at 100: 11 is selling:

Correct AnswerverifiedShow Answer

Bond S is a 4 percent coupon bond.Bond T is a 10 percent coupon bond.Both bonds have 11 years to maturity,make semiannual payments,and have a yield-to-maturity of 7 percent.If interest rates suddenly rise by 2 percent,what will the percentage change in the price of Bond T be?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Describe the relationships that exist between the coupon rate,the yield to maturity,and the current yield for both a discount bond and a premium bond.

Correct AnswerverifiedDiscount bond: Yield to maturi...View AnswerShow Answer

A 10-year,4.5 percent,semiannual coupon bond issued by Tyler Rentals has a $1,000 face value.The bond is currently quoted at 98.7.What is the clean price of this bond if the next interest payment will occur 2 months from today?

Correct AnswerverifiedShow Answer

Which of the following are characteristics of a premium bond? I.coupon rate < yield-to-maturity II.coupon rate > yield-to-maturity III.coupon rate < current yield IV.coupon rate > current yield

Correct AnswerverifiedShow Answer

You want to buy a bond from a dealer.Which one of the following prices will you pay?

Correct AnswerverifiedShow Answer

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Discount bond: Yield to maturi...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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