Question 1

Bonds sell at a premium when the market rate of interest is:

Accepted Answer

A)   less than the bond's coupon rate.
B)   greater than the bond's coupon rate.
C)   equal to the bond's coupon rate.
D)   None of the above is true.E) A) and C)
F) C) and D)

Question 2

Higher coupon bonds have greater interest rate risk.

Accepted Answer

A) True 
 B)False

Question 3

Vanilla bonds have coupon payments that are fixed for the life of the bond, with the principal being repaid at maturity.

Accepted Answer

A) True 
 B)False

Question 4

In calculating the current price of a bond paying semiannual coupons, one needs to

Accepted Answer

A)   use double the number of years for the number of payments made.
B)   use the semiannual coupon.
C)   use the semiannual rate as the discount rate.
D)   All of the above need to be done.E) A) and B)
F) None of the above

Question 5

A bond has a $1,000 par value, makes annual interest payments of $100, has 5 years to maturity, cannot be called, and is not expected to default. The bond should sell at a premium if interest rates are below 10% and at a discount if interest rates are greater than 10%.

Accepted Answer

A) True 
 B)False

Question 6

The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond.

Accepted Answer

A) True 
 B)False  True

Question 7

Downward-slopping yield curves usually occur

Accepted Answer

A)   when the economy is growing.
B)   when the economy is stagnant.
C)   before the beginning of a recession.
D)   None of the aboveE) A) and D)
F) A) and C)

Question 8

Which of the following statements is true?

Accepted Answer

A)   The largest investors in corporate bonds are institutional investors such as life insurance companies and pension funds.
B)   The market for corporate bonds is thin compared to the market for corporate stocks.
C)   Prices in the corporate bond market tend to be more volatile than prices of securities sold in markets with greater trading volumes.
D)   All of the above are true.E) A) and D)
F) C) and D)

Question 9

Alice Trang is planning to buy a six-year bond that pays a coupon of 10 percent semiannually. Given the current price of $878.21, what is the yield to maturity on these bonds? (Round to the closest answer.)

Accepted Answer

A)   11%
B)   12%
C)   13%
D)   14%E) All of the above
F) None of the above

Question 10

What economic factors affect the level and the shape of the yield curve? Explain.

Accepted Answer

Three economic factors affect the shape ...

Question 11

The largest investors in corporate bonds are state government agencies.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is most true about zero coupon bonds?

Accepted Answer

A)   They typically sell at a premium over par when they are first issued.
B)   They typically sell for a higher price than similar coupon bonds.
C)   They are always convertible to common stock.
D)   They typically sell at a deep discount below par when they are first issued.E) B) and C)
F) A) and D)

Question 13

Which one of the following statements about bonds is NOT true?

Accepted Answer

A)   To compute a bond's price, one needs to calculate the present value of the bond's expected cash flows.
B)   The value, or price, of any asset is the future value of its cash flows.
C)   The required rate of return, or discount rate, for a bond is the market interest rate called the bond's yield to maturity
D)   The expected future cash flows are estimated using the coupons that the bond will pay and the maturity value to be received.E) A) and B)
F) A) and C)

Question 14

Which one of the following statements about vanilla bonds is NOT true?

Accepted Answer

A)   They have fixed coupon payments.
B)   The face value, or par value, for most corporate bonds is $1,000.
C)   Coupon payments are usually made quarterly.
D)   The bond's coupon rate is calculated as the annual coupon payment divided by the bond's face value.E) A) and D)
F) B) and C)

Question 15

Shana Norris wants to buy five-year zero coupon bonds with a face value of $1,000. Her opportunity cost is 8.5 percent. Assuming annual compounding, what would be the current market price of these bonds? (Round your answer to the nearest dollar.)

Accepted Answer

A)   $1,023
B)   $665
C)   $890
D)   $1,113E) B) and C)
F) A) and D) B

Question 16

Triumph Corp. issued five-year bonds that pay a coupon of 6.375 percent annually. The current market rate for similar bonds is 8.5 percent. How much will you be willing to pay for Triumph's bond today? (Do not round intermediate computations. Round your final answer to the nearest dollar.)

Accepted Answer

A)   $1,023
B)   $1,137
C)   $916
D)   $897E) A) and B)
F) None of the above

Question 17

Kevin Oh is planning to sell a bond that he owns. This bond has four years to maturity and pays a coupon of 10 percent on a semiannual basis. Similar bonds in the current market have a yield to maturity of 12 percent. What will be the price that he will get for his bond? (Do not round intermediate computations. Round your final answer to the nearest dollar.)

Accepted Answer

A)   $1,044
B)   $938
C)   $970
D)   $1,102E) A) and D)
F) All of the above

Question 18

Upward-sloping yield curves often occur before the beginning of recession.

Accepted Answer

A) True 
 B)False

Question 19

Highland Corp., a U.S. company, has a five-year bond whose yield to maturity is 6.5 percent. The bond has no coupon payments. What is the price of this zero coupon bond?

Accepted Answer

A)   $927.83
B)   $725.27
C)   $890.45
D)   $1,113.23E) C) and D)
F) A) and B)

Question 20

The three economic factors that affect the shape of the yield curve are:

Accepted Answer

A)   the real rate of interest, the expected rate of inflation, and marketability.
B)   the real rate of interest, the expected rate of inflation, and interest rate risk.
C)   the nominal rate of interest, the expected rate of inflation, and default risk.
D)   the real rate of interest, the nominal rate of interest, and currency risk.E) None of the above
F) A) and C) B

Exam 8: Bond Valuation and the Structure of Interest Rates

Bonds sell at a premium when the market rate of interest is:

Correct Answer
verified

Higher coupon bonds have greater interest rate risk.

Correct Answer
verified

Vanilla bonds have coupon payments that are fixed for the life of the bond, with the principal being repaid at maturity.

Correct Answer
verified

In calculating the current price of a bond paying semiannual coupons, one needs to

Correct Answer
verified

A bond has a $1,000 par value, makes annual interest payments of $100, has 5 years to maturity, cannot be called, and is not expected to default. The bond should sell at a premium if interest rates are below 10% and at a discount if interest rates are greater than 10%.

Correct Answer
verified

The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond.

Correct Answer
verified
True

Downward-slopping yield curves usually occur

Correct Answer
verified

Which of the following statements is true?

Correct Answer
verified

Alice Trang is planning to buy a six-year bond that pays a coupon of 10 percent semiannually. Given the current price of $878.21, what is the yield to maturity on these bonds? (Round to the closest answer.)

Correct Answer
verified

What economic factors affect the level and the shape of the yield curve? Explain.

Correct Answer
verified
Three economic factors affect the shape ...
View Answer

The largest investors in corporate bonds are state government agencies.

Correct Answer
verified

Which of the following statements is most true about zero coupon bonds?

Correct Answer
verified

Which one of the following statements about bonds is NOT true?

Correct Answer
verified

Which one of the following statements about vanilla bonds is NOT true?

Correct Answer
verified

Shana Norris wants to buy five-year zero coupon bonds with a face value of $1,000. Her opportunity cost is 8.5 percent. Assuming annual compounding, what would be the current market price of these bonds? (Round your answer to the nearest dollar.)

Correct Answer
verified
B

Triumph Corp. issued five-year bonds that pay a coupon of 6.375 percent annually. The current market rate for similar bonds is 8.5 percent. How much will you be willing to pay for Triumph's bond today? (Do not round intermediate computations. Round your final answer to the nearest dollar.)

Correct Answer
verified

Correct Answer
verified

Upward-sloping yield curves often occur before the beginning of recession.

Correct Answer
verified

Highland Corp., a U.S. company, has a five-year bond whose yield to maturity is 6.5 percent. The bond has no coupon payments. What is the price of this zero coupon bond?

Correct Answer
verified

The three economic factors that affect the shape of the yield curve are:

Correct Answer
verified
B

Exam 8: Bond Valuation and the Structure of Interest Rates

Bonds sell at a premium when the market rate of interest is:

Correct AnswerverifiedShow Answer

Higher coupon bonds have greater interest rate risk.

Correct AnswerverifiedShow Answer

Vanilla bonds have coupon payments that are fixed for the life of the bond, with the principal being repaid at maturity.

Correct AnswerverifiedShow Answer

In calculating the current price of a bond paying semiannual coupons, one needs to

Correct AnswerverifiedShow Answer

A bond has a $1,000 par value, makes annual interest payments of $100, has 5 years to maturity, cannot be called, and is not expected to default. The bond should sell at a premium if interest rates are below 10% and at a discount if interest rates are greater than 10%.

Correct AnswerverifiedShow Answer

The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond.

Correct AnswerverifiedTrue

Downward-slopping yield curves usually occur

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Alice Trang is planning to buy a six-year bond that pays a coupon of 10 percent semiannually. Given the current price of $878.21, what is the yield to maturity on these bonds? (Round to the closest answer.)

Correct AnswerverifiedShow Answer

What economic factors affect the level and the shape of the yield curve? Explain.

Correct AnswerverifiedThree economic factors affect the shape ...View AnswerShow Answer

The largest investors in corporate bonds are state government agencies.

Correct AnswerverifiedShow Answer

Which of the following statements is most true about zero coupon bonds?

Correct AnswerverifiedShow Answer

Which one of the following statements about bonds is NOT true?

Correct AnswerverifiedShow Answer

Which one of the following statements about vanilla bonds is NOT true?

Correct AnswerverifiedShow Answer

Shana Norris wants to buy five-year zero coupon bonds with a face value of $1,000. Her opportunity cost is 8.5 percent. Assuming annual compounding, what would be the current market price of these bonds? (Round your answer to the nearest dollar.)

Correct AnswerverifiedB

Triumph Corp. issued five-year bonds that pay a coupon of 6.375 percent annually. The current market rate for similar bonds is 8.5 percent. How much will you be willing to pay for Triumph's bond today? (Do not round intermediate computations. Round your final answer to the nearest dollar.)

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Upward-sloping yield curves often occur before the beginning of recession.

Correct AnswerverifiedShow Answer

Highland Corp., a U.S. company, has a five-year bond whose yield to maturity is 6.5 percent. The bond has no coupon payments. What is the price of this zero coupon bond?

Correct AnswerverifiedShow Answer

The three economic factors that affect the shape of the yield curve are:

Correct AnswerverifiedB

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True

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Correct Answer
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Correct Answer
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Three economic factors affect the shape ...
View Answer

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Correct Answer
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B

Correct Answer
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Correct Answer
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Correct Answer
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B