Question 1

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 C)
G) C) and D)

Question 2

Which one of the following bonds is the least sensitive to interest rate risk?

Accepted Answer

A)  3-year; 4 percent coupon
B)  3-year; 6 percent coupon
C)  5-year; 6 percent coupon
D)  7-year; 6 percent coupon
E)  7-year; 4 percent couponF) A) and D)
G) D) and E)

Question 3

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 C)
G) None of the above

Question 4

Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity. What is the $1,000 called?

Accepted Answer

A)  coupon
B)  face value
C)  discount
D)  yield
E)  dirty priceF) A) and E)
G) A) and C)

Question 5

A bond that pays interest annually yielded 7.47 percent last year. The inflation rate for the same period was 6.10 percent. What was the actual real rate of return on this bond for last year?

Accepted Answer

A)  1.19 percent
B)  1.25 percent
C)  1.29 percent
D)  1.36 percent
E)  1.41 percentF) A) and E)
G) B) and C)

Question 6

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 E)
G) B) and D)

Question 7

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

Question 8

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

Question 9

Define liquidity risk, default risk, and taxability risk and explain how these risks relate to bonds and bond yields.

Accepted Answer

Liquidity risk is the inability to quick...

Question 10

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

Question 11

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

Question 12

Global Communications has a 7 percent, semiannual coupon bond outstanding with a current market price of $1,023.46. The bond has a par value of $1,000 and a yield to maturity of 6.72 percent. How many years is it until this bond matures?

Accepted Answer

A)  12.26 years
B)  12.53 years
C)  18.49 years
D)  24.37 years
E)  25.05 yearsF) C) and D)
G) A) and B)

Question 13

Which one of the following relationships is stated correctly?

Accepted Answer

A)  The coupon rate exceeds the current yield when a bond sells at a discount.
B)  The call price must equal the par value.
C)  An increase in market rates increases the market price of a bond.
D)  Decreasing the time to maturity increases the price of a discount bond, all else constant.
E)  Increasing the coupon rate decreases the current yield, all else constant.F) All of the above
G) C) and E)

Question 14

You want to have $1.04 million in real dollars in an account when you retire in 46 years. The nominal return on your investment is 8 percent and the inflation rate is 3.5 percent. What is the real amount you must deposit each year to achieve your goal?

Accepted Answer

A)  $6,667.67
B)  $6,878.49
C)  $7,433.02
D)  $7,515.09
E)  $7,744.12F) B) and D)
G) A) and D)

Question 15

Which of the following increase the price sensitivity of a bond to changes in interest rates?
I. increase in time to maturity
II. decrease in time to maturity
III. increase in coupon rate
IV. decrease in coupon rate

Accepted Answer

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

Question 16

The zero coupon bonds of D&L Movers have a market price of $319.24, a face value of $1,000, and a yield to maturity of 9.17 percent. How many years is it until these bonds mature?

Accepted Answer

A)  11.92 years
B)  12.28 years
C)  12.73 years
D)  13.01 years
E)  13.47 yearsF) A) and B)
G) C) and E)

Question 17

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

Question 18

A 6-year, $1,000 face value bond issued by Taylor Tools pays interest semiannually on February 1 and August 1. Assume today is October 1. What will the difference, if any, be between this bond's clean and dirty prices today?

Accepted Answer

A)  no difference
B)  one month's interest
C)  two month's interest
D)  four month's interest
E)  five month's interestF) B) and E)
G) None of the above

Question 19

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) B) and E)
G) C) and E)

Question 20

Which one of the following statements is correct?

Accepted Answer

A)  The risk-free rate represents the change in purchasing power.
B)  Any return greater than the inflation rate represents the risk premium.
C)  Historical real rates of return must be positive.
D)  Nominal rates exceed real rates by the amount of the risk-free rate.
E)  The real rate must be less than the nominal rate given a positive rate of inflation.F) A) and D)
G) B) and C)

Exam 7: Interest Rates and Bond Valuation

Define liquidity risk, default risk, and taxability risk and explain how these risks relate to bonds and bond yields.

Correct Answer
verified
Liquidity risk is the inability to quick...
View 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 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

Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity. What is the $1,000 called?

Correct Answer
verified

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

Correct Answer
verified

A bond that pays interest annually yielded 7.47 percent last year. The inflation rate for the same period was 6.10 percent. What was the actual real rate of return on this bond for last year?

Correct Answer
verified

Which one of the following bonds is the least sensitive to interest rate risk?

Correct Answer
verified

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

A 6-year, $1,000 face value bond issued by Taylor Tools pays interest semiannually on February 1 and August 1. Assume today is October 1. What will the difference, if any, be between this bond's clean and dirty prices today?

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

Correct Answer
verified

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

Global Communications has a 7 percent, semiannual coupon bond outstanding with a current market price of $1,023.46. The bond has a par value of $1,000 and a yield to maturity of 6.72 percent. How many years is it until this bond matures?

Correct Answer
verified

The zero coupon bonds of D&L Movers have a market price of $319.24, a face value of $1,000, and a yield to maturity of 9.17 percent. How many years is it until these bonds mature?

Correct Answer
verified

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

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

Which of the following increase the price sensitivity of a bond to changes in interest rates? I. increase in time to maturity II. decrease in time to maturity III. increase in coupon rate IV. decrease in coupon rate

Correct Answer
verified

Which one of the following statements is correct?

Correct Answer
verified

Which one of the following relationships is stated correctly?

Correct Answer
verified

You want to have $1.04 million in real dollars in an account when you retire in 46 years. The nominal return on your investment is 8 percent and the inflation rate is 3.5 percent. What is the real amount you must deposit each year to achieve your goal?

Correct Answer
verified

Exam 7: Interest Rates and Bond Valuation

Define liquidity risk, default risk, and taxability risk and explain how these risks relate to bonds and bond yields.

Correct AnswerverifiedLiquidity risk is the inability to quick...View AnswerShow 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

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

Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity. What is the $1,000 called?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A bond that pays interest annually yielded 7.47 percent last year. The inflation rate for the same period was 6.10 percent. What was the actual real rate of return on this bond for last year?

Correct AnswerverifiedShow Answer

Which one of the following bonds is the least sensitive to interest rate risk?

Correct AnswerverifiedShow 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

A 6-year, $1,000 face value bond issued by Taylor Tools pays interest semiannually on February 1 and August 1. Assume today is October 1. What will the difference, if any, be between this bond's clean and dirty prices today?

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

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

Global Communications has a 7 percent, semiannual coupon bond outstanding with a current market price of $1,023.46. The bond has a par value of $1,000 and a yield to maturity of 6.72 percent. How many years is it until this bond matures?

Correct AnswerverifiedShow Answer

The zero coupon bonds of D&L Movers have a market price of $319.24, a face value of $1,000, and a yield to maturity of 9.17 percent. How many years is it until these bonds mature?

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 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

Which of the following increase the price sensitivity of a bond to changes in interest rates? I. increase in time to maturity II. decrease in time to maturity III. increase in coupon rate IV. decrease in coupon rate

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Which one of the following relationships is stated correctly?

Correct AnswerverifiedShow Answer

You want to have $1.04 million in real dollars in an account when you retire in 46 years. The nominal return on your investment is 8 percent and the inflation rate is 3.5 percent. What is the real amount you must deposit each year to achieve your goal?

Correct AnswerverifiedShow Answer

Correct Answer
verified
Liquidity risk is the inability to quick...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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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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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Correct Answer
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