Question 1

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) None of the above
G) All of the above

Question 2

Callable bonds generally:

Accepted Answer

A)  grant the bondholder the option to call the bond anytime after the deferment period.
B)  are callable at par as soon as the call-protection period ends.
C)  are called when market interest rates increase.
D)  are called within the first three years after issuance.
E)  have a sinking fund provision.F) A) and B)
G) C) and D)

Question 3

The bonds issued by Stainless Tubs bear an 8 percent coupon,payable semiannually.The bonds mature in 11 years and have a $1,000 face value.Currently,the bonds sell for $952.What is the yield to maturity?

Accepted Answer

A)  7.87 percent
B)  7.92 percent
C)  8.08 percent
D)  8.69 percent
E)  9.20 percentF) D) and E)
G) B) and C)

Question 4

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 E)
G) C) and E)

Question 5

Inflation has remained low for the past three years but you have come to the conclusion that trend is ending and inflation will increase significantly over the next 18 months.Assume you have reached this conclusion prior to other investors reaching the same conclusion.What adjustments should you make to your bond portfolio in light of your conclusions?

Accepted Answer

Increases in inflation will increase int...

Question 6

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 D)
G) A) and B)

Question 7

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 E)
G) A) and E)

Question 8

You want to have $1.04 million in real dollars in an account when you retire in 38 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)  $10,667.67
B)  $10,878.49
C)  $11,194.39
D)  $11,515.09
E)  $11,744.12F) A) and E)
G) A) and D)

Question 9

The interest rate risk premium is the:

Accepted Answer

A)  additional compensation paid to investors to offset rising prices.
B)  compensation investors demand for accepting interest rate risk.
C)  difference between the yield to maturity and the current yield.
D)  difference between the market interest rate and the coupon rate.
E)  difference between the coupon rate and the current yield.F) B) and E)
G) A) and E)

Question 10

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 C)
G) All of the above

Question 11

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

Question 12

The difference between the price that a dealer is willing to pay and the price at which he or she will sell is called the:

Accepted Answer

A)  equilibrium.
B)  premium.
C)  discount.
D)  call price.
E)  spread.F) A) and B)
G) A) and E)

Question 13

Currently,the bond market requires a return of 11.6 percent on the 10-year bonds issued by Winston Industries.The 11.6 percent is referred to as which one of the following?

Accepted Answer

A)  coupon rate
B)  face rate
C)  call rate
D)  yield to maturity
E)  interest rateF) All of the above
G) A) and D)

Question 14

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

Question 15

"Cat" bonds are primarily designed to help:

Accepted Answer

A)  municipalities survive economic recessions.
B)  corporations respond to overseas competition.
C)  the federal government cope with huge deficits.
D)  corporations recover from involuntary reorganizations.
E)  insurance companies fund excessive claims.F) A) and E)
G) A) and B)

Question 16

Which of the following correctly describe U.S.Treasury bonds?
I.have a "tick" size of 1/32
II.highly liquid
III.quoted in dollars and cents
IV.quoted at the dirty price

Accepted Answer

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

Question 17

Getty Markets has bonds outstanding that pay a 5 percent semiannual coupon,have a 5.28 percent yield to maturity,and a face value of $1,000.The current rate of inflation is 4.1 percent.What is the real rate of return on these bonds?

Accepted Answer

A)  0.86 percent
B)  0.90 percent
C)  1.04 percent
D)  1.13 percent
E)  1.19 percentF) A) and B)
G) A) and E)

Question 18

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

Question 19

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 B)
G) B) and C)

Question 20

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

Exam 7: Interest Rates and Bond Valuation

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
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Which one of the following relationships is stated correctly?

Correct Answer
verified

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

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

Correct Answer
verified

You want to have $1.04 million in real dollars in an account when you retire in 38 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

Callable bonds generally:

Correct Answer
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Which of the following correctly describe U.S.Treasury bonds? I.have a "tick" size of 1/32 II.highly liquid III.quoted in dollars and cents IV.quoted at the dirty price

Correct Answer
verified

The interest rate risk premium is the:

Correct Answer
verified

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

The difference between the price that a dealer is willing to pay and the price at which he or she will sell is called the:

Correct Answer
verified

The bonds issued by Stainless Tubs bear an 8 percent coupon,payable semiannually.The bonds mature in 11 years and have a $1,000 face value.Currently,the bonds sell for $952.What is the yield to maturity?

Correct Answer
verified

Which one of the following statements is correct?

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

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

Correct Answer
verified
Increases in inflation will increase int...
View Answer

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

Correct Answer
verified

"Cat" bonds are primarily designed to help:

Correct Answer
verified

Getty Markets has bonds outstanding that pay a 5 percent semiannual coupon,have a 5.28 percent yield to maturity,and a face value of $1,000.The current rate of inflation is 4.1 percent.What is the real rate of return on these bonds?

Correct Answer
verified

Currently,the bond market requires a return of 11.6 percent on the 10-year bonds issued by Winston Industries.The 11.6 percent is referred to as which one of the following?

Correct Answer
verified

Exam 7: Interest Rates and Bond Valuation

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

Which one of the following relationships is stated correctly?

Correct AnswerverifiedShow Answer

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

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

Correct AnswerverifiedShow Answer

You want to have $1.04 million in real dollars in an account when you retire in 38 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

Callable bonds generally:

Correct AnswerverifiedShow Answer

Which of the following correctly describe U.S.Treasury bonds? I.have a "tick" size of 1/32 II.highly liquid III.quoted in dollars and cents IV.quoted at the dirty price

Correct AnswerverifiedShow Answer

The interest rate risk premium is the:

Correct AnswerverifiedShow Answer

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

The difference between the price that a dealer is willing to pay and the price at which he or she will sell is called the:

Correct AnswerverifiedShow Answer

The bonds issued by Stainless Tubs bear an 8 percent coupon,payable semiannually.The bonds mature in 11 years and have a $1,000 face value.Currently,the bonds sell for $952.What is the yield to maturity?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

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

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

Correct AnswerverifiedIncreases in inflation will increase int...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

"Cat" bonds are primarily designed to help:

Correct AnswerverifiedShow Answer

Getty Markets has bonds outstanding that pay a 5 percent semiannual coupon,have a 5.28 percent yield to maturity,and a face value of $1,000.The current rate of inflation is 4.1 percent.What is the real rate of return on these bonds?

Correct AnswerverifiedShow Answer

Currently,the bond market requires a return of 11.6 percent on the 10-year bonds issued by Winston Industries.The 11.6 percent is referred to as which one of the following?

Correct AnswerverifiedShow Answer

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Increases in inflation will increase int...
View Answer

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