Question 1

A bond has a yield to maturity of 9.38 percent, a 7.5 percent annual coupon, a $1,000 face value, and a maturity date 21 years from today. What is the current yield?

Accepted Answer

A)   7.91 percent
B)   8.47 percent
C)   9.04 percent
D)   9.38 percent
E)   9.46 percentF) C) and E)
G) A) and D)

Question 2

A bond has a $1,000 face value, a market price of $1,036, and pays interest payments of $70 every year. What is the coupon rate?

Accepted Answer

A)   6.76 percent
B)   7.00 percent
C)   7.12 percent
D)   13.51 percent
E)   14.00 percentF) A) and B)
G) A) and C)

Question 3

Which one of the following terms denotes for certain that a bond is unsecured?

Accepted Answer

A)   Debenture
B)   Bearer form
C)   Call provision
D)   Sinking fund
E)   Blanket mortgageF) A) and B)
G) B) and E)

Question 4

Which one of the following is a unique characteristic of an income bond?

Accepted Answer

A)   Interest income is tax-free
B)   Interest income is paid at the time of issuance
C)   Coupon payments are dependent upon the issuer's income
D)   Coupon payments are paid on a regular monthly basis
E)   Coupon payments can be converted into equity sharesF) C) and D)
G) B) and C)

Question 5

One year ago, Alpha Supply issued 15-year bonds at par. The bonds have a coupon rate of 6.5 percent and pay interest annually. Today, the market rate of interest on these bonds is 7.2 percent. How does the price of these bonds today compare to the issue price?

Accepted Answer

A)   4.99 percent lower
B)   5.38 percent lower
C)   6.05 percent lower
D)   0.07 percent higher
E)   1.36 percent higherF) B) and E)
G) B) and D)

Question 6

The value of a bond is dependent upon the:

Accepted Answer

A)   coupon rate and the current yield.
B)   coupon rate and the yield to maturity.
C)   current yield and the yield to maturity.
D)   coupon rate but neither the current yield nor the yield to maturity.
E)   yield to maturity but neither the current yield nor the coupon rate.F) A) and E)
G) C) and E)

Question 7

Which one of the following is the rate of return an investor earns on a bond before adjusting for inflation?

Accepted Answer

A)   Nominal rate
B)   Real rate
C)   Dirty rate
D)   Coupon rate
E)   Clean rateF) B) and E)
G) C) and D)

Question 8

Explain how a zero coupon bond can create taxable income during a year in which the bond pays no interest payments. Also, explain how the annual taxable amount can be computed.

Accepted Answer

A zero coupon bond creates implicit inte...

Question 9

List the various determinants of bond yields and indicate the type of situation that would cause each determinant to increase the yield on a bond.

Accepted Answer

The answer of List the various determinants of bond yields...

Question 10

Which of the following can generally be found in a bond's indenture agreement? I. terms of repayment
II)  names of registered shareholders
III)  protective covenants
IV)  total amount of the bond issue

Accepted Answer

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

Question 11

A call provision grants the bond issuer the:

Accepted Answer

A)   right to contact each bondholder to determine if he or she would like to extend the term of his or her bonds.
B)   option to exchange the bonds for equity securities.
C)   right to automatically extend the bond's maturity date.
D)   right to repurchase the bonds on the open market prior to maturity.
E)   option of repurchasing the bonds prior to maturity at a pre-specified price.F) A) and B)
G) A) and C)

Question 12

AB Builders, Inc. has 12-year bonds outstanding with a face value of $1,000 and a market price of $974. The bonds pay interest annually and have a yield to maturity of 4.03 percent. What is the coupon rate?

Accepted Answer

A)   3.75 percent
B)   4.20 percent
C)   4.25 percent
D)   7.50 percent
E)   8.40 percentF) A) and B)
G) All of the above

Question 13

The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of those securities.

Accepted Answer

A)   face value
B)   market price
C)   maturity
D)   coupon rate
E)   issue dateF) A) and C)
G) A) and B)

Question 14

A bond has a make-whole call provision. Given this, you know that the:

Accepted Answer

A)   bond will always sell at par.
B)   call premium must equal the annual coupon payment.
C)   call price is directly related to the market rate of interest.
D)   call price is inversely related to the market rate of interest.
E)   bond must be a zero-coupon bond.F) A) and C)
G) A) and D)

Question 15

A 5.5 percent $1,000 bond matures in 7 years, pays interest semiannually, and has a yield to maturity of 6.23 percent. What is the current market price of the bond?

Accepted Answer

A)   $945.08
B)   $947.21
C)   $959.09
D)   $959.60
E)   $962.40F) A) and C)
G) A) and D)

Question 16

Global Trade, Inc. has $1,000 face value bonds outstanding with a market price of $1,013. The bonds pay interest annually, mature in 11 years, and have a yield to maturity of 5.34 percent. What is the current yield?

Accepted Answer

A)   5.39 percent
B)   5.43 percent
C)   5.50 percent
D)   5.61 percent
E)   5.77 percentF) All of the above
G) B) and E)

Question 17

The price at which an investor can purchase a bond from a dealer is called the _____ price.

Accepted Answer

A)   asked
B)   coupon
C)   call
D)   face
E)   bidF) All of the above
G) A) and C)

Question 18

The 7 percent annual coupon bonds of TPO, Inc. are selling for $1,021. The bonds have a face value of $1,000 and mature in 6.5 years. What is the yield to maturity?

Accepted Answer

A)   6.42 percent
B)   6.59 percent
C)   6.63 percent
D)   6.68 percent
E)   6.70 percentF) A) and D)
G) A) and C)

Question 19

Which one of the following statements is true?

Accepted Answer

A)   The current yield on a par value bond will exceed the bond's yield-to-maturity.
B)   The yield to maturity on a premium bond exceeds the bond's coupon rate.
C)   The current yield on a premium bond is equal to the bond's coupon rate.
D)   A premium bond has a current yield that exceeds the bond's coupon rate.
E)   A discount bond has a coupon rate that is less than the bond's yield to maturity.F) B) and E)
G) A) and D)

Question 20

Which one of the following premiums is paid on a corporate bond due to its tax status?

Accepted Answer

A)   Interest rate risk premium
B)   Inflation premium
C)   Liquidity premium
D)   Taxability premium
E)   Default risk premiumF) None of the above
G) A) and E)

Exam 6: Interest Rates and Bond Valuation

A 5.5 percent $1,000 bond matures in 7 years, pays interest semiannually, and has a yield to maturity of 6.23 percent. What is the current market price of the bond?

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A bond has a make-whole call provision. Given this, you know that the:

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The price at which an investor can purchase a bond from a dealer is called the _____ price.

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A bond has a yield to maturity of 9.38 percent, a 7.5 percent annual coupon, a $1,000 face value, and a maturity date 21 years from today. What is the current yield?

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Which one of the following is the rate of return an investor earns on a bond before adjusting for inflation?

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Which one of the following terms denotes for certain that a bond is unsecured?

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The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of those securities.

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The value of a bond is dependent upon the:

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Global Trade, Inc. has $1,000 face value bonds outstanding with a market price of $1,013. The bonds pay interest annually, mature in 11 years, and have a yield to maturity of 5.34 percent. What is the current yield?

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Which one of the following statements is true?

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Which one of the following is a unique characteristic of an income bond?

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A call provision grants the bond issuer the:

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A bond has a $1,000 face value, a market price of $1,036, and pays interest payments of $70 every year. What is the coupon rate?

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Which of the following can generally be found in a bond's indenture agreement? I. terms of repayment II) names of registered shareholders III) protective covenants IV) total amount of the bond issue

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One year ago, Alpha Supply issued 15-year bonds at par. The bonds have a coupon rate of 6.5 percent and pay interest annually. Today, the market rate of interest on these bonds is 7.2 percent. How does the price of these bonds today compare to the issue price?

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Explain how a zero coupon bond can create taxable income during a year in which the bond pays no interest payments. Also, explain how the annual taxable amount can be computed.

Correct AnswerverifiedA zero coupon bond creates implicit inte...View AnswerShow Answer

List the various determinants of bond yields and indicate the type of situation that would cause each determinant to increase the yield on a bond.

Correct AnswerverifiedShow Answer

AB Builders, Inc. has 12-year bonds outstanding with a face value of $1,000 and a market price of $974. The bonds pay interest annually and have a yield to maturity of 4.03 percent. What is the coupon rate?

Correct AnswerverifiedShow Answer

The 7 percent annual coupon bonds of TPO, Inc. are selling for $1,021. The bonds have a face value of $1,000 and mature in 6.5 years. What is the yield to maturity?

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Which one of the following premiums is paid on a corporate bond due to its tax status?

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A zero coupon bond creates implicit inte...
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