Question 1

The 6.3 percent,semi-annual coupon bonds of PE Engineers mature in 13 years and have a price quote of 99.2.These bonds have a current yield of _____ percent,a yield to maturity of _____ percent,and an effective annual yield of _____ percent.

Accepted Answer

A)  6.35; 6.32; 6.29
B)  6.35; 6.39; 6.49
C)  6.12; 6.36; 6.42
D)  6.23; 6.20; 6.16
E)  6.23; 6.36; 6.42F) A) and E)
G) A) and D)

Question 2

A company needs to raise $22 million and plans to issue 20-year bonds for this purpose.The required rate of return is7.6 percent in the current market.The company has two issue alternatives: a 7.6 percent coupon and a zero coupon bond.The company's tax rate is 34 percent.At bond maturity,how much will the company need to pay to its bondholders if it issues the coupon bonds?
What if it issue the zeros?
Assume semiannual compounding for both bond issues.(For simplicity's sake,assume the company can issue a partial bond.)

Accepted Answer

A)  $21.407 million; $102.12 million
B)  $23.672 million; $97.795.51 million
C)  $22.836 million; $102.12 million
D)  $22.836 million; $97.795 million
E)  $23.672 million; $102.12 millionF) A) and D)
G) D) and E)

Question 3

Blue Water bonds have a face value of $1,000,a coupon rate of 6.5 percent,semiannual interest payments,and mature in 11.5 years.What is the current price of these bonds if the yield to maturity is 6.36 percent?

Accepted Answer

A)  $979.20
B)  $984.56
C)  $1,011.30
D)  $1,018.27
E)  $1,020.00F) A) and B)
G) B) and D)

Question 4

A bond trader just purchased and resold a bond.The amount of profit earned by the trader from this purchase and resale is referred to as the:

Accepted Answer

A)  market yield.
B)  yield-to-call.
C)  bid-ask spread.
D)  current yield.
E)  bond premium.F) C) and E)
G) A) and C)

Question 5

Bond ratings classify bonds based on:

Accepted Answer

A)  liquidity, market, and default risk.
B)  liquidity, interest rate, and default risk.
C)  default risk only.
D)  interest rate, inflation rate, and default risk.
E)  default and liquidity risks.F) A) and B)
G) A) and C)

Question 6

A U.S.Treasury bond pays 3.05 percent interest.You are in the 28 percent marginal tax bracket.What is your after tax yield on this bond?

Accepted Answer

A)  3.05 percent
B)  2.30 percent
C)  2.20 percent
D)  2.11 percent
E)  2.38 percentF) B) and E)
G) A) and D)

Question 7

TAC Co.has 4.8 percent,semiannual coupon bonds on the market with four years left to maturity.If the bond currently sells for $908.60,what is its YTM?

Accepted Answer

A)  8.02 percent
B)  7.90 percent
C)  8.10 percent
D)  7.49 percent
E)  6.78 percentF) A) and E)
G) C) and D)

Question 8

A debenture is:

Accepted Answer

A)  an unsecured bond.
B)  a bearer form bond.
C)  a bond with a call provision.
D)  a bond with a sinking fund provision.
E)  a bond secured by a blanket mortgage.F) A) and D)
G) A) and C)

Question 9

If intermediate-term,default-free,pure discount bonds have a higher rate of return than either the comparable shorter-term or longer-term bonds,the term structure of interest rates will be:

Accepted Answer

A)  upward sloping.
B)  flat.
C)  humped.
D)  downward sloping.
E)  double-humped.F) A) and D)
G) C) and D)

Question 10

You purchase a bond with an invoice price of $1,108.48.The bond has a coupon rate of 5.5 percent,semiannual coupons,and there are two months to the next coupon date.What is the clean price of the bond?

Accepted Answer

A)  $1,086.35
B)  $1,090.15
C)  $1,050.20
D)  $998.50
E)  $1,057.50F) A) and E)
G) A) and D)

Question 11

A $1,000 face value bond is currently quoted at 100.8.The bond pays semiannual payments of $22.50 each and matures in six years.What is the coupon rate?

Accepted Answer

A)  2.72 percent
B)  2.85 percent
C)  4.46 percent
D)  2.25 percent
E)  4.50 percentF) B) and D)
G) B) and E)

Question 12

The 6.5 percent bond of ABCO has a yield to maturity of 6.82 percent.The bond matures in seven years,has a face value of $1,000,and pays semiannual interest payments.What is the amount of each coupon payment?

Accepted Answer

A)  $30.00
B)  $32.50
C)  $68.20
D)  $34.10
E)  $65.00F) B) and E)
G) A) and E)

Question 13

Smiley Industrial Goods has $1,000 face value bonds on the market with semiannual interest payments,13.5 years to maturity,and a market price of $1,023.At this price,the bonds yield 6.4 percent.What must be the coupon rate on these bonds?

Accepted Answer

A)  3.33 percent
B)  3.75 percent
C)  7.33 percent
D)  6.66 percent
E)  7.50 percentF) B) and E)
G) A) and E)

Question 14

Last year,you earned a rate of return of 6.42 percent on your bond investments.During that time,the inflation rate was 1.6 percent.What was your real rate of return?

Accepted Answer

A)  4.69 percent
B)  4.80 percent
C)  4.83 percent
D)  4.74 percent
E)  4.71 percentF) C) and D)
G) A) and D)

Question 15

A bond's indenture agreement generally includes all of the following except the:

Accepted Answer

A)  terms of repayment.
B)  details of protective covenants.
C)  total amount of the bond issue.
D)  names of registered shareholders.
E)  description of property used as security.F) D) and E)
G) A) and C)

Question 16

You own two bonds,each of which currently pays semiannual interest,has a coupon rate of 6 percent,a $1,000 face value,and 6 percent yields to maturity.Bond A has 12 years to maturity and Bond B has 4 years to maturity.If the market rate of interest rises unexpectedly to 7 percent,Bond _____ will be the most volatile with a price decrease of _____ percent.

Accepted Answer

A)  A; 5.73
B)  A; 3.44
C)  A; 8.03
D)  B; 7.97
E)  B; 4.51F) C) and D)
G) B) and E)

Question 17

Municipal bonds are:

Accepted Answer

A)  generally purchased by tax-exempt investors.
B)  risk-free.
C)  issued by federal, state, and local governmental bodies.
D)  zero coupon bonds.
E)  generally callable.F) A) and B)
G) A) and C)

Question 18

Travis recently purchased a callable bond.However,that bond cannot be currently redeemed by the issuer.Thus,the bond must currently be:

Accepted Answer

A)  subject to a sinking fund provision.
B)  a debenture.
C)  a "fallen angel."
D)  call protected.
E)  unrated.F) None of the above
G) A) and B)

Question 19

National Distributors has $1,000 face value bonds outstanding with a market price of $1,013.The bonds pay interest semiannually,mature in 11 years,and have a yield to maturity of 6.87 percent.What is the current yield?

Accepted Answer

A)  7.39 percent
B)  6.95 percent
C)  6.48 percent
D)  7.61 percent
E)  6.77 percentF) All of the above
G) C) and E)

Question 20

Which statement is true?

Accepted Answer

A)  Bonds are generally called at par value.
B)  A current list of all bondholders is maintained whenever a firm issues bearer bonds.
C)  An indenture is a contract between a bond's issuer and its holders.
D)  Collateralized bonds are called debentures.
E)  A bondholder has the right to determine when his or her bond is called.F) A) and B)
G) A) and C)

Exam 6: Interest Rates and Bond Valuation

TAC Co.has 4.8 percent,semiannual coupon bonds on the market with four years left to maturity.If the bond currently sells for $908.60,what is its YTM?

Correct Answer
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Correct Answer
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National Distributors has $1,000 face value bonds outstanding with a market price of $1,013.The bonds pay interest semiannually,mature in 11 years,and have a yield to maturity of 6.87 percent.What is the current yield?

Correct Answer
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The 6.5 percent bond of ABCO has a yield to maturity of 6.82 percent.The bond matures in seven years,has a face value of $1,000,and pays semiannual interest payments.What is the amount of each coupon payment?

Correct Answer
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Blue Water bonds have a face value of $1,000,a coupon rate of 6.5 percent,semiannual interest payments,and mature in 11.5 years.What is the current price of these bonds if the yield to maturity is 6.36 percent?

Correct Answer
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If intermediate-term,default-free,pure discount bonds have a higher rate of return than either the comparable shorter-term or longer-term bonds,the term structure of interest rates will be:

Correct Answer
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Travis recently purchased a callable bond.However,that bond cannot be currently redeemed by the issuer.Thus,the bond must currently be:

Correct Answer
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Smiley Industrial Goods has $1,000 face value bonds on the market with semiannual interest payments,13.5 years to maturity,and a market price of $1,023.At this price,the bonds yield 6.4 percent.What must be the coupon rate on these bonds?

Correct Answer
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You purchase a bond with an invoice price of $1,108.48.The bond has a coupon rate of 5.5 percent,semiannual coupons,and there are two months to the next coupon date.What is the clean price of the bond?

Correct Answer
verified

Correct Answer
verified

A bond trader just purchased and resold a bond.The amount of profit earned by the trader from this purchase and resale is referred to as the:

Correct Answer
verified

A $1,000 face value bond is currently quoted at 100.8.The bond pays semiannual payments of $22.50 each and matures in six years.What is the coupon rate?

Correct Answer
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Bond ratings classify bonds based on:

Correct Answer
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A U.S.Treasury bond pays 3.05 percent interest.You are in the 28 percent marginal tax bracket.What is your after tax yield on this bond?

Correct Answer
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A debenture is:

Correct Answer
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Last year,you earned a rate of return of 6.42 percent on your bond investments.During that time,the inflation rate was 1.6 percent.What was your real rate of return?

Correct Answer
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Which statement is true?

Correct Answer
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A bond's indenture agreement generally includes all of the following except the:

Correct Answer
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The 6.3 percent,semi-annual coupon bonds of PE Engineers mature in 13 years and have a price quote of 99.2.These bonds have a current yield of ___ percent,a yield to maturity of _ percent,and an effective annual yield of ___ percent.

Correct Answer
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Municipal bonds are:

Correct Answer
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Exam 6: Interest Rates and Bond Valuation

TAC Co.has 4.8 percent,semiannual coupon bonds on the market with four years left to maturity.If the bond currently sells for $908.60,what is its YTM?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

National Distributors has $1,000 face value bonds outstanding with a market price of $1,013.The bonds pay interest semiannually,mature in 11 years,and have a yield to maturity of 6.87 percent.What is the current yield?

Correct AnswerverifiedShow Answer

The 6.5 percent bond of ABCO has a yield to maturity of 6.82 percent.The bond matures in seven years,has a face value of $1,000,and pays semiannual interest payments.What is the amount of each coupon payment?

Correct AnswerverifiedShow Answer

Blue Water bonds have a face value of $1,000,a coupon rate of 6.5 percent,semiannual interest payments,and mature in 11.5 years.What is the current price of these bonds if the yield to maturity is 6.36 percent?

Correct AnswerverifiedShow Answer

If intermediate-term,default-free,pure discount bonds have a higher rate of return than either the comparable shorter-term or longer-term bonds,the term structure of interest rates will be:

Correct AnswerverifiedShow Answer

Travis recently purchased a callable bond.However,that bond cannot be currently redeemed by the issuer.Thus,the bond must currently be:

Correct AnswerverifiedShow Answer

Smiley Industrial Goods has $1,000 face value bonds on the market with semiannual interest payments,13.5 years to maturity,and a market price of $1,023.At this price,the bonds yield 6.4 percent.What must be the coupon rate on these bonds?

Correct AnswerverifiedShow Answer

You purchase a bond with an invoice price of $1,108.48.The bond has a coupon rate of 5.5 percent,semiannual coupons,and there are two months to the next coupon date.What is the clean price of the bond?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A bond trader just purchased and resold a bond.The amount of profit earned by the trader from this purchase and resale is referred to as the:

Correct AnswerverifiedShow Answer

A $1,000 face value bond is currently quoted at 100.8.The bond pays semiannual payments of $22.50 each and matures in six years.What is the coupon rate?

Correct AnswerverifiedShow Answer

Bond ratings classify bonds based on:

Correct AnswerverifiedShow Answer

A U.S.Treasury bond pays 3.05 percent interest.You are in the 28 percent marginal tax bracket.What is your after tax yield on this bond?

Correct AnswerverifiedShow Answer

A debenture is:

Correct AnswerverifiedShow Answer

Last year,you earned a rate of return of 6.42 percent on your bond investments.During that time,the inflation rate was 1.6 percent.What was your real rate of return?

Correct AnswerverifiedShow Answer

Which statement is true?

Correct AnswerverifiedShow Answer

A bond's indenture agreement generally includes all of the following except the:

Correct AnswerverifiedShow Answer

The 6.3 percent,semi-annual coupon bonds of PE Engineers mature in 13 years and have a price quote of 99.2.These bonds have a current yield of _____ percent,a yield to maturity of _____ percent,and an effective annual yield of _____ percent.

Correct AnswerverifiedShow Answer

Municipal bonds are:

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
verified

The 6.3 percent,semi-annual coupon bonds of PE Engineers mature in 13 years and have a price quote of 99.2.These bonds have a current yield of ___ percent,a yield to maturity of _ percent,and an effective annual yield of ___ percent.

Correct Answer
verified

Correct Answer
verified