Question 1

The outstanding bonds of Winter Time Products provide a real rate of return of 5.6 percent.The current rate of inflation is 4.68 percent.What is the actual nominal rate of return on these bonds?

Accepted Answer

A)  8.58 percent
B)  9.33 percent
C)  9.71 percent
D)  9.76 percent
E)  10.54 percentF) A) and B)
G) A) and C)

Question 2

Mary is a retired widow who is financially dependent upon the interest income produced by her bond portfolio.Which one of the following bonds is the least suitable for her to own?

Accepted Answer

A)  6-year, putable, high coupon bond
B)  5-year TIPS
C)  10-year AAA coupon bond
D)  5-year floating rate bond
E)  7- year income bondF) A) and C)
G) A) and B)

Question 3

The semiannual,8-year bonds of Alto Music are selling at par and have an effective annual yield of 8.6285 percent.What is the amount of each interest payment if the face value of the bonds is $1,000?

Accepted Answer

A)  $41.50
B)  $42.25
C)  $43.15
D)  $85.00
E)  $86.29F) B) and D)
G) A) and B)

Question 4

The yield to maturity on a bond is currently 8.46 percent.The real rate of return is 3.22 percent.What is the rate of inflation?

Accepted Answer

A)  5.08 percent
B)  5.64 percent
C)  6.24 percent
D)  6.53 percent
E)  6.71 percentF) A) and D)
G) C) and D)

Question 5

A bond that can be paid off early at the issuer's discretion is referred to as being which one of the following?

Accepted Answer

A)  zero coupon
B)  callable
C)  senior
D)  collateralized
E)  unsecuredF) B) and D)
G) D) and E)

Question 6

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

Question 7

The specified date on which the principal amount of a bond is payable is referred to as which one of the following?

Accepted Answer

A)  coupon date
B)  yield date
C)  maturity
D)  dirty date
E)  clean dateF) B) and E)
G) D) and E)

Question 8

"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 D)
G) A) and B)

Question 9

You purchased an investment which will pay you $8,000,in real dollars,a year for the next three years.Each payment will be received at the end of the period with the first payment occurring one year from today.The nominal discount rate is 7.5 percent and the inflation rate is 2.9 percent.What is the present value of these payments?

Accepted Answer

A)  $21,720
B)  $22,004
C)  $22,511
D)  $23,406
E)  $23,529F) All of the above
G) B) and D)

Question 10

Soo Lee Imports issued 17-year bonds 2 years ago at a coupon rate of 10.3 percent.The bonds make semiannual payments.These bonds currently sell for 102 percent of par value.What is the yield-to-maturity?

Accepted Answer

A)  9.98 percent
B)  10.04 percent
C)  10.13 percent
D)  10.27 percent
E)  10.42 percentF) C) and E)
G) A) and B)

Question 11

A 6 percent,annual coupon bond is currently selling at a premium and matures in 7 years.The bond was originally issued 3 years ago at par.Which one of the following statements is accurate in respect to this bond today?

Accepted Answer

A)  The face value of the bond today is greater than it was when the bond was issued.
B)  The bond is worth less today than when it was issued.
C)  The yield-to-maturity is less than the coupon rate.
D)  The coupon rate is greater than the current yield.
E)  The yield-to-maturity equals the current yield.F) B) and C)
G) C) and D)

Question 12

A Treasury bond is quoted at a price of 105: 10.What is the market price of this bond if the face value is $5,000?

Accepted Answer

A)  $5,005.15
B)  $5,105.15
C)  $5,265.63
D)  $5,273.44
E)  $5,515.00F) A) and B)
G) A) and C)

Question 13

Which one of the following statements concerning bond ratings is correct?

Accepted Answer

A)  Investment grade bonds are rated BB or higher by Standard & Poor's.
B)  Bond ratings assess both interest rate risk and default risk.
C)  Split rated bonds are called crossover bonds.
D)  The highest rating issued by Moody's is AAA.
E)  A "fallen angel" is a term applied to all "junk" bonds.F) A) and B)
G) All of the above

Question 14

Northern Warehouses wants to raise $11.4 million to expand its business.To accomplish this,it plans to sell 40-year,$1,000 face value,zero-coupon bonds.The bonds will be priced to yield 8.75 percent.What is the minimum number of bonds it must sell to raise the $11.4 million it needs?

Accepted Answer

A)  210,411
B)  239,800
C)  254,907
D)  326,029
E)  350,448F) None of the above
G) B) and C)

Question 15

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 D)
G) C) and D)

Question 16

Blackwell bonds have a face value of $1,000 and are currently quoted at 98.4.The bonds have a 5 percent coupon rate.What is the current yield on these bonds?

Accepted Answer

A)  4.67 percent
B)  4.78 percent
C)  5.08 percent
D)  5.33 percent
E)  5.54 percentF) C) and D)
G) A) and E)

Question 17

A bond's coupon rate is equal to the annual interest divided by which one of the following?

Accepted Answer

A)  call price
B)  current price
C)  face value
D)  clean price
E)  dirty priceF) D) and E)
G) All of the above

Question 18

Roadside Markets has a 6.75 percent coupon bond outstanding that matures in 10.5 years.The bond pays interest semiannually.What is the market price per bond if the face value is $1,000 and the yield to maturity is 7.2 percent?

Accepted Answer

A)  $899.80
B)  $899.85
C)  $903.42
D)  $967.24
E)  $1,007.52F) B) and E)
G) C) and E)

Question 19

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 8.45 percent.How many years is it until these bonds mature?

Accepted Answer

A)  11.92 years
B)  12.28 years
C)  13.80 years
D)  13.01 years
E)  27.59 yearsF) A) and D)
G) B) and C)

Question 20

Grand Adventure Properties offers a 9.5 percent coupon bond with annual payments.The yield to maturity is 11.2 percent and the maturity date is 11 years from today.What is the market price of this bond if the face value is $1,000?

Accepted Answer

A)  $895.43
B)  $896.67
C)  $941.20
D)  $946.18
E)  $953.30F) A) and D)
G) All of the above

Exam 7: Interest Rates and Bond Valuation

Mary is a retired widow who is financially dependent upon the interest income produced by her bond portfolio.Which one of the following bonds is the least suitable for her to own?

Correct Answer
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Which one of the following statements concerning bond ratings is correct?

Correct Answer
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"Cat" bonds are primarily designed to help:

Correct Answer
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Callable bonds generally:

Correct Answer
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Roadside Markets has a 6.75 percent coupon bond outstanding that matures in 10.5 years.The bond pays interest semiannually.What is the market price per bond if the face value is $1,000 and the yield to maturity is 7.2 percent?

Correct Answer
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The specified date on which the principal amount of a bond is payable is referred to as which one of the following?

Correct Answer
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A bond's coupon rate is equal to the annual interest divided by which one of the following?

Correct Answer
verified

A bond that can be paid off early at the issuer's discretion is referred to as being which one of the following?

Correct Answer
verified

Correct Answer
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A Treasury bond is quoted at a price of 105: 10.What is the market price of this bond if the face value is $5,000?

Correct Answer
verified

The semiannual,8-year bonds of Alto Music are selling at par and have an effective annual yield of 8.6285 percent.What is the amount of each interest payment if the face value of the bonds is $1,000?

Correct Answer
verified

Blackwell bonds have a face value of $1,000 and are currently quoted at 98.4.The bonds have a 5 percent coupon rate.What is the current yield on these bonds?

Correct Answer
verified

Northern Warehouses wants to raise $11.4 million to expand its business.To accomplish this,it plans to sell 40-year,$1,000 face value,zero-coupon bonds.The bonds will be priced to yield 8.75 percent.What is the minimum number of bonds it must sell to raise the $11.4 million it needs?

Correct Answer
verified

The outstanding bonds of Winter Time Products provide a real rate of return of 5.6 percent.The current rate of inflation is 4.68 percent.What is the actual nominal rate of return on these bonds?

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 8.45 percent.How many years is it until these bonds mature?

Correct Answer
verified

Correct Answer
verified

Grand Adventure Properties offers a 9.5 percent coupon bond with annual payments.The yield to maturity is 11.2 percent and the maturity date is 11 years from today.What is the market price of this bond if the face value is $1,000?

Correct Answer
verified

Soo Lee Imports issued 17-year bonds 2 years ago at a coupon rate of 10.3 percent.The bonds make semiannual payments.These bonds currently sell for 102 percent of par value.What is the yield-to-maturity?

Correct Answer
verified

The yield to maturity on a bond is currently 8.46 percent.The real rate of return is 3.22 percent.What is the rate of inflation?

Correct Answer
verified

A 6 percent,annual coupon bond is currently selling at a premium and matures in 7 years.The bond was originally issued 3 years ago at par.Which one of the following statements is accurate in respect to this bond today?

Correct Answer
verified

Exam 7: Interest Rates and Bond Valuation

Mary is a retired widow who is financially dependent upon the interest income produced by her bond portfolio.Which one of the following bonds is the least suitable for her to own?

Correct AnswerverifiedShow Answer

Which one of the following statements concerning bond ratings is correct?

Correct AnswerverifiedShow Answer

"Cat" bonds are primarily designed to help:

Correct AnswerverifiedShow Answer

Callable bonds generally:

Correct AnswerverifiedShow Answer

Roadside Markets has a 6.75 percent coupon bond outstanding that matures in 10.5 years.The bond pays interest semiannually.What is the market price per bond if the face value is $1,000 and the yield to maturity is 7.2 percent?

Correct AnswerverifiedShow Answer

The specified date on which the principal amount of a bond is payable is referred to as which one of the following?

Correct AnswerverifiedShow Answer

A bond's coupon rate is equal to the annual interest divided by which one of the following?

Correct AnswerverifiedShow Answer

A bond that can be paid off early at the issuer's discretion is referred to as being which one of the following?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A Treasury bond is quoted at a price of 105: 10.What is the market price of this bond if the face value is $5,000?

Correct AnswerverifiedShow Answer

The semiannual,8-year bonds of Alto Music are selling at par and have an effective annual yield of 8.6285 percent.What is the amount of each interest payment if the face value of the bonds is $1,000?

Correct AnswerverifiedShow Answer

Blackwell bonds have a face value of $1,000 and are currently quoted at 98.4.The bonds have a 5 percent coupon rate.What is the current yield on these bonds?

Correct AnswerverifiedShow Answer

Northern Warehouses wants to raise $11.4 million to expand its business.To accomplish this,it plans to sell 40-year,$1,000 face value,zero-coupon bonds.The bonds will be priced to yield 8.75 percent.What is the minimum number of bonds it must sell to raise the $11.4 million it needs?

Correct AnswerverifiedShow Answer

The outstanding bonds of Winter Time Products provide a real rate of return of 5.6 percent.The current rate of inflation is 4.68 percent.What is the actual nominal rate of return on these bonds?

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 8.45 percent.How many years is it until these bonds mature?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Grand Adventure Properties offers a 9.5 percent coupon bond with annual payments.The yield to maturity is 11.2 percent and the maturity date is 11 years from today.What is the market price of this bond if the face value is $1,000?

Correct AnswerverifiedShow Answer

Soo Lee Imports issued 17-year bonds 2 years ago at a coupon rate of 10.3 percent.The bonds make semiannual payments.These bonds currently sell for 102 percent of par value.What is the yield-to-maturity?

Correct AnswerverifiedShow Answer

The yield to maturity on a bond is currently 8.46 percent.The real rate of return is 3.22 percent.What is the rate of inflation?

Correct AnswerverifiedShow Answer

A 6 percent,annual coupon bond is currently selling at a premium and matures in 7 years.The bond was originally issued 3 years ago at par.Which one of the following statements is accurate in respect to this bond today?

Correct AnswerverifiedShow Answer

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