Question 1

Which combination of bond characteristics causes a bond to be most sensitive to changes in market interest rates?
I.low coupon rates
II.high coupon rates
III.short time to maturity
IV.long time to maturity

Accepted Answer

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

Question 2

A $1,000 face value bond matures in 11 years,pays interest semiannually,and has a 6.5 percent coupon.The bond currently sells for $1,025.What is the yield to maturity?

Accepted Answer

A)   6.17 percent
B)   6.18 percent
C)   6.28 percent
D)   6.34 percent
E)   6.37 percentF) A) and B)
G) B) and E)

Question 3

Which one of the following must be equal for two bonds if they are to have similar changes in their prices given a relatively small change in bond yields?

Accepted Answer

A)   coupon payment
B)   time to maturity
C)   market price
D)   duration
E)   current yieldF) All of the above
G) A) and D)

Question 4

A bond has a dollar value of an 01 of 0.0710.What is the yield value of a 32nd?

Accepted Answer

A)   0.4008
B)   0.4178
C)   0.4229
D)   0.4347
E)   0.4401F) C) and D)
G) A) and D)

Question 5

A bond has a Macaulay duration of 6.25 years.What will be the percentage change in the bond price if the yield to maturity increases from 6 percent to 6.4 percent?

Accepted Answer

A)   -2.23 percent
B)   -2.43 percent
C)   -3.30 percent
D)   -3.38 percent
E)   -3.46 percentF) A) and D)
G) A) and E)

Question 6

The modified duration:

Accepted Answer

A)   is equal to the Macaulay duration divided by (1 + Yield to maturity) .
B)   multiplied by (-1 × Change in the yield to maturity)  equals the approximate percentage change in a bond's price.
C)   will be the same for any bonds that have equal times to maturity.
D)   only applies to pure discount securities.
E)   must be converted to a Macaulay duration before computing the percentage change in a bond's price.F) None of the above
G) A) and B)

Question 7

A bond has a modified duration of 7.22 and a yield to maturity of 8.1 percent.If interest rates increase by 75 basis points,the bond's price will decrease by ________ percent.

Accepted Answer

A)   -0.46
B)   -0.54
C)   -4.60
D)   -5.42
E)   -6.18F) C) and D)
G) A) and B)

Question 8

Will owns a bond with a make-whole call provision.The bond matures in 13 years but is being called today.The coupon rate is 8.25 percent with interest paid semiannually.What is the current call price if the applicable discount rate is 7.75 percent and the make-whole call provision applies?

Accepted Answer

A)   $932.84
B)   $957.11
C)   $1,040.51
D)   $1,110.28
E)   $1,128.66F) All of the above
G) A) and E)

Question 9

You own a 5.5 percent,semiannual coupon bond that matures in 8 years.The par value is $1,000 and the current yield to maturity is 6.4 percent.What will the percentage change in the price of your bond be if the yield to maturity suddenly increases by 50 basis points?

Accepted Answer

A)   -3.05 percent
B)   -3.10 percent
C)   -3.25 percent
D)   -3.30 percent
E)   -3.45 percentF) A) and D)
G) B) and D)

Question 10

Which one of the following risks is associated with investing a coupon payment at a rate that is lower than the bond's yield-to-maturity?

Accepted Answer

A)   reinvestment rate risk
B)   current rate risk
C)   payment risk
D)   current yield risk
E)   maturity riskF) A) and B)
G) B) and E)

Question 11

The yield to maturity is the:

Accepted Answer

A)   discount rate that equates a bond's price with the present value of the bond's future cash flows.
B)   rate you will earn if your bond is called on the earliest possible date.
C)   rate computed by dividing the annual interest by the par value.
D)   rate used to compute the amount of each interest payment.
E)   rate computed as the annual interest divided by the market value.F) A) and B)
G) A) and C)

Question 12

A 5.5 percent coupon bond has a face value of $1,000 and a current yield of 5.64 percent.What is the current market price?

Accepted Answer

A)   $975.18
B)   $989.18
C)   $1,011.82
D)   $3,933.43
E)   $4,067.47F) A) and E)
G) None of the above

Question 13

The outstanding bonds of Alpha Extracts have a yield to maturity of 7.4 percent and a modified duration of 11.8.If the yield to maturity instantly decreased to 6.8 percent,the bond's price would increase/decrease by ________ percent.

Accepted Answer

A)   -7.08
B)   -5.67
C)   1.45
D)   5.72
E)   7.08F) A) and E)
G) None of the above

Question 14

Jefferson-Smith bonds are quoted at a price of $952.42 for a $1,000 face value bond.These bonds have a modified duration of 9.84.What is the dollar value of an 01?

Accepted Answer

A)   $0.0977
B)   $0.0963
C)   $0.1028
D)   $0.9372
E)   $0.9767F) C) and D)
G) B) and E)

Question 15

A change in a bond's price caused by which one of the following is defined as the dollar value of an 01?

Accepted Answer

A)   change in yield to call due to passage of one year
B)   change in yield to maturity of one percent
C)   change in yield to maturity of one basis point
D)   change in coupon rate of one percent
E)   change in coupon rate of one basis pointF) None of the above
G) B) and D)

Question 16

A bond has 8 years to maturity,a 7 percent coupon,a $1,000 face value,and pays interest semiannually.What is the bond's current price if the yield to maturity is 6.91 percent?

Accepted Answer

A)   $799.32
B)   $848.16
C)   $917.92
D)   $1,005.46
E)   $1,009.73F) B) and E)
G) A) and B)

Question 17

A $1,000 par value bond is currently valued at $1,055.The bond pays interest semi-annually,has 10 years to maturity,and has a yield to maturity of 7.3 percent.The coupon rate is ________ percent and the current yield is ________ percent.

Accepted Answer

A)   7.80; 6.21
B)   8.00; 7.31
C)   8.00; 7.51
D)   8.08; 7.66
E)   8.50; 8.30F) D) and E)
G) B) and E)

Question 18

A bond pays semiannual interest payments of $35.25.What is the coupon rate if the par value is $1,000?

Accepted Answer

A)   5.75 percent
B)   6.50 percent
C)   7.05 percent
D)   8.50 percent
E)   9.38 percentF) D) and E)
G) All of the above

Question 19

What is the annual interest divided by the market price of a bond called?

Accepted Answer

A)   coupon rate
B)   effective annual yield
C)   current yield
D)   yield to maturity
E)   yield to marketF) None of the above
G) B) and C)

Question 20

Two bonds have a coupon rate of 5.25 percent,semi-annual payments,face values of $1,000,and yields to maturity of 6.1 percent.Bond S matures in 5 years and bond L matures in 10 years.What is the difference in the current prices of these bonds?

Accepted Answer

A)   $25.26
B)   $26.78
C)   $27.40
D)   $28.38
E)   $29.02F) A) and C)
G) B) and E)

Exam 10: Bond Prices and Yields

A $1,000 face value bond matures in 11 years,pays interest semiannually,and has a 6.5 percent coupon.The bond currently sells for $1,025.What is the yield to maturity?

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Which one of the following risks is associated with investing a coupon payment at a rate that is lower than the bond's yield-to-maturity?

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What is the annual interest divided by the market price of a bond called?

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Will owns a bond with a make-whole call provision.The bond matures in 13 years but is being called today.The coupon rate is 8.25 percent with interest paid semiannually.What is the current call price if the applicable discount rate is 7.75 percent and the make-whole call provision applies?

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A bond has a dollar value of an 01 of 0.0710.What is the yield value of a 32nd?

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Two bonds have a coupon rate of 5.25 percent,semi-annual payments,face values of $1,000,and yields to maturity of 6.1 percent.Bond S matures in 5 years and bond L matures in 10 years.What is the difference in the current prices of these bonds?

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Which one of the following must be equal for two bonds if they are to have similar changes in their prices given a relatively small change in bond yields?

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You own a 5.5 percent,semiannual coupon bond that matures in 8 years.The par value is $1,000 and the current yield to maturity is 6.4 percent.What will the percentage change in the price of your bond be if the yield to maturity suddenly increases by 50 basis points?

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The modified duration:

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A change in a bond's price caused by which one of the following is defined as the dollar value of an 01?

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A 5.5 percent coupon bond has a face value of $1,000 and a current yield of 5.64 percent.What is the current market price?

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A bond has a modified duration of 7.22 and a yield to maturity of 8.1 percent.If interest rates increase by 75 basis points,the bond's price will decrease by ________ percent.

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A bond has 8 years to maturity,a 7 percent coupon,a $1,000 face value,and pays interest semiannually.What is the bond's current price if the yield to maturity is 6.91 percent?

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Jefferson-Smith bonds are quoted at a price of $952.42 for a $1,000 face value bond.These bonds have a modified duration of 9.84.What is the dollar value of an 01?

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A bond pays semiannual interest payments of $35.25.What is the coupon rate if the par value is $1,000?

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Which combination of bond characteristics causes a bond to be most sensitive to changes in market interest rates? I.low coupon rates II.high coupon rates III.short time to maturity IV.long time to maturity

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A bond has a Macaulay duration of 6.25 years.What will be the percentage change in the bond price if the yield to maturity increases from 6 percent to 6.4 percent?

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The outstanding bonds of Alpha Extracts have a yield to maturity of 7.4 percent and a modified duration of 11.8.If the yield to maturity instantly decreased to 6.8 percent,the bond's price would increase/decrease by ________ percent.

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The yield to maturity is the:

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A $1,000 par value bond is currently valued at $1,055.The bond pays interest semi-annually,has 10 years to maturity,and has a yield to maturity of 7.3 percent.The coupon rate is ________ percent and the current yield is ________ percent.

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A bond has a dollar value of an 01 of 0.0710.What is the yield value of a 32^nd?

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A $1,000 par value bond is currently valued at $1,055.The bond pays interest semi-annually,has 10 years to maturity,and has a yield to maturity of 7.3 percent.The coupon rate is percent and the current yield is percent.

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