Question 1

A newspaper listing of bond prices has an "Asked yield" column.This yield is based on the asked price and represents the:

Accepted Answer

A)  yield to maturity.
B)  difference between the current yield and the yield to maturity.
C)  difference between the bond's yield and the yield of a comparable Treasury issue.
D)  coupon rate.
E)  current yield.F) D) and E)
G) B) and D)

Question 2

Why do corporations issue 100-year bonds,knowing that interest rate risk is highest for very long-term bonds? How does the interest rate risk affect the issuer?

Accepted Answer

Essentially,the issuer takes the opposit...

Question 3

TJ's offers a $1,000 face value,zero coupon bond with a yield to maturity of 11.3 percent,given annual compounding.The bond matures in 16 years.What is the current price?

Accepted Answer

A)  $178.78
B)  $180.33
C)  $188.36
D)  $190.09
E)  $192.18F) B) and E)
G) A) and B) B

Question 4

Allison's wants to raise $12.4 million to expand its business.To accomplish this,it plans to sell 25-year,$1,000 face value,zero-coupon bonds.The bonds will be priced to yield 6.5 percent,with semiannual compounding.What is the minimum number of bonds the firm must sell to raise the $12.4 million it needs?

Accepted Answer

A)  59,864
B)  52,667
C)  61,366
D)  60,107
E)  60,435F) None of the above
G) A) and E) C

Question 5

Westover's has an outstanding bond with a coupon rate of 5.5 percent that matures in 12 years.The bond pays interest semiannually.What is the market price of one $1,000 face value bond if the yield to maturity is 7.13 percent?

Accepted Answer

A)  $934.59
B)  $880.86
C)  $870.01
D)  $905.92
E)  $947.87F) A) and B)
G) A) and E)

Question 6

A bond with a face value of $1,000 that sells for less than $1,000 in the market is called a ________ bond.

Accepted Answer

A)  par
B)  discount
C)  premium
D)  zero coupon
E)  floating rateF) A) and D)
G) B) and E)

Question 7

Define what is meant by interest rate risk.Also,assume the manager of a $100 million portfolio of corporate bonds predicts interest rates will rise in the near future.What adjustments should be made to the portfolio assuming the market has not already adjusted for this prediction?

Accepted Answer

Interest rates and bond prices have an i...

Question 8

All else held constant,interest rate risk will increase when the time to maturity:

Accepted Answer

A)  decreases or the coupon rate increases.
B)  decreases or the coupon rate decreases.
C)  increases or the coupon rate increases.
D)  increases or the coupon rate decreases.
E)  decreases and the coupon rate equals zero.F) C) and D)
G) None of the above

Question 9

Most of the trading in bonds is conducted:

Accepted Answer

A)  in person on the floor of the NYSE.
B)  by dealers located in Chicago.
C)  by brokers on various trading floors.
D)  electronically.
E)  on the trade floor in Washington,DC.F) B) and D)
G) C) and E)

Question 10

All else constant,a bond will sell at ________ when the yield to maturity is ________ the coupon rate.

Accepted Answer

A)  a premium; greater than
B)  a premium; equal to
C)  at par; greater than
D)  at par; less than
E)  a discount; greater thanF) A) and C)
G) B) and C)

Question 11

The nominal rate of return on a bond is 7.28 percent while the real rate is 3.09 percent.What is the rate of inflation?

Accepted Answer

A)  4.06 percent
B)  4.28 percent
C)  4.09 percent
D)  4.13 percent
E)  4.17 percentF) All of the above
G) C) and D)

Question 12

Aivree is buying a $1,000 face value bond at a quoted price of 99.486.The bond carries a coupon rate of 5.6 percent,with interest paid semiannually.The next interest payment is four months from today.What is the clean price of this bond?

Accepted Answer

A)  $994.86
B)  $1,004.19
C)  $1,013.53
D)  $987.21
E)  $1,005.73F) B) and E)
G) A) and B)

Question 13

The monthly returns on US Treasury bills over the past 50 years have:

Accepted Answer

A)  exceeded inflation for all periods.
B)  provided consistently positive monthly rates of return for investors.
C)  ranged between zero and five percent on an annualized basis.
D)  always been positive on a real basis.
E)  sometimes been less than the monthly rate of inflation.F) B) and E)
G) A) and B)

Question 14

The interest paid on any municipal bond is:

Accepted Answer

A)  free of default risk.
B)  subject to default risk and is exempt from state income taxation.
C)  free of both default risk and federal income taxation.
D)  exempt from federal income taxation and may or may not be exempt from state taxation.
E)  taxable at the federal level and tax exempt at the state and local level.F) A) and B)
G) A) and C)

Question 15

Consider a bond with a coupon rate of 8 percent that pays semiannual interest and matures in eight years.The market rate of return on bonds of this risk is currently 11 percent.What is the current value of a $1,000 face value bond?

Accepted Answer

A)  $830.58
B)  $843.07
C)  $893.30
D)  $929.17
E)  $854.08F) A) and B)
G) None of the above

Question 16

The relationship between nominal interest rates on default-free,pure discount securities and the time to maturity is called the:

Accepted Answer

A)  liquidity effect.
B)  Fisher effect.
C)  term structure of interest rates.
D)  inflation premium.
E)  interest rate risk premium.F) C) and E)
G) D) and E) C

Question 17

The Lo Sun Corporation offers a bond with a current market price of $1,029.75,a coupon rate of 8 percent,and a yield to maturity of 7.52 percent.The face value is $1,000.Interest is paid semiannually.How many years is it until this bond matures?

Accepted Answer

A)  8.5 years
B)  8.0 years
C)  9.0 years
D)  17 years
E)  16 yearsF) B) and C)
G) D) and E)

Question 18

The bonds issued by Manson and Son bear a coupon of 6 percent,payable semiannually.The bond matures in 15 years and has a $1,000 face value.Currently,the bond sells at par.What is the yield to maturity?

Accepted Answer

A)  5.87 percent
B)  5.97 percent
C)  6.00 percent
D)  6.09 percent
E)  6.17 percentF) C) and D)
G) A) and B)

Question 19

The ________ premium is that portion of a nominal interest rate or bond yield that represents compensation for expected future loss in purchasing power.

Accepted Answer

A)  default risk
B)  taxability
C)  liquidity
D)  inflation
E)  interest rate riskF) B) and D)
G) B) and E)

Question 20

If a bond's yield to maturity is less than its coupon rate,the bond will sell at a ________,and increases in market interest rates will:

Accepted Answer

A)  discount; decrease this discount.
B)  discount; increase this discount.
C)  premium; decrease this premium.
D)  premium; increase this premium.
E)  premium; not affect this premium.F) A) and E)
G) C) and D)

Exam 8: Interest Rates and Bond Valuation

A newspaper listing of bond prices has an "Asked yield" column.This yield is based on the asked price and represents the:

Correct Answer
verified

Why do corporations issue 100-year bonds,knowing that interest rate risk is highest for very long-term bonds? How does the interest rate risk affect the issuer?

Correct Answer
verified
Essentially,the issuer takes the opposit...
View Answer

TJ's offers a $1,000 face value,zero coupon bond with a yield to maturity of 11.3 percent,given annual compounding.The bond matures in 16 years.What is the current price?

Correct Answer
verified
B

Correct Answer
verified
C

Westover's has an outstanding bond with a coupon rate of 5.5 percent that matures in 12 years.The bond pays interest semiannually.What is the market price of one $1,000 face value bond if the yield to maturity is 7.13 percent?

Correct Answer
verified

A bond with a face value of $1,000 that sells for less than $1,000 in the market is called a ________ bond.

Correct Answer
verified

Define what is meant by interest rate risk.Also,assume the manager of a $100 million portfolio of corporate bonds predicts interest rates will rise in the near future.What adjustments should be made to the portfolio assuming the market has not already adjusted for this prediction?

Correct Answer
verified
Interest rates and bond prices have an i...
View Answer

All else held constant,interest rate risk will increase when the time to maturity:

Correct Answer
verified

Most of the trading in bonds is conducted:

Correct Answer
verified

All else constant,a bond will sell at when the yield to maturity is the coupon rate.

Correct Answer
verified

The nominal rate of return on a bond is 7.28 percent while the real rate is 3.09 percent.What is the rate of inflation?

Correct Answer
verified

Aivree is buying a $1,000 face value bond at a quoted price of 99.486.The bond carries a coupon rate of 5.6 percent,with interest paid semiannually.The next interest payment is four months from today.What is the clean price of this bond?

Correct Answer
verified

The monthly returns on US Treasury bills over the past 50 years have:

Correct Answer
verified

The interest paid on any municipal bond is:

Correct Answer
verified

Consider a bond with a coupon rate of 8 percent that pays semiannual interest and matures in eight years.The market rate of return on bonds of this risk is currently 11 percent.What is the current value of a $1,000 face value bond?

Correct Answer
verified

The relationship between nominal interest rates on default-free,pure discount securities and the time to maturity is called the:

Correct Answer
verified
C

The Lo Sun Corporation offers a bond with a current market price of $1,029.75,a coupon rate of 8 percent,and a yield to maturity of 7.52 percent.The face value is $1,000.Interest is paid semiannually.How many years is it until this bond matures?

Correct Answer
verified

The bonds issued by Manson and Son bear a coupon of 6 percent,payable semiannually.The bond matures in 15 years and has a $1,000 face value.Currently,the bond sells at par.What is the yield to maturity?

Correct Answer
verified

The ________ premium is that portion of a nominal interest rate or bond yield that represents compensation for expected future loss in purchasing power.

Correct Answer
verified

If a bond's yield to maturity is less than its coupon rate,the bond will sell at a ________,and increases in market interest rates will:

Correct Answer
verified

Exam 8: Interest Rates and Bond Valuation

A newspaper listing of bond prices has an "Asked yield" column.This yield is based on the asked price and represents the:

Correct AnswerverifiedShow Answer

Why do corporations issue 100-year bonds,knowing that interest rate risk is highest for very long-term bonds? How does the interest rate risk affect the issuer?

Correct AnswerverifiedEssentially,the issuer takes the opposit...View AnswerShow Answer

TJ's offers a $1,000 face value,zero coupon bond with a yield to maturity of 11.3 percent,given annual compounding.The bond matures in 16 years.What is the current price?

Correct AnswerverifiedB

Correct AnswerverifiedC

Westover's has an outstanding bond with a coupon rate of 5.5 percent that matures in 12 years.The bond pays interest semiannually.What is the market price of one $1,000 face value bond if the yield to maturity is 7.13 percent?

Correct AnswerverifiedShow Answer

A bond with a face value of $1,000 that sells for less than $1,000 in the market is called a ________ bond.

Correct AnswerverifiedShow Answer

Define what is meant by interest rate risk.Also,assume the manager of a $100 million portfolio of corporate bonds predicts interest rates will rise in the near future.What adjustments should be made to the portfolio assuming the market has not already adjusted for this prediction?

Correct AnswerverifiedInterest rates and bond prices have an i...View AnswerShow Answer

All else held constant,interest rate risk will increase when the time to maturity:

Correct AnswerverifiedShow Answer

Most of the trading in bonds is conducted:

Correct AnswerverifiedShow Answer

All else constant,a bond will sell at ________ when the yield to maturity is ________ the coupon rate.

Correct AnswerverifiedShow Answer

The nominal rate of return on a bond is 7.28 percent while the real rate is 3.09 percent.What is the rate of inflation?

Correct AnswerverifiedShow Answer

Aivree is buying a $1,000 face value bond at a quoted price of 99.486.The bond carries a coupon rate of 5.6 percent,with interest paid semiannually.The next interest payment is four months from today.What is the clean price of this bond?

Correct AnswerverifiedShow Answer

The monthly returns on US Treasury bills over the past 50 years have:

Correct AnswerverifiedShow Answer

The interest paid on any municipal bond is:

Correct AnswerverifiedShow Answer

Consider a bond with a coupon rate of 8 percent that pays semiannual interest and matures in eight years.The market rate of return on bonds of this risk is currently 11 percent.What is the current value of a $1,000 face value bond?

Correct AnswerverifiedShow Answer

The relationship between nominal interest rates on default-free,pure discount securities and the time to maturity is called the:

Correct AnswerverifiedC

The Lo Sun Corporation offers a bond with a current market price of $1,029.75,a coupon rate of 8 percent,and a yield to maturity of 7.52 percent.The face value is $1,000.Interest is paid semiannually.How many years is it until this bond matures?

Correct AnswerverifiedShow Answer

The bonds issued by Manson and Son bear a coupon of 6 percent,payable semiannually.The bond matures in 15 years and has a $1,000 face value.Currently,the bond sells at par.What is the yield to maturity?

Correct AnswerverifiedShow Answer

The ________ premium is that portion of a nominal interest rate or bond yield that represents compensation for expected future loss in purchasing power.

Correct AnswerverifiedShow Answer

If a bond's yield to maturity is less than its coupon rate,the bond will sell at a ________,and increases in market interest rates will:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Essentially,the issuer takes the opposit...
View Answer

Correct Answer
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B

Correct Answer
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C

Correct Answer
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Correct Answer
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Correct Answer
verified
Interest rates and bond prices have an i...
View Answer

Correct Answer
verified

Correct Answer
verified

All else constant,a bond will sell at when the yield to maturity is the coupon rate.

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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C

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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