Question 1

Meacham Enterprises' bonds currently sell for $1,280 and have a par value of $1,000.They pay a $135 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,050.What is their yield to call (YTC) ?

Accepted Answer

A)   6.39%
B)   6.72%
C)   7.08%
D)   7.45%
E)   7.82%F) B) and D)
G) C) and D)

Question 2

Perry Inc.'s bonds currently sell for $1,150.They have a 6-year maturity, an annual coupon of $85, and a par value of $1,000.What is their current yield?

Accepted Answer

A)   7.39%
B)   7.76%
C)   8.15%
D)   8.56%
E)   8.98%F) B) and C)
G) B) and E)

Question 3

Haswell Enterprises' bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000.The going interest rate (rd)  is 4.75%, based on semiannual compounding.What is the bond's price?

Accepted Answer

A)   1,063.09
B)   1,090.35
C)   1,118.31
D)   1,146.27
E)   1,174.93F) C) and E)
G) A) and B)

Question 4

Gilligan Co.'s bonds currently sell for $1,150.They have a 6.75% annual coupon rate and a 15-year maturity, and are callable in 6 years at $1,067.50.Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future.Under these conditions, what rate of return should an investor expect to earn if he or she purchases these bonds, the YTC or the YTM?

Accepted Answer

A)   3.92%
B)   4.12%
C)   4.34%
D)   4.57%
E)   4.81%F) B) and D)
G) B) and C)

Question 5

Rogoff Co.'s 15-year bonds have an annual coupon rate of 9.5%.Each bond has face value of $1,000 and makes semiannual interest payments.If you require an 11.0% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

Accepted Answer

A)   $891.00
B)   $913.27
C)   $936.10
D)   $959.51
E)   $983.49F) C) and D)
G) A) and C)

Question 6

Curtis Corporation's noncallable bonds currently sell for $1,165.They have a 15-year maturity, an annual coupon of $95, and a par value of $1,000.What is their yield to maturity?

Accepted Answer

A)   6.20%
B)   6.53%
C)   6.87%
D)   7.24%
E)   7.62%F) A) and D)
G) B) and E)

Question 7

Bonds A, B, and C all have a maturity of 15 years and a yield to maturity of 9%.Bond A's price exceeds its par value, Bond B's price equals its par value, and Bond C's price is less than its par value.Which of the following statements is CORRECT?

Accepted Answer

A)   Bond A has the most interest rate risk.
B)   If the yield to maturity on the three bonds remains constant, the prices of the three bonds will remain the same over the next year.
C)   If the yield to maturity on each bond increases to 8%, the prices of all three bonds will decline.
D)   Bond C sells at a premium over its par value.
E)   If the yield to maturity on each bond decreases to 6%, Bond A will have the largest percentage increase in its price.F) C) and E)
G) B) and C)

Question 8

The desire for floating-rate bonds, and consequently their increased usage, arose out of the experience of the early 1980s, when inflation pushed interest rates up to very high levels and thus caused sharp declines in the prices of outstanding bonds.

Accepted Answer

A) True 
 B)False

Question 9

Kessen Inc.'s bonds mature in 7 years, have a par value of $1,000, and make an annual coupon payment of $70.The market interest rate for the bonds is 8.5%.What is the bond's price?

Accepted Answer

A)   $923.22
B)   $946.30
C)   $969.96
D)   $994.21
E)   $1,019.06F) B) and E)
G) A) and B)

Question 10

If 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 8.5%, the maturity risk premium on all 10-year bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond?

Accepted Answer

A)   1.90%
B)   2.09%
C)   2.30%
D)   2.53%
E)   2.78%F) A) and D)
G) A) and E)

Question 11

Which of the following statements is CORRECT?

Accepted Answer

A)   Long-term bonds have less interest rate price risk but more reinvestment rate risk than short-term bonds.
B)   If interest rates increase, all bond prices will increase, but the increase will be greater for bonds that have less interest rate risk.
C)   Relative to a coupon-bearing bond with the same maturity, a zero coupon bond has more interest rate price risk but less reinvestment rate risk.
D)   Long-term bonds have less interest rate price risk and also less reinvestment rate risk than short-term bonds.
E)   One advantage of a zero coupon Treasury bond is that no one who owns the bond has to pay any taxes on it until it matures or is sold.F) B) and C)
G) B) and E)

Question 12

One year ago Lerner and Luckmann Co.issued 15-year, noncallable, 7.5% annual coupon bonds at their par value of $1,000.Today, the market interest rate on these bonds is 5.5%.What is the current price of the bonds, given that they now have 14 years to maturity?

Accepted Answer

A)   $1,077.01
B)   $1,104.62
C)   $1,132.95
D)   $1,162.00
E)   $1,191.79F) A) and C)
G) D) and E)

Question 13

The market value of any real or financial asset, including stocks, bonds, or art work purchased in hope of selling it at a profit, may be estimated by determining future cash flows and then discounting them back to the present.

Accepted Answer

A) True 
 B)False

Question 14

The prices of high-coupon bonds tend to be less sensitive to a given change in interest rates than low-coupon bonds, other things held constant.

Accepted Answer

A) True 
 B)False

Question 15

Stephenson Co.'s 15-year bond with a face value of $1,000 currently sells for $850.Which of the following statements is CORRECT?

Accepted Answer

A)   The bond's current yield exceeds its yield to maturity.
B)   The bond's yield to maturity is greater than its coupon rate.
C)   The bond's current yield is equal to its coupon rate.
D)   If the yield to maturity stays constant until the bond matures, the bond's price will remain at $850.
E)   The bond's coupon rate exceeds its current yield.F) B) and C)
G) B) and E)

Question 16

Assume that interest rates on 15-year noncallable Treasury and corporate bonds with different ratings are as follows:   T-bond =7.72% A=9.64%ALA=8.72%BBB=10.18%\begin{array}{ll}	ext { T-bond }=7.72 \% & \mathrm{~A}=9.64 \% \\mathrm{ALA}=8.72 \% & \mathrm{BBB}=10.18 \%\end{array} T-bond =7.72%ALA=8.72%​ A=9.64%BBB=10.18%​  The differences in rates among these issues were most probably caused primarily by:

Accepted Answer

A)   Tax effects.
B)   Default risk differences.
C)   Maturity risk differences.
D)   Inflation differences.
E)   Real risk-free rate differences. F) A) and B)
G) A) and E)

Question 17

If its yield to maturity declined by 1%, which of the following bonds would have the largest percentage increase in value?

Accepted Answer

A)   A 1-year bond with an 8% coupon.
B)   A 10-year bond with an 8% coupon.
C)   A 10-year bond with a 12% coupon.
D)   A 10-year zero coupon bond.
E)   A 1-year zero coupon bond.F) D) and E)
G) B) and D)

Question 18

If a firm raises capital by selling new bonds, it is called the "issuing firm," and the coupon rate is generally set equal to the required rate on bonds of equal risk.

Accepted Answer

A) True 
 B)False

Question 19

"Restrictive covenants" are designed primarily to protect bondholders by constraining the actions of managers.Such covenants are spelled out in bond indentures.

Accepted Answer

A) True 
 B)False

Question 20

A 25-year, $1,000 par value bond has an 8.5% annual coupon.The bond currently sells for $875.If the yield to maturity remains at its current rate, what will the price be 5 years from now?

Accepted Answer

A)   $839.31
B)   $860.83
C)   $882.90
D)   $904.97
E)   $927.60F) All of the above
G) A) and C)

Exam 5: Bonds, Bond Valuation, and Interest Rates

Kessen Inc.'s bonds mature in 7 years, have a par value of $1,000, and make an annual coupon payment of $70.The market interest rate for the bonds is 8.5%.What is the bond's price?

Correct Answer
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The market value of any real or financial asset, including stocks, bonds, or art work purchased in hope of selling it at a profit, may be estimated by determining future cash flows and then discounting them back to the present.

Correct Answer
verified

A 25-year, $1,000 par value bond has an 8.5% annual coupon.The bond currently sells for $875.If the yield to maturity remains at its current rate, what will the price be 5 years from now?

Correct Answer
verified

If a firm raises capital by selling new bonds, it is called the "issuing firm," and the coupon rate is generally set equal to the required rate on bonds of equal risk.

Correct Answer
verified

The desire for floating-rate bonds, and consequently their increased usage, arose out of the experience of the early 1980s, when inflation pushed interest rates up to very high levels and thus caused sharp declines in the prices of outstanding bonds.

Correct Answer
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One year ago Lerner and Luckmann Co.issued 15-year, noncallable, 7.5% annual coupon bonds at their par value of $1,000.Today, the market interest rate on these bonds is 5.5%.What is the current price of the bonds, given that they now have 14 years to maturity?

Correct Answer
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"Restrictive covenants" are designed primarily to protect bondholders by constraining the actions of managers.Such covenants are spelled out in bond indentures.

Correct Answer
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Correct Answer
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Haswell Enterprises' bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000.The going interest rate (r_d) is 4.75%, based on semiannual compounding.What is the bond's price?

Correct Answer
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If its yield to maturity declined by 1%, which of the following bonds would have the largest percentage increase in value?

Correct Answer
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Meacham Enterprises' bonds currently sell for $1,280 and have a par value of $1,000.They pay a $135 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,050.What is their yield to call (YTC) ?

Correct Answer
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Perry Inc.'s bonds currently sell for $1,150.They have a 6-year maturity, an annual coupon of $85, and a par value of $1,000.What is their current yield?

Correct Answer
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Curtis Corporation's noncallable bonds currently sell for $1,165.They have a 15-year maturity, an annual coupon of $95, and a par value of $1,000.What is their yield to maturity?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Stephenson Co.'s 15-year bond with a face value of $1,000 currently sells for $850.Which of the following statements is CORRECT?

Correct Answer
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Correct Answer
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Bonds A, B, and C all have a maturity of 15 years and a yield to maturity of 9%.Bond A's price exceeds its par value, Bond B's price equals its par value, and Bond C's price is less than its par value.Which of the following statements is CORRECT?

Correct Answer
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The prices of high-coupon bonds tend to be less sensitive to a given change in interest rates than low-coupon bonds, other things held constant.

Correct Answer
verified

If 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 8.5%, the maturity risk premium on all 10-year bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond?

Correct Answer
verified

Rogoff Co.'s 15-year bonds have an annual coupon rate of 9.5%.Each bond has face value of $1,000 and makes semiannual interest payments.If you require an 11.0% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

Correct Answer
verified

Exam 5: Bonds, Bond Valuation, and Interest Rates

Kessen Inc.'s bonds mature in 7 years, have a par value of $1,000, and make an annual coupon payment of $70.The market interest rate for the bonds is 8.5%.What is the bond's price?

Correct AnswerverifiedShow Answer

The market value of any real or financial asset, including stocks, bonds, or art work purchased in hope of selling it at a profit, may be estimated by determining future cash flows and then discounting them back to the present.

Correct AnswerverifiedShow Answer

A 25-year, $1,000 par value bond has an 8.5% annual coupon.The bond currently sells for $875.If the yield to maturity remains at its current rate, what will the price be 5 years from now?

Correct AnswerverifiedShow Answer

If a firm raises capital by selling new bonds, it is called the "issuing firm," and the coupon rate is generally set equal to the required rate on bonds of equal risk.

Correct AnswerverifiedShow Answer

The desire for floating-rate bonds, and consequently their increased usage, arose out of the experience of the early 1980s, when inflation pushed interest rates up to very high levels and thus caused sharp declines in the prices of outstanding bonds.

Correct AnswerverifiedShow Answer

One year ago Lerner and Luckmann Co.issued 15-year, noncallable, 7.5% annual coupon bonds at their par value of $1,000.Today, the market interest rate on these bonds is 5.5%.What is the current price of the bonds, given that they now have 14 years to maturity?

Correct AnswerverifiedShow Answer

"Restrictive covenants" are designed primarily to protect bondholders by constraining the actions of managers.Such covenants are spelled out in bond indentures.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Haswell Enterprises' bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000.The going interest rate (rd) is 4.75%, based on semiannual compounding.What is the bond's price?

Correct AnswerverifiedShow Answer

If its yield to maturity declined by 1%, which of the following bonds would have the largest percentage increase in value?

Correct AnswerverifiedShow Answer

Meacham Enterprises' bonds currently sell for $1,280 and have a par value of $1,000.They pay a $135 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,050.What is their yield to call (YTC) ?

Correct AnswerverifiedShow Answer

Perry Inc.'s bonds currently sell for $1,150.They have a 6-year maturity, an annual coupon of $85, and a par value of $1,000.What is their current yield?

Correct AnswerverifiedShow Answer

Curtis Corporation's noncallable bonds currently sell for $1,165.They have a 15-year maturity, an annual coupon of $95, and a par value of $1,000.What is their yield to maturity?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Stephenson Co.'s 15-year bond with a face value of $1,000 currently sells for $850.Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Bonds A, B, and C all have a maturity of 15 years and a yield to maturity of 9%.Bond A's price exceeds its par value, Bond B's price equals its par value, and Bond C's price is less than its par value.Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

The prices of high-coupon bonds tend to be less sensitive to a given change in interest rates than low-coupon bonds, other things held constant.

Correct AnswerverifiedShow Answer

If 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 8.5%, the maturity risk premium on all 10-year bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond?

Correct AnswerverifiedShow Answer

Rogoff Co.'s 15-year bonds have an annual coupon rate of 9.5%.Each bond has face value of $1,000 and makes semiannual interest payments.If you require an 11.0% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

Correct AnswerverifiedShow Answer

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Haswell Enterprises' bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000.The going interest rate (r_d) is 4.75%, based on semiannual compounding.What is the bond's price?

Correct Answer
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