Question 1

The Texas Instruments Company has 9 percent coupon bonds on the market with seven years left to maturity.The bonds make annual payments.If the bond currently sells for $874.60,what is its YTM?

Accepted Answer

A)  9.82 percent
B)  9.90 percent
C)  11.10 percent
D)  11.72 percent
E)  11.78 percentF) A) and B)
G) A) and C)

Question 2

Which one of the following terms refers to a bond's rate of return that is required by the marketplace?

Accepted Answer

A)  Coupon rate
B)  Yield to maturity
C)  Dirty yield
D)  Call yield
E)  Discount rateF) D) and E)
G) A) and C)

Question 3

Miller Farm Products is issuing a 15-year,unsecured bond.Based on this information,you know that this debt can be described as a:

Accepted Answer

A)  note.
B)  bearer form bond.
C)  debenture.
D)  registered form bond.
E)  call protected bond.F) B) and E)
G) A) and E)

Question 4

Last year,you earned a rate of return of 12.37 percent on your bond investments.During that time,the inflation rate was 3.6 percent.What was your real rate of return?

Accepted Answer

A)  6.30 percent
B)  7.60 percent
C)  7.75 percent
D)  8.47 percent
E)  8.70 percentF) A) and B)
G) B) and E)

Question 5

Deltona Motors just issued 225,000 zero coupon bonds.These bonds mature in 20 years,have a par value of $1,000,and have a yield to maturity of 7.45 percent.What is the approximate total amount of money the company raised from issuing these bonds? (Assume semiannual compounding.)

Accepted Answer

A)  $48.20 million
B)  $52.10 million
C)  $55.14 million
D)  $162.08 million
E)  $225.00 millionF) B) and D)
G) B) and C)

Question 6

Which of the following combinations is ensured to decrease the interest rate sensitivity of a bond?

Accepted Answer

A)  Increase in both the time to maturity and the coupon rate
B)  Increase in the time to maturity and a decrease in the coupon rate
C)  Decrease in both the time to maturity and the coupon rate
D)  Decrease in the time to maturity and an increase in the coupon rate
E)  Decrease in the time to maturity and an increase in the face valueF) C) and D)
G) A) and C)

Question 7

Which one of the following refers to the relationship between nominal returns,real returns,and inflation?

Accepted Answer

A)  Call premium
B)  Fisher effect
C)  Conversion ratio
D)  Bid-ask spread
E)  Clean-dirty spreadF) A) and E)
G) A) and D)

Question 8

Which one of the following might be included in a bond's list of negative covenants?

Accepted Answer

A)  Maintaining a current ratio of 1.2 or more
B)  Maintaining a minimum cash balance of $1.2 million
C)  Limiting cash dividends to $1 per share or less
D)  Maintaining a times interest earned ratio of 2 or more
E)  Providing audited financial statements in a timely mannerF) A) and E)
G) B) and C)

Question 9

Which one of the following terms applies to a junk bond that was originally issued with a bond rating of AA?

Accepted Answer

A)  Debenture
B)  Covenant
C)  Fallen angel
D)  Sinking
E)  Triple BF) A) and E)
G) C) and D)

Question 10

A call provision grants the bond issuer the:

Accepted Answer

A)  right to contact each bondholder to determine if he or she would like to extend the term of his or her bonds.
B)  option to exchange the bonds for equity securities.
C)  right to automatically extend the bond's maturity date.
D)  right to repurchase the bonds on the open market prior to maturity.
E)  option of repurchasing the bonds prior to maturity at a prespecified price.F) A) and D)
G) A) and E)

Question 11

Explain how a zero coupon bond can create taxable income during a year in which the bond pays no interest payments.Also,explain how the annual taxable amount can be computed.

Accepted Answer

A zero coupon bond creates implicit inte...

Question 12

A bond has a par value of $1,000,a current yield of 7.5 percent,and semiannual interest payments.The bond quote is 98.6.What is the amount of each coupon payment?

Accepted Answer

A)  $32.07
B)  $36.98
C)  $37.50
D)  $72.31
E)  $75.00F) A) and E)
G) A) and D)

Question 13

Smiley Industrial Goods has bonds on the market making annual payments,with 13 years to maturity,and selling for $1,095.At this price,the bonds yield 6.4 percent.What must the coupon rate be on these bonds?

Accepted Answer

A)  6.67 percent
B)  6.84 percent
C)  7.23 percent
D)  7.50 percent
E)  7.83 percentF) All of the above
G) B) and D)

Question 14

Kurt's Forest Products is currently issuing both 5-year and 10-year bonds at par.The bonds each pay 6.5 percent annual interest and have face values of $1,000.You decide to purchase one of each of these bonds.Assume the yield to maturity on each of these bonds is 7.4 percent 1 year from now.Given this,you will realize _____ percent price depreciation on the 5-year bond and _____ percent price depreciation on the 10-year bond.

Accepted Answer

A)  3.02; 3.39
B)  3.02; 4.08
C)  3.02; 5.77
D)  3.39; 4.08
E)  3.39; 5.77F) B) and E)
G) B) and C)

Question 15

Explain the difference between a bid price and an asked price and also explain why the prices are different.

Accepted Answer

A bid price is the price a bond dealer i...

Question 16

Which one of the following types of bonds permits its issuer to forego paying interest payments if certain natural events cause significant losses?

Accepted Answer

A)  PETS
B)  PUT
C)  CAT
D)  PINES
E)  LIBORF) A) and C)
G) C) and D)

Question 17

Which one of the following is the quoted price of a bond?

Accepted Answer

A)  Par value
B)  Discount price
C)  Face value
D)  Dirty price
E)  Clean priceF) None of the above
G) All of the above

Question 18

A 7 percent bond has a yield to maturity of 6.5 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)  $35.00
C)  $60.00
D)  $65.00
E)  $70.00F) B) and D)
G) A) and C)

Question 19

A $1,000 face value bond is currently quoted at 101.2.The bond pays semiannual payments of $28.50 each and matures in six years.What is the coupon rate?

Accepted Answer

A)  2.72 percent
B)  2.85 percent
C)  5.00 percent
D)  5.63 percent
E)  5.70 percentF) B) and E)
G) C) and D)

Question 20

If your nominal rate of return is 14.38 percent and your real rate of return is 4.97 percent,what is the inflation rate?

Accepted Answer

A)  8.47 percent
B)  8.96 percent
C)  9.44 percent
D)  19.35 percent
E)  19.92 percentF) None of the above
G) B) and C)

Exam 6: Interest Rates and Bond Valuation

A 7 percent bond has a yield to maturity of 6.5 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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If your nominal rate of return is 14.38 percent and your real rate of return is 4.97 percent,what is the inflation rate?

Correct Answer
verified

A bond has a par value of $1,000,a current yield of 7.5 percent,and semiannual interest payments.The bond quote is 98.6.What is the amount of each coupon payment?

Correct Answer
verified

Correct Answer
verified

The Texas Instruments Company has 9 percent coupon bonds on the market with seven years left to maturity.The bonds make annual payments.If the bond currently sells for $874.60,what is its YTM?

Correct Answer
verified

Smiley Industrial Goods has bonds on the market making annual payments,with 13 years to maturity,and selling for $1,095.At this price,the bonds yield 6.4 percent.What must the coupon rate be on these bonds?

Correct Answer
verified

Last year,you earned a rate of return of 12.37 percent on your bond investments.During that time,the inflation rate was 3.6 percent.What was your real rate of return?

Correct Answer
verified

Which one of the following might be included in a bond's list of negative covenants?

Correct Answer
verified

Which one of the following refers to the relationship between nominal returns,real returns,and inflation?

Correct Answer
verified

Miller Farm Products is issuing a 15-year,unsecured bond.Based on this information,you know that this debt can be described as a:

Correct Answer
verified

Which of the following combinations is ensured to decrease the interest rate sensitivity of a bond?

Correct Answer
verified

Which one of the following is the quoted price of a bond?

Correct Answer
verified

Explain the difference between a bid price and an asked price and also explain why the prices are different.

Correct Answer
verified
A bid price is the price a bond dealer i...
View Answer

Which one of the following terms refers to a bond's rate of return that is required by the marketplace?

Correct Answer
verified

Which one of the following types of bonds permits its issuer to forego paying interest payments if certain natural events cause significant losses?

Correct Answer
verified

A call provision grants the bond issuer the:

Correct Answer
verified

Which one of the following terms applies to a junk bond that was originally issued with a bond rating of AA?

Correct Answer
verified

A $1,000 face value bond is currently quoted at 101.2.The bond pays semiannual payments of $28.50 each and matures in six years.What is the coupon rate?

Correct Answer
verified

Explain how a zero coupon bond can create taxable income during a year in which the bond pays no interest payments.Also,explain how the annual taxable amount can be computed.

Correct Answer
verified
A zero coupon bond creates implicit inte...
View Answer

Deltona Motors just issued 225,000 zero coupon bonds.These bonds mature in 20 years,have a par value of $1,000,and have a yield to maturity of 7.45 percent.What is the approximate total amount of money the company raised from issuing these bonds? (Assume semiannual compounding.)

Correct Answer
verified

Exam 6: Interest Rates and Bond Valuation

A 7 percent bond has a yield to maturity of 6.5 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

If your nominal rate of return is 14.38 percent and your real rate of return is 4.97 percent,what is the inflation rate?

Correct AnswerverifiedShow Answer

A bond has a par value of $1,000,a current yield of 7.5 percent,and semiannual interest payments.The bond quote is 98.6.What is the amount of each coupon payment?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Texas Instruments Company has 9 percent coupon bonds on the market with seven years left to maturity.The bonds make annual payments.If the bond currently sells for $874.60,what is its YTM?

Correct AnswerverifiedShow Answer

Smiley Industrial Goods has bonds on the market making annual payments,with 13 years to maturity,and selling for $1,095.At this price,the bonds yield 6.4 percent.What must the coupon rate be on these bonds?

Correct AnswerverifiedShow Answer

Last year,you earned a rate of return of 12.37 percent on your bond investments.During that time,the inflation rate was 3.6 percent.What was your real rate of return?

Correct AnswerverifiedShow Answer

Which one of the following might be included in a bond's list of negative covenants?

Correct AnswerverifiedShow Answer

Which one of the following refers to the relationship between nominal returns,real returns,and inflation?

Correct AnswerverifiedShow Answer

Miller Farm Products is issuing a 15-year,unsecured bond.Based on this information,you know that this debt can be described as a:

Correct AnswerverifiedShow Answer

Which of the following combinations is ensured to decrease the interest rate sensitivity of a bond?

Correct AnswerverifiedShow Answer

Which one of the following is the quoted price of a bond?

Correct AnswerverifiedShow Answer

Explain the difference between a bid price and an asked price and also explain why the prices are different.

Correct AnswerverifiedA bid price is the price a bond dealer i...View AnswerShow Answer

Which one of the following terms refers to a bond's rate of return that is required by the marketplace?

Correct AnswerverifiedShow Answer

Which one of the following types of bonds permits its issuer to forego paying interest payments if certain natural events cause significant losses?

Correct AnswerverifiedShow Answer

A call provision grants the bond issuer the:

Correct AnswerverifiedShow Answer

Which one of the following terms applies to a junk bond that was originally issued with a bond rating of AA?

Correct AnswerverifiedShow Answer

A $1,000 face value bond is currently quoted at 101.2.The bond pays semiannual payments of $28.50 each and matures in six years.What is the coupon rate?

Correct AnswerverifiedShow Answer

Explain how a zero coupon bond can create taxable income during a year in which the bond pays no interest payments.Also,explain how the annual taxable amount can be computed.

Correct AnswerverifiedA zero coupon bond creates implicit inte...View AnswerShow Answer

Deltona Motors just issued 225,000 zero coupon bonds.These bonds mature in 20 years,have a par value of $1,000,and have a yield to maturity of 7.45 percent.What is the approximate total amount of money the company raised from issuing these bonds? (Assume semiannual compounding.)

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
A bid price is the price a bond dealer i...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A zero coupon bond creates implicit inte...
View Answer

Correct Answer
verified