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An 8 percent corporate bond that pays interest semi-annually was issued last year.Which two of the following most likely apply to this bond today if the current yield-to-maturity is 7 percent? I.a structure as an interest-only loan II.a current yield that equals the coupon rate III.a yield-to-maturity equal to the coupon rate IV.a market price that differs from the face value


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

F) C) and D)
G) B) and E)

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-The yield-to-maturity on a bond is the interest rate you earn on your investment if interest rates do not change.If you actually sell the bond before it matures,your realized return is known as the holding period yield.Suppose that today,you buy a 12 percent annual coupon bond for $1,000.The bond has 13 years to maturity.Two years from now,the yield-to-maturity has declined to 11 percent and you decide to sell.What is your holding period yield? A) 8.84 percent B) 9.49 percent C) 12.00 percent D) 13.01 percent E) 14.89 percent -The yield-to-maturity on a bond is the interest rate you earn on your investment if interest rates do not change.If you actually sell the bond before it matures,your realized return is known as the holding period yield.Suppose that today,you buy a 12 percent annual coupon bond for $1,000.The bond has 13 years to maturity.Two years from now,the yield-to-maturity has declined to 11 percent and you decide to sell.What is your holding period yield?


A) 8.84 percent
B) 9.49 percent
C) 12.00 percent
D) 13.01 percent
E) 14.89 percent

F) None of the above
G) All of the above

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Which of the following are characteristics of a premium bond? I.coupon rate < yield-to-maturity II.coupon rate > yield-to-maturity III.coupon rate < current yield IV.coupon rate > current yield


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

F) B) and C)
G) A) and D)

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Inflation has remained low for the past three years but you have come to the conclusion that trend is ending and inflation will increase significantly over the next 18 months.Assume you have reached this conclusion prior to other investors reaching the same conclusion.What adjustments should you make to your bond portfolio in light of your conclusions?

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Increases in inflation will increase int...

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-You purchase a bond with an invoice price of $1,460.The bond has a coupon rate of 7.5 percent,and there are 3 months to the next semiannual coupon date.What is the clean price of this bond? A) $1,441.25 B) $1,452.17 C) $1,460.00 D) $1,467.83 E) $1,483.50 -You purchase a bond with an invoice price of $1,460.The bond has a coupon rate of 7.5 percent,and there are 3 months to the next semiannual coupon date.What is the clean price of this bond? A) $1,441.25 B) $1,452.17 C) $1,460.00 D) $1,467.83 E) $1,483.50 -You purchase a bond with an invoice price of $1,460.The bond has a coupon rate of 7.5 percent,and there are 3 months to the next semiannual coupon date.What is the clean price of this bond?


A) $1,441.25
B) $1,452.17
C) $1,460.00
D) $1,467.83
E) $1,483.50

F) A) and E)
G) B) and C)

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Which one of the following risks would a floating-rate bond tend to have less of as compared to a fixed-rate coupon bond?


A) real rate risk
B) interest rate risk
C) default risk
D) liquidity risk
E) taxability risk

F) A) and D)
G) None of the above

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The items included in an indenture that limit certain actions of the issuer in order to protect bondholder's interests are referred to as the:


A) trustee relationships.
B) bylaws.
C) legal bounds.
D) "plain vanilla" conditions.
E) protective covenants.

F) B) and E)
G) B) and D)

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A "fallen angel" is a bond that has moved from:


A) being publicly traded to being privately traded.
B) being a long-term obligation to being a short-term obligation.
C) having a yield-to-maturity in excess of the coupon rate to having a yield-to- maturity that is less than the coupon rate.
D) senior status to junior status for liquidation purposes.
E) investment grade to speculative grade.

F) B) and D)
G) B) and E)

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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?


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

F) None of the above
G) B) and C)

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Which one of the following bonds is the least sensitive to interest rate risk?


A) 3-year;4 percent coupon
B) 3-year;6 percent coupon
C) 5-year;6 percent coupon
D) 7-year;6 percent coupon
E) 7-year;4 percent coupon

F) A) and B)
G) C) and E)

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Which two of the following factors cause the yields on a corporate bond to differ from those on a comparable Treasury security? I.inflation risk II.interest rate risk III.taxability IV.default risk


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

F) None of the above
G) B) and E)

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You want to buy a bond from a dealer.Which one of the following prices will you pay?


A) call price
B) auction price
C) bid price
D) asked price
E) bid-ask spread

F) B) and C)
G) None of the above

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-Kaiser Industries has bonds on the market making annual payments,with 14 years to maturity,and selling for $1,382.01.At this price,the bonds yield 7.5 percent.What is the coupon rate? A) 8.00 percent B) 8.50 percent C) 9.00 percent D) 10.50 percent E) 12.00 percent -Kaiser Industries has bonds on the market making annual payments,with 14 years to maturity,and selling for $1,382.01.At this price,the bonds yield 7.5 percent.What is the coupon rate? A) 8.00 percent B) 8.50 percent C) 9.00 percent D) 10.50 percent E) 12.00 percent -Kaiser Industries has bonds on the market making annual payments,with 14 years to maturity,and selling for $1,382.01.At this price,the bonds yield 7.5 percent.What is the coupon rate?


A) 8.00 percent
B) 8.50 percent
C) 9.00 percent
D) 10.50 percent
E) 12.00 percent

F) A) and E)
G) A) and D)

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You expect interest rates to decline in the near future even though the bond market is not indicating any sign of this change.Which one of the following bonds should you purchase now to maximize your gains if the rate decline does occur?


A) short-term;low coupon
B) short-term;high coupon
C) long-term;zero coupon
D) long-term;low coupon
E) long-term;high coupon

F) A) and C)
G) B) and E)

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-Sylvan Trees has a 7 percent coupon bond on the market with ten years left to maturity.The bond makes annual payments and currently sells for $842.10.What is the yield-to-maturity? A) 8.50 percent B) 8.68 percent C) 8.92 percent D) 9.52 percent E) 9.68 percent -Sylvan Trees has a 7 percent coupon bond on the market with ten years left to maturity.The bond makes annual payments and currently sells for $842.10.What is the yield-to-maturity?


A) 8.50 percent
B) 8.68 percent
C) 8.92 percent
D) 9.52 percent
E) 9.68 percent

F) A) and B)
G) A) and C)

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-Suppose the real rate is 9.5 percent and the inflation rate is 1.8 percent.What rate would you expect to see on a Treasury bill? A) 9.50 percent B) 11.30 percent C) 11.47 percent D) 11.56 percent E) 11.60 percent -Suppose the real rate is 9.5 percent and the inflation rate is 1.8 percent.What rate would you expect to see on a Treasury bill?


A) 9.50 percent
B) 11.30 percent
C) 11.47 percent
D) 11.56 percent
E) 11.60 percent

F) None of the above
G) D) and E)

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Callable bonds generally:


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) All of the above
G) C) and E)

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Which of the following are negative covenants that might be found in a bond indenture? I.The company shall maintain a current ratio of 1.10 or better. II.No debt senior to this issue can be issued. III.The company cannot lease any major assets without approval by the lender. IV.The company must maintain the loan collateral in good working order.


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

F) B) and E)
G) A) and C)

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-Technical Sales,Inc.has 6.6 percent coupon bonds on the market with 9 years left to maturity.The bonds make semiannual payments and currently sell for 92.5 percent of par.What is the effective annual yield? A) 7.34 percent B) 7.40 percent C) 7.52 percent D) 7.93 percent E) 8.60 percent -Technical Sales,Inc.has 6.6 percent coupon bonds on the market with 9 years left to maturity.The bonds make semiannual payments and currently sell for 92.5 percent of par.What is the effective annual yield? A) 7.34 percent B) 7.40 percent C) 7.52 percent D) 7.93 percent E) 8.60 percent -Technical Sales,Inc.has 6.6 percent coupon bonds on the market with 9 years left to maturity.The bonds make semiannual payments and currently sell for 92.5 percent of par.What is the effective annual yield?


A) 7.34 percent
B) 7.40 percent
C) 7.52 percent
D) 7.93 percent
E) 8.60 percent

F) C) and E)
G) A) and D)

Correct Answer

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The pure time value of money is known as the:


A) liquidity effect.
B) Fisher effect.
C) term structure of interest rates.
D) inflation factor.
E) interest rate factor.

F) C) and D)
G) A) and C)

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