Question 1

Old World Markets has $1,000 face value bonds outstanding that pay interest semiannually, mature in 13 years, and have a 5.3 percent coupon.The current price is quoted at 98.25.What is the yield to maturity?

Accepted Answer

A)  5.34 percent
B)  5.49 percent
C)  11.15percent
D)  11.01 percent
E)  5.23 percent

Question 2

On which one of the following dates is the principal amount of a semiannual coupon bond repaid?

Accepted Answer

A)  A portion of the principal is repaid on each coupon date.
B)  The entire bond is repaid on the issue date.
C)  Half of the principal is repaid evenly over each coupon period with the remainder paid on the issue date.
D)  The entire bond is repaid on the maturity date.
E)  Half of the principal is repaid evenly over each coupon period with the remainder paid on the maturity date.

Question 3

Which one of the following bonds is most apt to have the smallest liquidity premium?

Accepted Answer

A)  Treasury bill
B)  Corporate bond issued by a new firm
C)  Municipal bond issued by the State of New York
D)  Municipal bond issued by a rural city in Alaska
E)  Corporate bond issued by General Motors (GM)

Question 4

The 6.75 percent, $1,000 face value bonds of Mahalo Pineapples are currently selling at $989.50.These bonds have 12 years left until maturity.What is the current yield?

Accepted Answer

A)  6.58percent
B)  6.82 percent
C)  6.75 percent
D)  7.59 percent
E)  7.62percent

Question 5

Which one of the following premiums is paid on a corporate bond due to its tax status?

Accepted Answer

A)  Interest rate risk premium
B)  Inflation premium
C)  Liquidity premium
D)  Taxability premium
E)  Default risk premium D

Question 6

The 7.2 percent bond of Blackford, Inc.has a yield to maturity of 7.3 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)  $36.00
C)  $72.00
D)  $34.10
E)  $65.00

Question 7

A debenture is:

Accepted Answer

A)  an unsecured bond.
B)  a bearer form bond.
C)  a bond with a call provision.
D)  a bond with a sinking fund provision.
E)  a bond secured by a blanket mortgage.

Question 8

A 25-year, annual coupon bond is priced at $1,105.63.The bond has a $1,000 face value and a yield to maturity of 7.28 percent.What is the coupon rate?

Accepted Answer

A)  7.28 percent
B)  4.10 percent
C)  8.54 percent
D)  8.35 percent
E)  8.21 percent

Question 9

The $1,000 face value bonds of Galaxies International have coupon of 5.5 percent and pay interest semiannually.Currently, the bonds are quoted at 98.02 and mature in 12 years.What is the yield to maturity?

Accepted Answer

A)  5.90 percent
B)  6.16 percent
C)  7.32 percent
D)  6.93 percent
E)  5.73 percent E

Question 10

A bond has a par value of $1,000, a current yield of 6.25 percent, and semiannual interest payments.The bond quote is 100.8.What is the amount of each coupon payment?

Accepted Answer

A)  $63.00
B)  $31.50
C)  $37.50
D)  $62.50
E)  $31.25

Question 11

Which statement is true?

Accepted Answer

A)  Bonds are generally called at par value.
B)  A current list of all bondholders is maintained whenever a firm issues bearer bonds.
C)  An indenture is a contract between a bond's issuer and its holders.
D)  Collateralized bonds are called debentures.
E)  A bondholder has the right to determine when his or her bond is called.

Question 12

When a bond's yield to maturity is less than the bond's coupon rate, the bond:

Accepted Answer

A)  had to be recently issued.
B)  is selling at a premium.
C)  has reached its maturity date.
D)  is priced at par.
E)  is selling at a discount.

Question 13

The 6.3 percent, semi-annual coupon bonds of PE Engineers mature in 13 years and have a price quote of 99.2.These bonds have a current yield of _____ percent, a yield to maturity of _____ percent, and an effective annual yield of _____ percent.

Accepted Answer

A)  6.35; 6.32; 6.29
B)  6.35; 6.39; 6.49
C)  6.12; 6.36; 6.42
D)  6.23; 6.20; 6.16
E)  6.23; 6.36; 6.42

Question 14

You are buying a bond at a clean price of $1,140.The bond has a face value of $1,000, a coupon rate of 3.8 percent, and pays interest semiannually.The next coupon payment is one month from now.What is the dirty price of this bond?

Accepted Answer

A)  $1,000.00
B)  $1,146.67
C)  $1,155.83
D)  $1,176.67
E)  $1,180.00 C

Question 15

Deltona Motors just issued 230,000 zero-coupon bonds.These bonds mature in 18 years, have a par value of $1,000, and have a yield to maturity of 5.9 percent.What is the approximate total amount of money the company raised from issuing these bonds? Assume semiannual compounding.

Accepted Answer

A)  $88.20 million
B)  $80.76 million
C)  $75.14 million
D)  $62.08 million
E)  $91.84 million

Question 16

The rate of return an investor earns on a bond prior to adjusting for inflation is called the:

Accepted Answer

A)  nominal rate.
B)  real rate.
C)  dirty rate.
D)  coupon rate.
E)  clean rate.

Question 17

New Markets has $1,000 face value bonds outstanding that pay interest semiannually, mature in 20 years, and have a 5.8 percent coupon.The current price is quoted at 103.25.What is the yield to maturity?

Accepted Answer

A)  5.38 percent
B)  5.53 percent
C)  11.19 percent
D)  11.05 percent
E)  5.27 percent

Question 18

A bond has a make-whole call provision.Given this, you know that the:

Accepted Answer

A)  bond will always sell at par.
B)  call premium must equal the annual coupon payment.
C)  call price is directly related to the market rate of interest.
D)  call price is inversely related to the market rate of interest.
E)  bond must be a zero coupon bond.

Question 19

AB Builders has 15-year bonds outstanding with a face value of $1,000 and a market price of $974.The bonds pay interest annually and have a yield to maturity of 4.03 percent.What is the coupon rate?

Accepted Answer

A)  3.80 percent
B)  4.20 percent
C)  4.25 percent
D)  3.75 percent
E)  3.95 percent

Question 20

Variance Logistics wants to issue 20-year, zero-coupon bonds that yield 6.2 percent.What price should it charge for these bonds if the face value is $1,000? Assume semiannual compounding.

Accepted Answer

A)  $ 288.15
B)  $ 294.89
C)  $ 543.03
D)  $ 562.03
E)  $ 326.45

Exam 6: Interest Rates and Bond Valuation

Old World Markets has $1,000 face value bonds outstanding that pay interest semiannually, mature in 13 years, and have a 5.3 percent coupon.The current price is quoted at 98.25.What is the yield to maturity?

Correct AnswerverifiedShow Answer

On which one of the following dates is the principal amount of a semiannual coupon bond repaid?

Correct AnswerverifiedShow Answer

Which one of the following bonds is most apt to have the smallest liquidity premium?

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The 6.75 percent, $1,000 face value bonds of Mahalo Pineapples are currently selling at $989.50.These bonds have 12 years left until maturity.What is the current yield?

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Which one of the following premiums is paid on a corporate bond due to its tax status?

Correct AnswerverifiedD

The 7.2 percent bond of Blackford, Inc.has a yield to maturity of 7.3 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

A debenture is:

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A 25-year, annual coupon bond is priced at $1,105.63.The bond has a $1,000 face value and a yield to maturity of 7.28 percent.What is the coupon rate?

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The $1,000 face value bonds of Galaxies International have coupon of 5.5 percent and pay interest semiannually.Currently, the bonds are quoted at 98.02 and mature in 12 years.What is the yield to maturity?

Correct AnswerverifiedE

A bond has a par value of $1,000, a current yield of 6.25 percent, and semiannual interest payments.The bond quote is 100.8.What is the amount of each coupon payment?

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Which statement is true?

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When a bond's yield to maturity is less than the bond's coupon rate, the bond:

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The 6.3 percent, semi-annual coupon bonds of PE Engineers mature in 13 years and have a price quote of 99.2.These bonds have a current yield of _____ percent, a yield to maturity of _____ percent, and an effective annual yield of _____ percent.

Correct AnswerverifiedShow Answer

You are buying a bond at a clean price of $1,140.The bond has a face value of $1,000, a coupon rate of 3.8 percent, and pays interest semiannually.The next coupon payment is one month from now.What is the dirty price of this bond?

Correct AnswerverifiedC

Deltona Motors just issued 230,000 zero-coupon bonds.These bonds mature in 18 years, have a par value of $1,000, and have a yield to maturity of 5.9 percent.What is the approximate total amount of money the company raised from issuing these bonds? Assume semiannual compounding.

Correct AnswerverifiedShow Answer

The rate of return an investor earns on a bond prior to adjusting for inflation is called the:

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New Markets has $1,000 face value bonds outstanding that pay interest semiannually, mature in 20 years, and have a 5.8 percent coupon.The current price is quoted at 103.25.What is the yield to maturity?

Correct AnswerverifiedShow Answer

A bond has a make-whole call provision.Given this, you know that the:

Correct AnswerverifiedShow Answer

AB Builders has 15-year bonds outstanding with a face value of $1,000 and a market price of $974.The bonds pay interest annually and have a yield to maturity of 4.03 percent.What is the coupon rate?

Correct AnswerverifiedShow Answer

Variance Logistics wants to issue 20-year, zero-coupon bonds that yield 6.2 percent.What price should it charge for these bonds if the face value is $1,000? Assume semiannual compounding.

Correct AnswerverifiedShow Answer

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D

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E

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The 6.3 percent, semi-annual coupon bonds of PE Engineers mature in 13 years and have a price quote of 99.2.These bonds have a current yield of ___ percent, a yield to maturity of _ percent, and an effective annual yield of ___ percent.

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C

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