Question 1

The coupon payment for an annual-coupon corporate bond is equal to the coupon rate multiplied by the current price of the bond.

Accepted Answer

A) True 
 B)False

Question 2

"Junk" bonds are a street name for ________ grade bonds.

Accepted Answer

A)   investment
B)   speculative
C)   extremely speculative
D)   speculative and investment

Question 3

The U.S. Treasury bill is currently selling at a discount basis of 4.25%. The par value of the bill is $100,000, and will mature in ninety days. What is the price of this Treasury bill?

Accepted Answer

A)   $95,750.00
B)   $98,937.50
C)   $98,952.05
D)   $99,952.78

Question 4

The ________ is the regular interest payment of the bond.

Accepted Answer

A)   dividend
B)   par
C)   coupon rate
D)   coupon

Question 5

A callable bond allows the bond issuer to "call-in" the bond prior to maturity.

Accepted Answer

A) True 
 B)False

Question 6

An indenture is an unsecured bond, and most of the bonds sold today in the United States are of this type.

Accepted Answer

A) True 
 B)False

Question 7

RC Inc. just issued zero-coupon bonds with a par value of $1,000. If the bond has a maturity of 15 years and a yield to maturity of 10%, what is the current price of the bond if it is priced in the conventional manner?

Accepted Answer

A)   $1,000
B)   $239.39
C)   $231.38
D)   This question cannot be answered because the coupon payment information is missing.

Question 8

Snake River Power Inc. has $1,000 par value, twenty-year, 6% annual coupon bonds, outstanding currently selling for $696.25. What is the yield to maturity on these bonds? Use a calculator for your answer.

Accepted Answer

9.43%. FV = $1,000; ...

Question 9

The difference between the price and the par value of a zero-coupon bond represents ________.

Accepted Answer

A)   taxes payable by the bond buyer
B)   the accumulated principal over the life of the bond
C)   the bond premium
D)   the accumulated interest over the life of the bond

Question 10

Blackburn Inc. has issued 30-year $1,000 face value, 10% annual coupon bonds, with a yield to maturity of 9.0%. The annual interest payment for the bond is ________.

Accepted Answer

A)   $100
B)   $90
C)   $50
D)   $45

Question 11

A basis point is ________.

Accepted Answer

A)   one-thousandth of a percentage point
B)   one percentage point
C)   one-tenth of a percentage point
D)   one-hundredth of a percentage point

Question 12

A putable bond allows the bond issuer to "call-in" the bond prior to maturity.

Accepted Answer

A) True 
 B)False

Question 13

The ________ is the yield an individual would receive if the individual purchased the bond today and held the bond to the end of its life.

Accepted Answer

A)   current yield
B)   yield to maturity
C)   prime rate
D)   coupon rate

Question 14

The Department of the Treasury offers three types of "bonds" for sale: Treasury bills, Treasury munis, and Treasury bonds.

Accepted Answer

A) True 
 B)False

Question 15

The four steps to determining the price of a bond are:

Accepted Answer

A)   determine the amount and timing of the present cash flows, determine the appropriate discount rate, find the present value of the lump-sum principal and the annuity stream of coupons, and add the PVs of the principal and coupons.
B)   determine the amount and timing of the future cash flows, determine the appropriate discount rate, find the future value of the lump-sum principal and the annuity stream of coupons, and add the FVs of the principal and coupons.
C)   determine the amount and timing of the future cash flows, determine the appropriate discount rate, find the present value of the lump-sum principal and the annuity stream of coupons, and multiply the PVs of the principal and coupons.
D)   determine the amount and timing of the future cash flows, determine the appropriate discount rate, find the present value of the lump-sum principal and the annuity stream of coupons, and add the PVs of the principal and coupons.

Question 16

From 1980 to 2006, the default risk premium differential between Aaa-rated bonds and Aa-rated bonds has averaged between ________.

Accepted Answer

A)   50 to 150 basis points
B)   90 to 190 basis points
C)   120 to 220 basis points
D)   250 to 350 basis points

Question 17

When a company is in financial difficulty and cannot fully pay all of its creditors, the first lenders to be paid are the ________.

Accepted Answer

A)   stockholders
B)   sinking fund holders
C)   junior debtholders
D)   senior debtholders

Question 18

Rogue Racing Inc. has $1,000 par value bonds with a coupon rate of 8% per year making semiannual coupon payments. If there are twelve years remaining prior to maturity and these bonds are selling for $876.40, what is the yield to maturity for these bonds?

Accepted Answer

A)   9.80%
B)   8.00%
C)   9.77%
D)   8.33%

Question 19

Endicott Enterprises Inc. has issued 30-year semiannual coupon bonds with a face value of $1,000. If the annual coupon rate is 14% and the current yield to maturity is 8%, what is the firm's current price per bond?

Accepted Answer

A)   $578.82
B)   $579.84
C)   $1,675.47
D)   $1,678.70

Question 20

Which of the following are issued with the shortest time to maturity?

Accepted Answer

A)   Treasury bills
B)   Treasury notes
C)   Treasury bonds
D)   Treasury stocks

Exam 6: Bonds and Bond Valuation

A putable bond allows the bond issuer to "call-in" the bond prior to maturity.

Correct AnswerverifiedShow Answer

The difference between the price and the par value of a zero-coupon bond represents ________.

Correct AnswerverifiedShow Answer

Blackburn Inc. has issued 30-year $1,000 face value, 10% annual coupon bonds, with a yield to maturity of 9.0%. The annual interest payment for the bond is ________.

Correct AnswerverifiedShow Answer

A callable bond allows the bond issuer to "call-in" the bond prior to maturity.

Correct AnswerverifiedShow Answer

RC Inc. just issued zero-coupon bonds with a par value of $1,000. If the bond has a maturity of 15 years and a yield to maturity of 10%, what is the current price of the bond if it is priced in the conventional manner?

Correct AnswerverifiedShow Answer

The four steps to determining the price of a bond are:

Correct AnswerverifiedShow Answer

When a company is in financial difficulty and cannot fully pay all of its creditors, the first lenders to be paid are the ________.

Correct AnswerverifiedShow Answer

Snake River Power Inc. has $1,000 par value, twenty-year, 6% annual coupon bonds, outstanding currently selling for $696.25. What is the yield to maturity on these bonds? Use a calculator for your answer.

Correct Answerverified9.43%. FV = $1,000; ...View AnswerShow Answer

Rogue Racing Inc. has $1,000 par value bonds with a coupon rate of 8% per year making semiannual coupon payments. If there are twelve years remaining prior to maturity and these bonds are selling for $876.40, what is the yield to maturity for these bonds?

Correct AnswerverifiedShow Answer

The Department of the Treasury offers three types of "bonds" for sale: Treasury bills, Treasury munis, and Treasury bonds.

Correct AnswerverifiedShow Answer

The coupon payment for an annual-coupon corporate bond is equal to the coupon rate multiplied by the current price of the bond.

Correct AnswerverifiedShow Answer

The ________ is the yield an individual would receive if the individual purchased the bond today and held the bond to the end of its life.

Correct AnswerverifiedShow Answer

The U.S. Treasury bill is currently selling at a discount basis of 4.25%. The par value of the bill is $100,000, and will mature in ninety days. What is the price of this Treasury bill?

Correct AnswerverifiedShow Answer

Endicott Enterprises Inc. has issued 30-year semiannual coupon bonds with a face value of $1,000. If the annual coupon rate is 14% and the current yield to maturity is 8%, what is the firm's current price per bond?

Correct AnswerverifiedShow Answer

A basis point is ________.

Correct AnswerverifiedShow Answer

The ________ is the regular interest payment of the bond.

Correct AnswerverifiedShow Answer

An indenture is an unsecured bond, and most of the bonds sold today in the United States are of this type.

Correct AnswerverifiedShow Answer

From 1980 to 2006, the default risk premium differential between Aaa-rated bonds and Aa-rated bonds has averaged between ________.

Correct AnswerverifiedShow Answer

Which of the following are issued with the shortest time to maturity?

Correct AnswerverifiedShow Answer

"Junk" bonds are a street name for ________ grade bonds.

Correct AnswerverifiedShow Answer

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9.43%. FV = $1,000; ...
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