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Exam 9: Bond Prices and Yields

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Question 1

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The primary difference between Treasury notes and bonds is ________.

A) maturity at issue
B) default risk
C) coupon rate
D) tax status

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Question 2

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________ bonds represent a novel way of obtaining insurance from capital markets against specified disasters.

A) Asset-backed bonds
B) TIPS
C) Catastrophe
D) Pay-in-kind

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Question 3

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A discount bond that pays interest semiannually will ________. I. have a lower price than an equivalent annual payment bond II. have a higher EAR than an equivalent annual payment bond III. sell for less than its conversion value

You buy an 8-year $1000 par value bond today that has a 6% yield and a 6% annual payment coupon. In one year promised yields have risen to 7%. Your one year holding period return was ________.

Bonds rated ________ or better by Standard and Poor's are considered investment grade.

A coupon bond pays semi-annual interest is reported as having an ask price of 117% of its $1 000 par value in the Wall Street Journal. If the last interest payment was made 2 months ago and the coupon rate is 6%, the invoice price of the bond will be ________.

To earn a high rating from the bond rating agencies, a company would want to have ________. I. a low times-interest-earned ratio II. a low debt-to-equity ratio III. a high quick ratio

A coupon bond which pays interest annually, has a par value of $1 000, matures in 5 years and has a yield to maturity of 12%. If the coupon rate is 9%, the intrinsic value of the bond today will be approximately ________.

A callable bond pays annual interest of $60, has a par value of $1 000, matures in 20 years but is callable in 10 years at a price of $1 100, and has a value today of $1 055.84. The yield to call on this bond is ________.

According to the liquidity preference theory of the term structure of interest rates an increase in the yield on long-term corporate bonds versus short-term bonds could be due to ________.

TIPS offer investors inflation protection by increasing ________ by the inflation rate each year.

You would typically find all but which one of the following in a bond contract?

A convertible bond has a par value of $1 000 but its current market price is $950. The current price of the issuing company's shares is $19 and the conversion ratio is 40 shares. The bond's conversion premium is ________.

A bond has a flat price of $985 and it pays an annual coupon. The last coupon payment was made 90 days ago. What is the invoice price if the annual coupon is $69?

Bonds with coupon rates that fall when the general level of interest rates rise are called ________.

The ________ of a bond is computed as the ratio of coupon payments to market price.

In an era of particularly low interest rates, which of the following bonds is most likely to be called?

A bond has a par value of $1 000, a time to maturity of 10 years, and a coupon rate of 8% with interest paid annually. If the current market price is $750, what is the approximate capital gain yield of this bond over the next year?

A bond was purchased at a premium and is now selling at a discount because of a change in market interest rates. If the bond pays a 4% annual coupon, what is the likely impact on the holding period return in an investor decides to sell now?

You can be sure that a bond will sell at a premium to par when its coupon rate is ________.