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Exam 7: Interest Rates and Bond Valuation

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Question 31

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Suppose the following bond quote for the Beta Company appears in the financial page of today's newspaper.Assume the bond has a face value of $1,000 and the current date is April 15,2009.What is the yield to maturity on this bond?

A) 6.64 percent
B) 8.96 percent
C) 10.23 percent
D) 12.47 percent
E) 13.27 percent

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Question 32

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A 6 percent,annual coupon bond is currently selling at a premium and matures in 7 years.The bond was originally issued 3 years ago at par.Which one of the following statements is accurate in respect to this bond today?

A) The face value of the bond today is greater than it was when the bond was issued.
B) The bond is worth less today than when it was issued.
C) The yield-to-maturity is less than the coupon rate.
D) The coupon rate is greater than the current yield.
E) The yield-to-maturity equals the current yield.

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Question 33

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-Soo Lee Imports issued 17-year bonds 2 years ago at a coupon rate of 10.3 percent.The bonds make semiannual payments.These bonds currently sell for 102 percent of par value.What is the yield-to-maturity?

An investment offers a 10.5 percent total return over the coming year.Sam Bernanke thinks the total real return on this investment will be only 6.2 percent.What does Sam believe the inflation rate will be for the next year?

Recently,you discovered a putable income bond that is convertible.If you purchase this bond,you will have the right to do which of the following? I.force the issuer to repurchase the bond prior to maturity II.choose when you wish to receive interest payments III.convert the bond into a TIPS IV.convert the bond into equity shares

Bonds issued by the U.S.government:

Atlas Entertainment has 15-year bonds outstanding.The interest payments on these bonds are sent directly to each of the individual bondholders.These direct payments are a clear indication that the bonds can accurately be defined as being issued:

-Redesigned Computers has 6.5 percent coupon bonds outstanding with a current market price of $832.The yield to maturity is 16.28 percent and the face value is $1,000.Interest is paid semiannually.How many years is it until these bonds mature?

All else constant,a bond will sell at _____ when the coupon rate is _____ the yield to maturity.

The semiannual,8-year bonds of Alto Music are selling at par and have an effective annual yield of 8.6285 percent.What is the amount of each interest payment if the face value of the bonds is $1,000?

A call-protected bond is a bond that:

-The 7 percent,semi-annual coupon bonds offered by House Renovators are callable in 2 years at $1,054.What is the amount of the call premium on a $1,000 par value bond?

The Fisher effect is defined as the relationship between which of the following variables?

-Northern Warehouses wants to raise $11.4 million to expand its business.To accomplish this,it plans to sell 40-year,$1,000 face value,zero-coupon bonds.The bonds will be priced to yield 8.75 percent.What is the minimum number of bonds it must sell to raise the $11.4 million it needs?

-A bond that pays interest annually yielded 7.47 percent last year.The inflation rate for the same period was 4 percent.What was the actual real rate of return on this bond for last year?

Al is retired and enjoys his daily life.His one concern is that his bonds provide a steady stream of income that will continue to allow him to have the money he desires to continue his active lifestyle without lowering his present standard of living.Although he has sufficient principal to live on,he only wants to spend the interest income provided by his holdings and thus is concerned about the purchasing power of that income.Which one of the following bonds should best ease Al's concerns?

A bond has a market price that exceeds its face value.Which of the following features currently apply to this bond? I.discounted price II.premium price III.yield-to-maturity that exceeds the coupon rate IV.yield-to-maturity that is less than the coupon rate

A corporate bond was quoted yesterday at 102.16 while today's quote is 102.19.What is the change in the value of a bond that has a face value of $5,000?

Which of the following statements is correct concerning the term structure of interest rates? I.Expectations of lower inflation rates in the future tend to lower the slope of the term structure of interest rates. II.The term structure of interest rates includes both an inflation premium and an interest rate risk premium. III.The real rate of return has minimal,if any,affect on the slope of the term structure of interest rates. IV.The term structure of interest rates and the time to maturity are always directly related.

A deferred call provision is which one of the following?