Question 1

The price at which an investor can purchase in the bond market is called the _____ price.

Accepted Answer

A)  asked
B)  coupon
C)  call
D)  face
E)  bidF) C) and E)
G) B) and C)

Question 2

Which statement is correct?

Accepted Answer

A)  Bond markets have less daily trading volume than equity markets.
B)  There are fewer bond issues outstanding than there are equity issues.
C)  Municipal bond prices are highly transparent.
D)  Bond markets are dealer based.
E)  Most bond trades occur on the NYSE.F) B) and D)
G) B) and C)

Question 3

A company originally issued bonds that were rated investment grade.These bonds have now been downgraded to junk status.These bonds are referred to as:

Accepted Answer

A)  called bonds.
B)  converted bonds.
C)  unprotected bonds.
D)  fallen angels.
E)  floaters.F) B) and D)
G) A) and C)

Question 4

A U.S.Treasury bond pays 2.80 percent interest.You are in the 27 percent marginal tax bracket.What is your after tax yield on this bond?

Accepted Answer

A)  2.89 percent
B)  2.14 percent
C)  2.04 percent
D)  1.97 percent
E)  2.22 percentF) A) and D)
G) C) and E)

Question 5

Whitts BBQ would like to issue some 10-year, semiannual coupon bonds at par.Comparable bonds have a current yield of 9.16 percent, an effective annual yield of 9.68 percent, and a yield to maturity of 9.50 percent.What coupon rate should Whitts BBQ set on its bonds?

Accepted Answer

A)  9.00 percent
B)  9.16 percent
C)  9.50 percent
D)  9.68 percent
E)  10.00 percentF) A) and E)
G) A) and D)

Question 6

Smiley Industrial Goods has $1,000 face value bonds on the market with semiannual interest payments, 13.5 years to maturity, and a market price of $1,023.At this price, the bonds yield 6.4 percent.What must be the coupon rate on these bonds?

Accepted Answer

A)  3.33 percent
B)  3.75 percent
C)  7.33 percent
D)  6.66 percent
E)  7.50 percentF) C) and E)
G) B) and E)

Question 7

The price at which a dealer will purchase a bond is referred to as the _____ price.

Accepted Answer

A)  asked
B)  face
C)  call
D)  put
E)  bidF) D) and E)
G) B) and C)

Question 8

Which one of the following bonds is the most sensitive to changes in market interest rates?

Accepted Answer

A)  5-year, zero coupon
B)  5-year, 5 percent coupon
C)  5-year, 8 percent coupon
D)  10-year, zero coupon
E)  10-year, 5 percent couponF) A) and B)
G) All of the above

Question 9

Jeffries, Inc., has semiannual, 6 percent coupon bonds on the market that currently have 11 years left to maturity.If the market rate of return for this bond is 7.13 percent three years from now, what will be the bond's clean price at that time?

Accepted Answer

A)  $925.88
B)  $932.00
C)  $903.14
D)  $921.42
E)  $933.33F) None of the above
G) B) and E)

Question 10

The relationship between nominal returns, real returns, and inflation is referred to as the:

Accepted Answer

A)  call premium.
B)  Fisher effect.
C)  conversion ratio.
D)  spread.
E)  current yield.F) A) and B)
G) A) and C)

Question 11

Which one of the following types of bonds should an investor purchase if he or she is primarily concerned about ensuring that bond ownership will increase his or her purchasing power?

Accepted Answer

A)  OTC
B)  Death
C)  CAT
D)  PETS
E)  TIPSF) C) and D)
G) A) and B)

Question 12

A 15-year, annual coupon bond is priced at $984.56.The bond has a $1,000 face value and a yield to maturity of 6.5 percent.What is the coupon rate?

Accepted Answer

A)  3.17 percent
B)  2.50 percent
C)  6.74 percent
D)  6.38 percent
E)  6.34 percentF) All of the above
G) D) and E)

Question 13

Last year, Forest Products issued both 5-year and 10-year bonds at par.The bonds each have a coupon rate of 5.5 percent, paid semiannually, and a face value of $1,000.Assume the yield to maturity on each of these bonds is now 7.4 percent.What is the percentage change in the price of the 5-year bond since it was issued? The 10-year bond?

Accepted Answer

A)  -3.39; -6.08
B)  -6.08; -6.33
C)  -6.48; -12.33
D)  -6.48; -10.87
E)  -3.39; -5.77F) B) and E)
G) B) and C)

Question 14

The purpose of a bond sinking fund is to:

Accepted Answer

A)  accumulate funds needed to pay the tax liability on the bond proceeds.
B)  accumulate funds to pay the regular interest payments.
C)  hold the bond proceeds until the funds need disbursed.
D)  repay bonds early either through purchases or calls.
E)  repay bondholders from a trust fund if the issuer defaults.F) A) and B)
G) B) and E)

Question 15

What is the principal amount of a bond that is repaid at the end of the loan term called?

Accepted Answer

A)  Coupon
B)  Market price
C)  Accrued price
D)  Dirty price
E)  Face valueF) D) and E)
G) A) and C)

Question 16

A bond yielded a real rate of return of 3.87 percent for a time period when the inflation rate was 3.75 percent.What was the actual nominal rate of return?

Accepted Answer

A)  87.58 percent
B)  7.62 percent
C)  7.77 percent
D)  8.28 percent
E)  .36 percentF) A) and D)
G) C) and E)

Question 17

If inflation is expected to steadily decrease in the future, the term structure of interest rates will most likely be:

Accepted Answer

A)  upward sloping.
B)  flat.
C)  humped.
D)  downward sloping.
E)  double-humped.F) A) and E)
G) D) and E)

Question 18

Which one of the following is the quoted price of a bond?

Accepted Answer

A)  Par value
B)  Discount price
C)  Face value
D)  Dirty price
E)  Clean priceF) A) and B)
G) All of the above

Question 19

A bond has a coupon rate of 5.65 percent, a face value of $1,000, semiannual payments, and sells at par.The current yield is _____ percent and the effective annual yield is _____ percent.

Accepted Answer

A)  5.73; 5.81
B)  5.73; 5.65
C)  5.73; 5.73
D)  5.65; 5.73
E)  5.65; 5.81F) C) and E)
G) B) and E)

Question 20

GN Supply wants to issue new 10-year, $1,000 face value bonds at par.The company currently has 6.35 percent coupon bonds on the market that sell for $983.20, make semiannual interest payments, and mature in 10 years.What coupon rate should the company set on its new bonds?

Accepted Answer

A)  6.38 percent
B)  6.37 percent
C)  6.50 percent
D)  6.47 percent
E)  6.58 percentF) A) and B)
G) C) and D)

Exam 6: Interest Rates and Bond Valuation

If inflation is expected to steadily decrease in the future, the term structure of interest rates will most likely be:

Correct Answer
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Jeffries, Inc., has semiannual, 6 percent coupon bonds on the market that currently have 11 years left to maturity.If the market rate of return for this bond is 7.13 percent three years from now, what will be the bond's clean price at that time?

Correct Answer
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The relationship between nominal returns, real returns, and inflation is referred to as the:

Correct Answer
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Whitts BBQ would like to issue some 10-year, semiannual coupon bonds at par.Comparable bonds have a current yield of 9.16 percent, an effective annual yield of 9.68 percent, and a yield to maturity of 9.50 percent.What coupon rate should Whitts BBQ set on its bonds?

Correct Answer
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A 15-year, annual coupon bond is priced at $984.56.The bond has a $1,000 face value and a yield to maturity of 6.5 percent.What is the coupon rate?

Correct Answer
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A U.S.Treasury bond pays 2.80 percent interest.You are in the 27 percent marginal tax bracket.What is your after tax yield on this bond?

Correct Answer
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What is the principal amount of a bond that is repaid at the end of the loan term called?

Correct Answer
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The price at which a dealer will purchase a bond is referred to as the _____ price.

Correct Answer
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Which one of the following is the quoted price of a bond?

Correct Answer
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The price at which an investor can purchase in the bond market is called the _____ price.

Correct Answer
verified

GN Supply wants to issue new 10-year, $1,000 face value bonds at par.The company currently has 6.35 percent coupon bonds on the market that sell for $983.20, make semiannual interest payments, and mature in 10 years.What coupon rate should the company set on its new bonds?

Correct Answer
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Which one of the following bonds is the most sensitive to changes in market interest rates?

Correct Answer
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Which one of the following types of bonds should an investor purchase if he or she is primarily concerned about ensuring that bond ownership will increase his or her purchasing power?

Correct Answer
verified

A bond yielded a real rate of return of 3.87 percent for a time period when the inflation rate was 3.75 percent.What was the actual nominal rate of return?

Correct Answer
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Correct Answer
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The purpose of a bond sinking fund is to:

Correct Answer
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A company originally issued bonds that were rated investment grade.These bonds have now been downgraded to junk status.These bonds are referred to as:

Correct Answer
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Smiley Industrial Goods has $1,000 face value bonds on the market with semiannual interest payments, 13.5 years to maturity, and a market price of $1,023.At this price, the bonds yield 6.4 percent.What must be the coupon rate on these bonds?

Correct Answer
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A bond has a coupon rate of 5.65 percent, a face value of $1,000, semiannual payments, and sells at par.The current yield is _ percent and the effective annual yield is _ percent.

Correct Answer
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Which statement is correct?

Correct Answer
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Exam 6: Interest Rates and Bond Valuation

If inflation is expected to steadily decrease in the future, the term structure of interest rates will most likely be:

Correct AnswerverifiedShow Answer

Jeffries, Inc., has semiannual, 6 percent coupon bonds on the market that currently have 11 years left to maturity.If the market rate of return for this bond is 7.13 percent three years from now, what will be the bond's clean price at that time?

Correct AnswerverifiedShow Answer

The relationship between nominal returns, real returns, and inflation is referred to as the:

Correct AnswerverifiedShow Answer

Whitts BBQ would like to issue some 10-year, semiannual coupon bonds at par.Comparable bonds have a current yield of 9.16 percent, an effective annual yield of 9.68 percent, and a yield to maturity of 9.50 percent.What coupon rate should Whitts BBQ set on its bonds?

Correct AnswerverifiedShow Answer

A 15-year, annual coupon bond is priced at $984.56.The bond has a $1,000 face value and a yield to maturity of 6.5 percent.What is the coupon rate?

Correct AnswerverifiedShow Answer

A U.S.Treasury bond pays 2.80 percent interest.You are in the 27 percent marginal tax bracket.What is your after tax yield on this bond?

Correct AnswerverifiedShow Answer

What is the principal amount of a bond that is repaid at the end of the loan term called?

Correct AnswerverifiedShow Answer

The price at which a dealer will purchase a bond is referred to as the _____ price.

Correct AnswerverifiedShow Answer

Which one of the following is the quoted price of a bond?

Correct AnswerverifiedShow Answer

The price at which an investor can purchase in the bond market is called the _____ price.

Correct AnswerverifiedShow Answer

GN Supply wants to issue new 10-year, $1,000 face value bonds at par.The company currently has 6.35 percent coupon bonds on the market that sell for $983.20, make semiannual interest payments, and mature in 10 years.What coupon rate should the company set on its new bonds?

Correct AnswerverifiedShow Answer

Which one of the following bonds is the most sensitive to changes in market interest rates?

Correct AnswerverifiedShow Answer

Which one of the following types of bonds should an investor purchase if he or she is primarily concerned about ensuring that bond ownership will increase his or her purchasing power?

Correct AnswerverifiedShow Answer

A bond yielded a real rate of return of 3.87 percent for a time period when the inflation rate was 3.75 percent.What was the actual nominal rate of return?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The purpose of a bond sinking fund is to:

Correct AnswerverifiedShow Answer

A company originally issued bonds that were rated investment grade.These bonds have now been downgraded to junk status.These bonds are referred to as:

Correct AnswerverifiedShow Answer

Smiley Industrial Goods has $1,000 face value bonds on the market with semiannual interest payments, 13.5 years to maturity, and a market price of $1,023.At this price, the bonds yield 6.4 percent.What must be the coupon rate on these bonds?

Correct AnswerverifiedShow Answer

A bond has a coupon rate of 5.65 percent, a face value of $1,000, semiannual payments, and sells at par.The current yield is _____ percent and the effective annual yield is _____ percent.

Correct AnswerverifiedShow Answer

Which statement is correct?

Correct AnswerverifiedShow Answer

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A bond has a coupon rate of 5.65 percent, a face value of $1,000, semiannual payments, and sells at par.The current yield is _ percent and the effective annual yield is _ percent.

Correct Answer
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Correct Answer
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