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Exam 7: Interest Rates and Bond Valuation

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Question 31

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Today, June 15, you want to buy a bond with a quoted price of 98.64. The bond pays interest on January 1 and July 1. Which one of the following prices represents your total cost of purchasing this bond today?

A) Clean price
B) Dirty price
C) Asked price
D) Quoted price
E) Bid price

F) D) and E)
G) A) and E)

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Question 32

Multiple Choice

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Allison just received the semiannual payment of $35 on a bond she owns. Which term refers to this payment?

A) Coupon
B) Face value
C) Discount
D) Call premium
E) Yield

F) A) and D)
G) D) and E)

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Question 33

Multiple Choice

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Which one of the following relationships applies to a par value bond?

The collar of a floating-rate bond refers to the minimum and maximum:

Do-Well bonds have a face value of $1,000 and are currently quoted at 867.25. The bonds have coupon rate of 6.5 percent. What is the current yield on these bonds?

A $1,000 par value corporate bond that pays $60 annually in interest was issued last year. Which one of these would apply to this bond today if the current price of the bond is $996.20?

Today, you want to sell a $1,000 face value zero coupon bond you currently own. The bond matures in 3.5 years. How much will you receive for your bond if the market yield to maturity is currently 6.19 percent? Ignore any accrued interest. Assume semiannual compounding.

You own a bond that pays an annual coupon of 6 percent that matures five years from now. You purchased this 10-year bond at par value when it was originally issued. Which one of the following statements applies to this bond if the relevant market interest rate is now 5.8 percent?

The zero coupon bonds of JK Industries have a market price of $318.46, a face value of $1,000, and a yield to maturity of 6.69 percent. How many years is it until these bonds mature? Assume semiannual compounding.

An investment offers a total return of 13.8 percent over the coming year. You believe the total real return will be only 9.4 percent. What do you believe the exact inflation rate will be for the next year?

Hot Foods has an investment-grade bond issue outstanding that pays $30 semiannual interest payments. The bonds sell at par and are callable at a price equal to the present value of all future interest and principal payments discounted at a rate equal to the comparable Treasury rate plus .50 percent. Which one of the following correctly describes this bond?

The yields on a corporate bond differ from those on a comparable Treasury security primarily because of:

A bond's principal is repaid on the ________ date.

A note is generally defined as:

Oil Wells offers 5.65 percent coupon bonds with semiannual payments and a yield to maturity of 6.94 percent. The bonds mature in seven years. What is the market price per bond if the face value is $1,000?

A six-year, $1,000 face value bond issued by Taylor Tools pays interest semiannually on February 1 and August 1. Assume today is October 1. What will be the difference, if any, between this bond's clean and dirty prices today?

Kurt has researched T-Tek and believes the firm is poised to vastly increase in value. He has decided to purchase T-Tek bonds as he needs a steady stream of income. However, he still wishes that he could share in the firm's success along with the shareholders. Which one of the following bond features will help him fulfill his wish?

Municipal bonds:

A sinking fund is managed by a trustee for which one of the following purposes?

Which one of these equations applies to a bond that currently has a market price that exceeds par value?