Question 1

Zero coupon bonds:

Accepted Answer

A)  are valued using simple interest.
B)  are issued only by the U.S.Treasury.
C)  create a tax deduction for the issuer only at maturity.
D)  are issued at a premium.
E)  create annual taxable income to individual bondholders.F) C) and D)
G) B) and D)

Question 2

A bond has a par value of $1,000,a current yield of 6.25 percent,and semiannual interest payments.The bond quote is 100.8.What is the amount of each coupon payment?

Accepted Answer

A)  $63.00
B)  $31.50
C)  $37.50
D)  $62.50
E)  $31.25F) C) and D)
G) A) and C)

Question 3

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 D)
G) C) and D)

Question 4

An upward-sloping term structure of interest rates indicates:

Accepted Answer

A)  the real rate of return is lower for short-term bonds than for long-term bonds.
B)  there is an indirect relationship between real interest rates and time to maturity.
C)  there is an indirect relationship between nominal interest rates and time to maturity.
D)  the nominal rate is declining as the real rate rises as the time to maturity increases.
E)  the nominal rate is increasing even though the real rate is constant as the time to maturity increases.F) A) and E)
G) B) and C)

Question 5

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) B) and E)
G) All of the above

Question 6

The yield to maturity on a discount bond is:

Accepted Answer

A)  equal to both the coupon rate and the current yield.
B)  equal to the current yield but greater than the coupon rate.
C)  greater than both the current yield and the coupon rate.
D)  less than the current yield but greater than the coupon rate.
E)  less than both the current yield and the coupon rate.F) B) and E)
G) A) and C)

Question 7

A bond has a $1,000 face value,a market price of $1,045,and pays interest payments of $74.50 every year.What is the coupon rate?

Accepted Answer

A)  6.76 percent
B)  7.00 percent
C)  7.12 percent
D)  7.45 percent
E)  8.14 percentF) B) and C)
G) A) and B)

Question 8

Generally speaking,bonds issued in the U.S.pay interest on a(n) _____ basis.

Accepted Answer

A)  annual
B)  semiannual
C)  quarterly
D)  monthly
E)  dailyF) A) and E)
G) A) and D)

Question 9

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) B) and C)
G) A) and B)

Question 10

A $1,000 face value bond currently has a yield to maturity of 8.22 percent.The bond matures in five years and pays interest semiannually.The coupon rate is7.5 percent.What is the current price of this bond?

Accepted Answer

A)  $948.01
B)  $989.60
C)  $1,005.26
D)  $970.96
E)  $1,010.13F) A) and D)
G) A) and C)

Question 11

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) All of the above
G) A) and E)

Question 12

rate If your nominal of return is 14.38 percent and your real rate of return is 4.97 percent,what is the inflation rate?

Accepted Answer

A)  8.47 percent
B)  8.96 percent
C)  9.44 percent
D)  19.35 percent
E)  19.92 percentF) A) and B)
G) B) and C) B

Question 13

Which one of the following statements is true?

Accepted Answer

A)  The current yield on a par value bond will exceed the bond's yield to maturity.
B)  The yield to maturity on a premium bond exceeds the bond's coupon rate.
C)  The current yield on a premium bond is equal to the bond's coupon rate.
D)  A premium bond has a current yield that exceeds the bond's coupon rate.
E)  A discount bond has a coupon rate that is less than the bond's yield to maturity.F) C) and D)
G) A) and B)

Question 14

Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value?

Accepted Answer

A)  Interest rate risk premium
B)  Inflation premium
C)  Liquidity premium
D)  Taxability premium
E)  Default risk premiumF) C) and E)
G) C) and D)

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

Question 16

The 4.5 percent bond of JL Motors has a face value of $1,000,a maturity of 7 years,semiannual interest payments,and a yield to maturity of 6.23 percent.What is the current market price of the bond?

Accepted Answer

A)  $945.08
B)  $947.21
C)  $903.05
D)  $959.60
E)  $912.40F) B) and E)
G) B) and C)

Question 17

One year ago,Alpha Supply issued 15-year bonds at par.The bonds have a coupon rate of 6.5 percent,paid semiannually,and a face value of $1,000.Today,the market yield on these bonds is 7.2 percent.What is the percentage change in the bond price over the past year?

Accepted Answer

A)  5.94 percent
B)  5.38 percent
C)  -6.11 percent
D)  -5.87 percent
E)  The bond price did not change.F) B) and D)
G) B) and C) C

Question 18

Which one of the following individuals is most apt to purchase a municipal bond?

Accepted Answer

A)  Minimum-wage employee
B)  Retired individual with minimal current income
C)  Recent college graduate
D)  Tax-exempt organization
E)  Highly compensated business ownerF) B) and D)
G) B) and E) E

Question 19

Which one of the following is the price that an investor pays to purchase an outstanding bond?

Accepted Answer

A)  Dirty price
B)  Face value
C)  Call price
D)  Bid price
E)  Clean priceF) B) and C)
G) A) and D)

Question 20

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) B) and C)

Exam 6: Interest Rates and Bond Valuation

Zero coupon bonds:

Correct AnswerverifiedShow Answer

A bond has a par value of $1,000,a current yield of 6.25 percent,and semiannual interest payments.The bond quote is 100.8.What is the amount of each coupon payment?

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

An upward-sloping term structure of interest rates indicates:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The yield to maturity on a discount bond is:

Correct AnswerverifiedShow Answer

A bond has a $1,000 face value,a market price of $1,045,and pays interest payments of $74.50 every year.What is the coupon rate?

Correct AnswerverifiedShow Answer

Generally speaking,bonds issued in the U.S.pay interest on a(n) _____ basis.

Correct AnswerverifiedShow Answer

The purpose of a bond sinking fund is to:

Correct AnswerverifiedShow Answer

A $1,000 face value bond currently has a yield to maturity of 8.22 percent.The bond matures in five years and pays interest semiannually.The coupon rate is7.5 percent.What is the current price of this bond?

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

rate If your nominal of return is 14.38 percent and your real rate of return is 4.97 percent,what is the inflation rate?

Correct AnswerverifiedB

Which one of the following statements is true?

Correct AnswerverifiedShow Answer

Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value?

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 4.5 percent bond of JL Motors has a face value of $1,000,a maturity of 7 years,semiannual interest payments,and a yield to maturity of 6.23 percent.What is the current market price of the bond?

Correct AnswerverifiedShow Answer

One year ago,Alpha Supply issued 15-year bonds at par.The bonds have a coupon rate of 6.5 percent,paid semiannually,and a face value of $1,000.Today,the market yield on these bonds is 7.2 percent.What is the percentage change in the bond price over the past year?

Correct AnswerverifiedC

Which one of the following individuals is most apt to purchase a municipal bond?

Correct AnswerverifiedE

Which one of the following is the price that an investor pays to purchase an outstanding bond?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
verified
E

Correct Answer
verified

Correct Answer
verified