Question 1

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) A) and E)

Question 2

Which one of the following types of bonds permits its issuer to forego paying interest payments if certain natural events cause significant losses?

Accepted Answer

A)  PETS
B)  PUT
C)  CAT
D)  PINES
E)  LIBORF) A) and C)
G) C) and D)

Question 3

The $1,000 face value bonds of Galaxies International have coupon of 6.45 percent and pay interest semiannually.Currently,the bonds are quoted at 103.4 and mature in 4 years.What is the yield to maturity?

Accepted Answer

A)  4.88 percent
B)  6.02 percent
C)  7.18 percent
D)  6.79 percent
E)  5.49 percentF) A) and B)
G) A) and C)

Question 4

Today,you are buying a $1,000 face value bond at an invoice price of $987.The bond has a coupon rate of 6 percent and pays interest semiannually.There are two months until the next coupon date.What is the clean price of this bond?

Accepted Answer

A)  $947
B)  $957
C)  $967
D)  $977
E)  $987F) B) and D)
G) D) and E)

Question 5

A bond has a make-whole call provision.Given this,you know that the:

Accepted Answer

A)  bond will always sell at par.
B)  call premium must equal the annual coupon payment.
C)  call price is directly related to the market rate of interest.
D)  call price is inversely related to the market rate of interest.
E)  bond must be a zero coupon bond.F) C) and D)
G) B) and E)

Question 6

The call premium is the amount by which the:

Accepted Answer

A)  market price exceeds the par value.
B)  market price exceeds the call price.
C)  face value exceeds the market price.
D)  call price exceeds the par value.
E)  call price exceeds the market price.F) A) and E)
G) None of the above

Question 7

The inflation premium:

Accepted Answer

A)  increases the real return.
B)  is inversely related to the time to maturity.
C)  remains constant over time.
D)  rewards investors for accepting interest rate risk.
E)  compensates investors for expected price increases.F) A) and D)
G) C) and D)

Question 8

You are buying a bond at a clean price of $1,140.The bond has a face value of $1,000,a coupon rate of 3.8 percent,and pays interest semiannually.The next coupon payment is one month from now.What is the dirty price of this bond?

Accepted Answer

A)  $1,000.00
B)  $1,146.67
C)  $1,155.83
D)  $1,176.67
E)  $1,180.00F) A) and D)
G) A) and C)

Question 9

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

Question 10

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) A) and E)
G) None of the above

Question 11

You purchase a bond with a coupon rate of 6.15 percent,semiannual coupons,and a clean price of $998.40.If the next coupon payment is due in two months,what is the invoice price?

Accepted Answer

A)  $1,018.90
B)  $1,019.36
C)  $1,001.60
D)  $1,027.67
E)  $1,004.33F) C) and D)
G) B) and C)

Question 12

Miller Farm Products is issuing a 15-year,unsecured bond.Based on this information,you know that this debt can bedescribed as a:

Accepted Answer

A)  note.
B)  bearer form bond.
C)  debenture.
D)  registered form bond.
E)  call protected bond.F) A) and E)
G) C) and E)

Question 13

An unexpected decrease in market interest rates will cause a:

Accepted Answer

A)  coupon bond's current yield to increase.
B)  zero coupon bond's price to decrease.
C)  fixed-rate bond's coupon rate to decrease.
D)  zero coupon bond's current yield to decrease.
E)  coupon bond's yield to maturity to decrease.F) B) and D)
G) A) and D)

Question 14

The 6 percent semiannual coupon bonds of IPO,Inc.,are selling for $1,087.The bonds have a face value of $1,000 and mature in 11 years.What is the yield to maturity?

Accepted Answer

A)  5.42 percent
B)  4.96 percent
C)  4.67 percent
D)  3.68 percent
E)  5.70 percentF) None of the above
G) A) and D)

Question 15

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

Question 16

The R in the Fisher effect formula represents the:

Accepted Answer

A)  current yield.
B)  real return.
C)  coupon rate.
D)  inflation rate.
E)  nominal return.F) None of the above
G) All of the above

Question 17

What is the price of a $1,000 face value bond if the quoted price is 102.1?

Accepted Answer

A)  $102.10
B)  $1,002.10
C)  $1,020.01
D)  $1,020.10
E)  $1,021.00F) A) and D)
G) A) and C)

Question 18

In relation to bonds,which one of the following terms has the same meaning as the term "crossover"?

Accepted Answer

A)  Speculative
B)  5B
C)  Fallen angel
D)  Junk
E)  Triple AF) B) and D)
G) A) and B)

Question 19

A registered-form bond is defined as a bond that:

Accepted Answer

A)  is a bearer bond.
B)  is held in street name.
C)  pays coupon payments directly to the owner of record.
D)  is listed with the Securities and Exchange Commission (SE
C)  .
E)  is unsecured.F) A) and B)
G) None of the above

Question 20

The 8 percent,$1,000 face value bonds of Sweet Sue Foods are currently selling at $1,057.These bonds have 16 years left until maturity.What is the current yield?

Accepted Answer

A)  7.38 percent
B)  7.57 percent
C)  8.00 percent
D)  8.23 percent
E)  8.28 percentF) B) and E)
G) D) and E)

Exam 6: Interest Rates and Bond Valuation

The R in the Fisher effect formula represents the:

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

In relation to bonds,which one of the following terms has the same meaning as the term "crossover"?

Correct AnswerverifiedShow Answer

Miller Farm Products is issuing a 15-year,unsecured bond.Based on this information,you know that this debt can bedescribed as a:

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

The $1,000 face value bonds of Galaxies International have coupon of 6.45 percent and pay interest semiannually.Currently,the bonds are quoted at 103.4 and mature in 4 years.What is the yield to maturity?

Correct AnswerverifiedShow Answer

The inflation premium:

Correct AnswerverifiedShow Answer

You purchase a bond with a coupon rate of 6.15 percent,semiannual coupons,and a clean price of $998.40.If the next coupon payment is due in two months,what is the invoice price?

Correct AnswerverifiedShow Answer

The 6 percent semiannual coupon bonds of IPO,Inc.,are selling for $1,087.The bonds have a face value of $1,000 and mature in 11 years.What is the yield to maturity?

Correct AnswerverifiedShow Answer

You are buying a bond at a clean price of $1,140.The bond has a face value of $1,000,a coupon rate of 3.8 percent,and pays interest semiannually.The next coupon payment is one month from now.What is the dirty price of this bond?

Correct AnswerverifiedShow Answer

Today,you are buying a $1,000 face value bond at an invoice price of $987.The bond has a coupon rate of 6 percent and pays interest semiannually.There are two months until the next coupon date.What is the clean price of this bond?

Correct AnswerverifiedShow Answer

The 8 percent,$1,000 face value bonds of Sweet Sue Foods are currently selling at $1,057.These bonds have 16 years left until maturity.What is the current yield?

Correct AnswerverifiedShow Answer

An unexpected decrease in market interest rates will cause a:

Correct AnswerverifiedShow Answer

A registered-form bond is defined as a bond that:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The call premium is the amount by which the:

Correct AnswerverifiedShow Answer

A bond has a make-whole call provision.Given this,you know that the:

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

Which one of the following types of bonds permits its issuer to forego paying interest payments if certain natural events cause significant losses?

Correct AnswerverifiedShow Answer

What is the price of a $1,000 face value bond if the quoted price is 102.1?

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.

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