Question 1

Deltona Motors just issued 230,000 zero-coupon bonds.These bonds mature in 18 years,have a par value of $1,000,and have a yield to maturity of 5.9 percent.What is the approximate total amount of money the company raised from issuing these bonds? Assume semiannual compounding.

Accepted Answer

A)  $88.20 million
B)  $80.76 million
C)  $75.14 million
D)  $62.08 million
E)  $91.84 millionF) B) and E)
G) C) and E)

Question 2

If Treasury bills are currently paying 2.84 percent and the inflation rate is 1.63 percent,what is the approximate real rate of interest? The exact real rate?

Accepted Answer

A)  1.21 percent; 1.19 percent
B)  1.21 percent; 1.20 percent
C)  1.20 percent; 1.21 percent
D)  1.19 percent; 1.20 percent
E)  1.19 percent; 1.21 percentF) B) and C)
G) D) and E)

Question 3

The market-required rate of return on a bond that is held for its entire life is called the:

Accepted Answer

A)  coupon rate.
B)  yield to maturity.
C)  dirty yield.
D)  call premium.
E)  current yield.F) C) and D)
G) B) and E)

Question 4

A floating-rate bond frequently has a:

Accepted Answer

A)  flexible deferred call period.
B)  fixed yield to maturity but a flexible coupon payment.
C)  government guarantee.
D)  fixed-dollar obligation.
E)  put provision.F) All of the above
G) C) and D)

Question 5

A bond? s annual interest divided by its face value is referred to as the:

Accepted Answer

A)  market rate.
B)  call rate.
C)  coupon rate.
D)  current yield.
E)  yield-to-maturity.F) B) and D)
G) A) and D)

Question 6

One year ago,you purchased a $1,000 face value bond for a clean price of $980.The bond currently has seven years remaining until maturity,pays a coupon payment of $45 every six months,and has a yield to maturity of 6.87 percent.What is the percentage change in the bond price over the past year?

Accepted Answer

A)  -6.24 percent
B)  -14.70 percent
C)  15.48 percent
D)  13.96 percent
E)  6.61 percentF) B) and E)
G) C) and D)

Question 7

New Markets has $1,000 face value bonds outstanding that pay interest semiannually,mature in 14.5 years,and have a 4.5 percent coupon.The current price is quoted at 97.6.What is the yield to maturity?

Accepted Answer

A)  5.32 percent
B)  4.73 percent
C)  4.92 percent
D)  5.13 percent
E)  5.27 percentF) None of the above
G) All of the above

Question 8

Which one of the following terms applies to a junk bond that was originally issued with a bond rating of AA?

Accepted Answer

A)  Debenture
B)  Covenant
C)  Fallen angel
D)  Sinking ship
E)  Trust deedF) B) and D)
G) A) and B)

Question 9

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) A) and C)

Question 10

What condition must exist if a bond's coupon rate is to equal both the bond's current yield and its yield to maturity? Assume the market rate of interest for this bond is positive.

Accepted Answer

A)  The clean price of the bond must equal the bond's dirty price.
B)  The bond must be a zero coupon bond and mature in exactly one year.
C)  The market price must exceed the par value by the value of one year's interest.
D)  The bond must be priced at par.
E)  There is no condition under which this can occur.F) A) and E)
G) B) and E)

Question 11

Which one of the following statements concerning sinking funds is correct?

Accepted Answer

A)  Bond issuers must fund a sinking fund at the time the bonds are issued.
B)  Sinking funds must include at least one "balloon payment."
C)  Sinking funds must be funded annually, starting on the issue date.
D)  Sinking funds may be used to purchase bonds in the open market.
E)  Sinking funds can be used only to call bonds.F) C) and D)
G) A) and B)

Question 12

This morning,Jeff found an aged bond certificate lying on the street.He picked it up and noticed that it was a 50-year bond that matured today.He presented the bond to the bank teller at his local bank and received payment for both the entire principal and the final interest payment.The bond that Jeff found must have been which one of the following?

Accepted Answer

A)  Debenture
B)  Note
C)  Registered-form bond
D)  Bearer-form bond
E)  Callable bondF) A) and B)
G) All of the above

Question 13

The term structure of interest rates represents the relationship between which of the following?

Accepted Answer

A)  Nominal rates on risk-free and risky bonds
B)  Real rates on risk-free and risky bonds
C)  Nominal and real rates on default-free, pure discount bonds
D)  Market and coupon rates on default-free, pure discount bonds
E)  Nominal rates on default-free, pure discount bonds and time to maturityF) B) and D)
G) A) and D)

Question 14

Russell? s has a bond issue outstanding.The issue's indenture provision prohibits the firm from redeeming the bonds during the first five years following issuance.This provision is referred to as the _____ provision.

Accepted Answer

A)  safeguard
B)  market
C)  liquidity
D)  deferred call
E)  sinking fundF) A) and B)
G) B) and D)

Question 15

Which one of the following might be included in a bond's list of negative covenants?

Accepted Answer

A)  Maintain a current ratio of 1.2 or more
B)  Maintain a minimum cash balance of $1.2 million
C)  Limit cash dividends to $1 per share or less
D)  Maintain a times interest earned ratio of 2 or more
E)  Provide audited financial statements in a timely mannerF) A) and D)
G) B) and C)

Exam 6: Interest Rates and Bond Valuation

Correct Answer
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The market-required rate of return on a bond that is held for its entire life is called the:

Correct Answer
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Deltona Motors just issued 230,000 zero-coupon bonds.These bonds mature in 18 years,have a par value of $1,000,and have a yield to maturity of 5.9 percent.What is the approximate total amount of money the company raised from issuing these bonds? Assume semiannual compounding.

Correct Answer
verified

New Markets has $1,000 face value bonds outstanding that pay interest semiannually,mature in 14.5 years,and have a 4.5 percent coupon.The current price is quoted at 97.6.What is the yield to maturity?

Correct Answer
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Which one of the following might be included in a bond's list of negative covenants?

Correct Answer
verified

Which one of the following statements concerning sinking funds is correct?

Correct Answer
verified

The term structure of interest rates represents the relationship between which of the following?

Correct Answer
verified

What condition must exist if a bond's coupon rate is to equal both the bond's current yield and its yield to maturity? Assume the market rate of interest for this bond is positive.

Correct Answer
verified

If Treasury bills are currently paying 2.84 percent and the inflation rate is 1.63 percent,what is the approximate real rate of interest? The exact real rate?

Correct Answer
verified

Russell? s has a bond issue outstanding.The issue's indenture provision prohibits the firm from redeeming the bonds during the first five years following issuance.This provision is referred to as the _____ provision.

Correct Answer
verified

A floating-rate bond frequently has a:

Correct Answer
verified

Which one of the following terms applies to a junk bond that was originally issued with a bond rating of AA?

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
verified

A bond? s annual interest divided by its face value is referred to as the:

Correct Answer
verified

One year ago,you purchased a $1,000 face value bond for a clean price of $980.The bond currently has seven years remaining until maturity,pays a coupon payment of $45 every six months,and has a yield to maturity of 6.87 percent.What is the percentage change in the bond price over the past year?

Correct Answer
verified

Exam 6: Interest Rates and Bond Valuation

Correct AnswerverifiedShow Answer

The market-required rate of return on a bond that is held for its entire life is called the:

Correct AnswerverifiedShow Answer

Deltona Motors just issued 230,000 zero-coupon bonds.These bonds mature in 18 years,have a par value of $1,000,and have a yield to maturity of 5.9 percent.What is the approximate total amount of money the company raised from issuing these bonds? Assume semiannual compounding.

Correct AnswerverifiedShow Answer

New Markets has $1,000 face value bonds outstanding that pay interest semiannually,mature in 14.5 years,and have a 4.5 percent coupon.The current price is quoted at 97.6.What is the yield to maturity?

Correct AnswerverifiedShow Answer

Which one of the following might be included in a bond's list of negative covenants?

Correct AnswerverifiedShow Answer

Which one of the following statements concerning sinking funds is correct?

Correct AnswerverifiedShow Answer

The term structure of interest rates represents the relationship between which of the following?

Correct AnswerverifiedShow Answer

What condition must exist if a bond's coupon rate is to equal both the bond's current yield and its yield to maturity? Assume the market rate of interest for this bond is positive.

Correct AnswerverifiedShow Answer

If Treasury bills are currently paying 2.84 percent and the inflation rate is 1.63 percent,what is the approximate real rate of interest? The exact real rate?

Correct AnswerverifiedShow Answer

Russell? s has a bond issue outstanding.The issue's indenture provision prohibits the firm from redeeming the bonds during the first five years following issuance.This provision is referred to as the _____ provision.

Correct AnswerverifiedShow Answer

A floating-rate bond frequently has a:

Correct AnswerverifiedShow Answer

Which one of the following terms applies to a junk bond that was originally issued with a bond rating of AA?

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

A bond? s annual interest divided by its face value is referred to as the:

Correct AnswerverifiedShow Answer

One year ago,you purchased a $1,000 face value bond for a clean price of $980.The bond currently has seven years remaining until maturity,pays a coupon payment of $45 every six months,and has a yield to maturity of 6.87 percent.What is the percentage change in the bond price over the past year?

Correct AnswerverifiedShow Answer

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