Question 1

A convertible bond has a par value of $1,000, but its current market price is $950. The current price of the issuing company's stock is $19, and the conversion ratio is 40 shares. The bond's conversion premium is ________.

Accepted Answer

A)   $50
B)   $190
C)   $200
D)   $240E) A) and D)
F) A) and C)

Question 2

A bond pays a semiannual coupon, and the last coupon was paid 61 days ago. If the annual coupon payment is $75, what is the accrued interest? (Assume 182 days in the 6-month period.)

Accepted Answer

A)   $13.21
B)   $12.57
C)   $15.44
D)   $16.32E) None of the above
F) B) and D)

Question 3

A debenture is ________.

Accepted Answer

A)   secured by other securities held by the firm
B)   secured by equipment owned by the firm
C)   secured by property owned by the firm
D)   unsecuredE) All of the above
F) None of the above

Question 4

A mortgage bond is ________.

Accepted Answer

A)   secured by other securities held by the firm
B)   secured by equipment owned by the firm
C)   secured by property owned by the firm
D)   unsecuredE) A) and D)
F) A) and B)

Question 5

A 6% coupon U.S. Treasury note pays interest on May 31 and November 30 and is traded for settlement on August 10. The accrued interest on the $100,000 face amount of this note is ________.

Accepted Answer

A)   $581.97
B)   $1,170.33
C)   $2,327.87
D)   $3,000E) B) and D)
F) B) and C)

Question 6

Consider the following $1,000 par value zero-coupon bonds:

The expected 1-year interest rate 2 years from now should be ________.

Accepted Answer

A)   7%
B)   8%
C)   9%
D)   10%E) None of the above
F) A) and B)

Question 7

What is the lowest grade a bond can receive and still be considered investment grade?

Accepted Answer

A)   AAA
B)   A
C)   BBB
D)   BBE) A) and C)
F) A) and B)

Question 8

One-, two-, and three-year maturity, default-free, zero-coupon bonds have yields to maturity of 7%, 8%, and 9%, respectively. What is the implied 1-year forward rate 1 year from today?

Accepted Answer

A)   2.07%
B)   8.03%
C)   9.01%
D)   11.12%E) C) and D)
F) B) and D)

Question 9

The ________ of a bond is computed as the ratio of the annual coupon payment to the market price.

Accepted Answer

A)   nominal yield
B)   current yield
C)   yield to maturity
D)   yield to callE) A) and C)
F) A) and B)

Question 10

If the quote for a Treasury bond is listed in the newspaper as 98.2812 bid, 98.4062 ask, the actual price at which you can purchase this bond given a $10,000 par value is ________.

Accepted Answer

A)   $9,828.12
B)   $9,809.38
C)   $9,840.62
D)   $9,813.42E) A) and C)
F) A) and B)

Question 11

According to the liquidity preference theory of the term structure of interest rates, an increase in the yield on long-term corporate bonds versus short-term bonds could be due to ________.

Accepted Answer

A)   declining liquidity premiums
B)   an expectation of an upcoming recession
C)   a decline in future inflation expectations
D)   an increase in expected interest rate volatilityE) C) and D)
F) B) and C)

Question 12

Everything else equal, the ________ the maturity of a bond and the ________ the coupon, the greater the sensitivity of the bond's price to interest rate changes.

Accepted Answer

A)   longer; higher
B)   longer; lower
C)   shorter; higher
D)   shorter; lowerE) None of the above
F) B) and C)

Question 13

The ________ is the document that defines the contract between the bond issuer and the bondholder.

Accepted Answer

A)   indenture
B)   covenant agreement
C)   trustee agreement
D)   collateral statementE) B) and D)
F) All of the above

Question 14

$1,000 par value zero-coupon bonds (ignore liquidity premiums)

One year from now bond C should sell for ________ (to the nearest dollar) .

Accepted Answer

A)   $857
B)   $894
C)   $835
D)   $821E) A) and C)
F) A) and B)

Question 15

A bond has a par value of $1,000, a time to maturity of 10 years, and a coupon rate of 8% with interest paid annually. If the current market price is $750, what is the capital gain yield of this bond over the next year?

Accepted Answer

A)   .72%
B)   1.85%
C)   2.58%
D)   3.42%E) B) and D)
F) All of the above

Question 16

Bonds rated ________ or better by Standard & Poor's are considered investment grade.

Accepted Answer

A)   AA
B)   BBB
C)   BB
D)   CCCE) B) and C)
F) All of the above

Question 17

Bonds issued in the currency of the issuer's country but sold in other national markets are called ________.

Accepted Answer

A)   Eurobonds
B)   Yankee bonds
C)   Samurai bonds
D)   foreign bondsE) A) and B)
F) B) and C)

Question 18

If the price of a $10,000 par Treasury bond is $10,237.50, the quote would be listed in the newspaper as ________.

Accepted Answer

A)   102.237
B)   102.102
C)   102.375
D)   102.750E) All of the above
F) C) and D)

Question 19

A coupon bond that pays interest semiannually has a par value of $1,000, matures in 8 years, and has a yield to maturity of 6%. If the coupon rate is 7%, the intrinsic value of the bond today will be ________.

Accepted Answer

A)   $1,000
B)   $1,062.81
C)   $1,081.82
D)   $1,100.03E) B) and C)
F) B) and D)

Question 20

The primary difference between Treasury notes and bonds is ________.

Accepted Answer

A)   maturity at issue
B)   default risk
C)   coupon rate
D)   tax statusE) None of the above
F) All of the above

Exam 10: Bond Prices and Yields

$1,000 par value zero-coupon bonds (ignore liquidity premiums) One year from now bond C should sell for ________ (to the nearest dollar) .

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If the price of a $10,000 par Treasury bond is $10,237.50, the quote would be listed in the newspaper as ________.

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Everything else equal, the ________ the maturity of a bond and the ________ the coupon, the greater the sensitivity of the bond's price to interest rate changes.

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A 6% coupon U.S. Treasury note pays interest on May 31 and November 30 and is traded for settlement on August 10. The accrued interest on the $100,000 face amount of this note is ________.

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Bonds issued in the currency of the issuer's country but sold in other national markets are called ________.

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Consider the following $1,000 par value zero-coupon bonds: The expected 1-year interest rate 2 years from now should be ________.

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What is the lowest grade a bond can receive and still be considered investment grade?

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Bonds rated ________ or better by Standard & Poor's are considered investment grade.

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A mortgage bond is ________.

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A debenture is ________.

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One-, two-, and three-year maturity, default-free, zero-coupon bonds have yields to maturity of 7%, 8%, and 9%, respectively. What is the implied 1-year forward rate 1 year from today?

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The ________ of a bond is computed as the ratio of the annual coupon payment to the market price.

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A coupon bond that pays interest semiannually has a par value of $1,000, matures in 8 years, and has a yield to maturity of 6%. If the coupon rate is 7%, the intrinsic value of the bond today will be ________.

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A bond pays a semiannual coupon, and the last coupon was paid 61 days ago. If the annual coupon payment is $75, what is the accrued interest? (Assume 182 days in the 6-month period.)

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If the quote for a Treasury bond is listed in the newspaper as 98.2812 bid, 98.4062 ask, the actual price at which you can purchase this bond given a $10,000 par value is ________.

Correct AnswerverifiedShow Answer

A convertible bond has a par value of $1,000, but its current market price is $950. The current price of the issuing company's stock is $19, and the conversion ratio is 40 shares. The bond's conversion premium is ________.

Correct AnswerverifiedShow Answer

According to the liquidity preference theory of the term structure of interest rates, an increase in the yield on long-term corporate bonds versus short-term bonds could be due to ________.

Correct AnswerverifiedShow Answer

The primary difference between Treasury notes and bonds is ________.

Correct AnswerverifiedShow Answer

A bond has a par value of $1,000, a time to maturity of 10 years, and a coupon rate of 8% with interest paid annually. If the current market price is $750, what is the capital gain yield of this bond over the next year?

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The ________ is the document that defines the contract between the bond issuer and the bondholder.

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Everything else equal, the the maturity of a bond and the the coupon, the greater the sensitivity of the bond's price to interest rate changes.

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