Question 1

A zero-coupon bond has a yield to maturity of 5% and a par value of $1,000. If the bond matures in 16 years, it should sell for a price of ________ today.

Accepted Answer

A)   $458.11
B)   $641.11
C)   $789.11
D)   $1,100.11E) A) and B)
F) A) and C)

Question 2

Consider a 7-year bond with a 9% coupon and a yield to maturity of 12%. If interest rates remain constant, 1 year from now the price of this bond will be ________.

Accepted Answer

A)   higher
B)   lower
C)   the same
D)   indeterminateE) All of the above
F) B) and C)

Question 3

Serial bonds are associated with ________.

Accepted Answer

A)   staggered maturity dates
B)   collateral
C)   coupon payment dates
D)   conversion featuresE) A) and B)
F) None of the above

Question 4

A discount bond that pays interest semiannually will:
I. Have a lower price than an equivalent annual payment bond
II. Have a higher EAR than an equivalent annual payment bond
III. Sell for less than its conversion value

Accepted Answer

A)   I and II only
B)   I and III only
C)   II and III only
D)   I, II, and IIIE) A) and B)
F) A) and D)

Question 5

The invoice price of a bond is the ________.

Accepted Answer

A)   stated or flat price in a quote sheet plus accrued interest
B)   stated or flat price in a quote sheet minus accrued interest
C)   bid price
D)   average of the bid and ask priceE) B) and D)
F) A) and B)

Question 6

TIPS offer investors inflation protection by ________ by the inflation rate each year.

Accepted Answer

A)   increasing only the coupon rate
B)   increasing only the par value
C)   increasing both the par value and the coupon payment
D)   increasing the promised yield to maturityE) All of the above
F) A) and B)

Question 7

An investor pays $989.40 for a bond. The bond has an annual coupon rate of 4.8%. What is the current yield on this bond?

Accepted Answer

A)   4.8%
B)   4.85%
C)   9.6%
D)   9.7%E) C) and D)
F) A) and D)

Question 8

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

The expected 2-year interest rate 3 years from now should be ________.

Accepted Answer

A)   9.55%
B)   11.74%
C)   14.89%
D)   13.73%E) A) and B)
F) B) and D)

Question 9

Yields on municipal bonds are generally lower than yields on similar corporate bonds because of differences in ________.

Accepted Answer

A)   marketability
B)   risk
C)   taxation
D)   call protectionE) B) and C)
F) None of the above

Question 10

Analysis of bond returns over a multiyear horizon based on forecasts of the bond's yield to maturity and reinvestment rate of coupons is called ________.

Accepted Answer

A)   multiyear analysis
B)   horizon analysis
C)   maturity analysis
D)   reinvestment analysisE) All of the above
F) C) and D)

Question 11

A coupon bond that pays interest of 4% annually has a par value of $1,000, matures in 5 years, and is selling today at $785. The actual yield to maturity on this bond is ________.

Accepted Answer

A)   7.24%
B)   8.82%
C)   9.12%
D)   9.62%E) A) and B)
F) B) and C)

Question 12

A Japanese firm issued and sold a pound-denominated bond in the United Kingdom. A U.S. firm issued bonds denominated in dollars but sold the bonds in Japan. Which one of the following statements is correct?

Accepted Answer

A)   Both bonds are examples of Eurobonds.
B)   The Japanese bond is a Eurobond, and the U.S. bond is termed a foreign bond.
C)   The U.S. bond is a Eurobond, and the Japanese bond is termed a foreign bond.
D)   Neither bond is a Eurobond.E) B) and C)
F) All of the above

Question 13

Floating-rate bonds have a ________ that is adjusted with current market interest rates.

Accepted Answer

A)   maturity date
B)   coupon payment date
C)   coupon rate
D)   dividend yieldE) A) and B)
F) A) and C)

Question 14

The price of a bond (with par value of $1,000)  at the beginning of a period is $980 and at the end of the period is $975. What is the holding-period return if the annual coupon rate is 4.5%?

Accepted Answer

A)   4.08%
B)   4.5%
C)   5.1%
D)   5.6%E) B) and D)
F) All of the above

Question 15

Consider the liquidity preference theory of the term structure of interest rates. On average, one would expect investors to require ________.

Accepted Answer

A)   a higher yield on short-term bonds than on long-term bonds
B)   a higher yield on long-term bonds than on short-term bonds
C)   the same yield on both short-term bonds and long-term bonds
D)   none of these options (The liquidity preference theory cannot be used to make any of the other statements.) E) A) and C)
F) A) and D)

Question 16

The price on a Treasury bond is 104.3625, with a yield to maturity of 3.45%. The price on a comparable maturity corporate bond is 103.75, with a yield to maturity of 4.59%. What is the approximate percentage value of the credit risk of the corporate bond?

Accepted Answer

A)   1.14%
B)   3.45%
C)   4.59%
D)   8.04%E) B) and D)
F) A) and B)

Question 17

You buy a 10-year $1,000 par value 4% annual-payment coupon bond priced to yield 6%. You do not sell the bond at year-end. If you are in a 15% tax bracket, at year-end you will owe taxes on this investment equal to ________.

Accepted Answer

A)   $9.10
B)   $4.25
C)   $7.68
D)   $5.20E) B) and C)
F) A) and D)

Question 18

You can be sure that a bond will sell at a premium to par when ________.

Accepted Answer

A)   its coupon rate is greater than its yield to maturity
B)   its coupon rate is less than its yield to maturity
C)   its coupon rate is equal to its yield to maturity
D)   its coupon rate is less than its conversion valueE) A) and B)
F) C) and D)

Question 19

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

The expected 1-year interest rate 3 years from now should be ________.

Accepted Answer

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

Question 20

Bonds with coupon rates that fall when the general level of interest rates rise are called ________.

Accepted Answer

A)   asset-backed bonds
B)   convertible bonds
C)   inverse floaters
D)   index bondsE) All of the above
F) A) and B)

Exam 10: Bond Prices and Yields

A zero-coupon bond has a yield to maturity of 5% and a par value of $1,000. If the bond matures in 16 years, it should sell for a price of ________ today.

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The price on a Treasury bond is 104.3625, with a yield to maturity of 3.45%. The price on a comparable maturity corporate bond is 103.75, with a yield to maturity of 4.59%. What is the approximate percentage value of the credit risk of the corporate bond?

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Analysis of bond returns over a multiyear horizon based on forecasts of the bond's yield to maturity and reinvestment rate of coupons is called ________.

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TIPS offer investors inflation protection by ________ by the inflation rate each year.

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A discount bond that pays interest semiannually will: I. Have a lower price than an equivalent annual payment bond II. Have a higher EAR than an equivalent annual payment bond III. Sell for less than its conversion value

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An investor pays $989.40 for a bond. The bond has an annual coupon rate of 4.8%. What is the current yield on this bond?

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A Japanese firm issued and sold a pound-denominated bond in the United Kingdom. A U.S. firm issued bonds denominated in dollars but sold the bonds in Japan. Which one of the following statements is correct?

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Bonds with coupon rates that fall when the general level of interest rates rise are called ________.

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The invoice price of a bond is the ________.

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A coupon bond that pays interest of 4% annually has a par value of $1,000, matures in 5 years, and is selling today at $785. The actual yield to maturity on this bond is ________.

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You can be sure that a bond will sell at a premium to par when ________.

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Floating-rate bonds have a ________ that is adjusted with current market interest rates.

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The price of a bond (with par value of $1,000) at the beginning of a period is $980 and at the end of the period is $975. What is the holding-period return if the annual coupon rate is 4.5%?

Correct AnswerverifiedShow Answer

You buy a 10-year $1,000 par value 4% annual-payment coupon bond priced to yield 6%. You do not sell the bond at year-end. If you are in a 15% tax bracket, at year-end you will owe taxes on this investment equal to ________.

Correct AnswerverifiedShow Answer

Consider a 7-year bond with a 9% coupon and a yield to maturity of 12%. If interest rates remain constant, 1 year from now the price of this bond will be ________.

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Consider the liquidity preference theory of the term structure of interest rates. On average, one would expect investors to require ________.

Correct AnswerverifiedShow Answer

$1,000 par value zero-coupon bonds (ignore liquidity premiums) The expected 2-year interest rate 3 years from now should be ________.

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Consider the following $1,000 par value zero-coupon bonds: The expected 1-year interest rate 3 years from now should be ________.

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Serial bonds are associated with ________.

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Yields on municipal bonds are generally lower than yields on similar corporate bonds because of differences in ________.

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