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Use the table for the question(s) below. Consider the following four bonds that pay annual coupons: Use the table for the question(s) below. Consider the following four bonds that pay annual coupons: -The amount that the price of bond B will change if its yield to maturity increases from 7% to 8% is closest to: A) -$36 B) $9 C) $36 D) $39 -The amount that the price of bond "B" will change if its yield to maturity increases from 7% to 8% is closest to:


A) -$36
B) $9
C) $36
D) $39

E) None of the above
F) A) and B)

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Use the table for the question(s) below. The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face value): Use the table for the question(s) below. The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face value): -What is the relationship between a bond's price and its yield to maturity? -What is the relationship between a bond's price and its yield to maturity?

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There is an inverse relationsh...

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Which of the following statements is FALSE?


A) One advantage of quoting the yield to maturity rather than the price is that the yield is independent of the face value of the bond.
B) Unlike the case of bonds that pay coupons, for zero-coupon bonds, there is no simple formula to solve for the yield to maturity directly.
C) Because we can convert any bond price into a yield, and vice versa, bond prices and yields are often used interchangeably.
D) The IRR of an investment in a bond is given a special name, the yield to maturity (YTM) .

E) None of the above
F) All of the above

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Which of the following statements is FALSE?


A) Bonds are a securities sold by governments and corporations to raise money from investors today in exchange for promised future payments.
B) By convention the coupon rate is expressed as an effective annual rate.
C) Bonds typically make two types of payments to their holders.
D) The time remaining until the repayment date is known as the term of the bond.

E) A) and B)
F) A) and C)

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Use the following information to answer the question(s) below. Suppose the current zero-coupon yield curve for risk-free bonds is as follows: Use the following information to answer the question(s) below. Suppose the current zero-coupon yield curve for risk-free bonds is as follows: -Consider a zero-coupon bond with a $1000 face value and 10 years left until maturity. If the bond is currently trading for $459, then the yield to maturity on this bond is closest to: A) 7.5% B) 10.4% C) 9.7% D) 8.1% -Consider a zero-coupon bond with a $1000 face value and 10 years left until maturity. If the bond is currently trading for $459, then the yield to maturity on this bond is closest to:


A) 7.5%
B) 10.4%
C) 9.7%
D) 8.1%

E) A) and B)
F) A) and C)

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Use the following information to answer the question(s) below. Suppose you purchase a 20-year treasury bond with a 6% annual coupon ten years ago at par. Today the bond's yield to maturity has risen to 8% (EAR) . -Consider a zero coupon bond with 20 years to maturity. The percentage change in the price of the bond if its yield to maturity decreases from 7% to 5% is closest to:


A) 46%
B) 17%
C) 22%
D) 38%

E) B) and C)
F) None of the above

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Consider a corporate bond with a $1000 face value, 10% coupon with semiannual coupon payments, 5 years until maturity, and currently is selling for (has a cash price of) $1,113.80. The next coupon payment will be made in 63 days and there are 182 days in the current coupon period. The clean price for this bond is closest to:


A) $1146.50
B) $1065.70
C) $1113.80
D) $1081.10

E) C) and D)
F) None of the above

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Which of the following statements is FALSE?


A) Investors pay less for bonds with credit risk than they would for an otherwise identical default-free bond.
B) Credit spreads fluctuate as perceptions regarding the probability of default change.
C) Credit spreads are high for bonds with high ratings.
D) We refer to the difference between the yields of the corporate bonds and the Treasury yields as the default spread or credit spread.

E) All of the above
F) A) and B)

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Consider a five-year, default-free bond with an annual coupon rate of 5% and a face value of $1000. The YTM on this bond is closest to:


A) 3.85%
B) 4.20%
C) 4.35%
D) 4.40%

E) B) and C)
F) A) and B)

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According to Figure 6.5, the percent of countries in default or restructuring debt:


A) hit an all-time high in 2000-2005.
B) peaked during World War II.
C) is high whenever Greece defaults.
D) is never more than 1/3.

E) A) and C)
F) A) and B)

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A corporate bond which receives a BBB rating from Standard and Poor's is considered


A) a junk bond.
B) an investment grade bond.
C) a defaulted bond.
D) a high-yield bond.

E) All of the above
F) B) and D)

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Use the following information to answer the question(s) below. Suppose the current zero-coupon yield curve for risk-free bonds is as follows: Use the following information to answer the question(s) below. Suppose the current zero-coupon yield curve for risk-free bonds is as follows: -Consider a zero-coupon bond with a $1000 face value and 10 years left until maturity. If the YTM of this bond is 10.4%, then the price of this bond is closest to: A) $1000 B) $602 C) $1040 D) $372 -Consider a zero-coupon bond with a $1000 face value and 10 years left until maturity. If the YTM of this bond is 10.4%, then the price of this bond is closest to:


A) $1000
B) $602
C) $1040
D) $372

E) All of the above
F) A) and C)

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Use the information for the question(s) below. Luther Industries needs to raise $25 million to fund a new office complex. The company plans on issuing ten-year bonds with a face value of $1000 and a coupon rate of 7.0% (annual payments) . The following table summarizes the YTM for similar ten-year corporate bonds of various credit ratings: Use the information for the question(s) below. Luther Industries needs to raise $25 million to fund a new office complex. The company plans on issuing ten-year bonds with a face value of $1000 and a coupon rate of 7.0% (annual payments) . The following table summarizes the YTM for similar ten-year corporate bonds of various credit ratings: -Assuming that Luther's bonds receive a AAA rating, the number of bonds that Luther must issue to raise the needed $25 million is closest to: A) 24,655 B) 25,000 C) 24,477 D) 26,681 -Assuming that Luther's bonds receive a AAA rating, the number of bonds that Luther must issue to raise the needed $25 million is closest to:


A) 24,655
B) 25,000
C) 24,477
D) 26,681

E) A) and B)
F) A) and C)

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Sovereign debt is:


A) debt issued by national governments.
B) debt denominated in sovereigns.
C) always riskless.
D) debt issued by Greece.

E) A) and C)
F) B) and C)

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Use the following information to answer the question(s) below. Use the following information to answer the question(s) below. -The credit spread on AAA-rated corporate bonds is: A) 1.0% B) 1.5% C) 2.6% D) 4.1% -The credit spread on AAA-rated corporate bonds is:


A) 1.0%
B) 1.5%
C) 2.6%
D) 4.1%

E) None of the above
F) C) and D)

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Use the table for the question(s) below. Consider the following four bonds that pay annual coupons: Use the table for the question(s) below. Consider the following four bonds that pay annual coupons: -Which of the following statements is FALSE? A) We can use the law of one price to compute the price of a coupon bond from the prices of zero-coupon bonds. B) The plot of the yields of coupon bonds of different maturities is called the coupon-paying yield curve. C) It is possible to replicate the cash flows of a coupon bond using zero-coupon bonds. D) Because the coupon bond provides cash flows at different points in time, the yield to maturity of a coupon bond is the simple average of the yields of the zero-coupon bonds of equal and shorter maturities. -Which of the following statements is FALSE?


A) We can use the law of one price to compute the price of a coupon bond from the prices of zero-coupon bonds.
B) The plot of the yields of coupon bonds of different maturities is called the coupon-paying yield curve.
C) It is possible to replicate the cash flows of a coupon bond using zero-coupon bonds.
D) Because the coupon bond provides cash flows at different points in time, the yield to maturity of a coupon bond is the simple average of the yields of the zero-coupon bonds of equal and shorter maturities.

E) A) and D)
F) C) and D)

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Use the table for the question(s) below. Consider the following four bonds that pay annual coupons: Use the table for the question(s) below. Consider the following four bonds that pay annual coupons: -The amount that the price of bond D will change if its yield to maturity increases from 8% to 9% is closest to: A) -$36 B) -$39 C) $36 D) $9 -The amount that the price of bond "D" will change if its yield to maturity increases from 8% to 9% is closest to:


A) -$36
B) -$39
C) $36
D) $9

E) B) and C)
F) All of the above

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Use the table for the question(s) below. Consider the following zero-coupon yields on default free securities: Use the table for the question(s) below. Consider the following zero-coupon yields on default free securities: -The price today of a 3 year default free security with a face value of $1000 and an annual coupon rate of 6% is closest to: A) $1000 B) $1021 C) $1013 D) $1005 -The price today of a 3 year default free security with a face value of $1000 and an annual coupon rate of 6% is closest to:


A) $1000
B) $1021
C) $1013
D) $1005

E) A) and B)
F) All of the above

Correct Answer

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Use the table for the question(s) below. The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face value) : Use the table for the question(s) below. The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face value) : -Based upon the information provided in the table above, you can conclude A) that the yield curve is flat. B) nothing about the shape of the yield curve. C) that the yield curve is downward sloping. D) that the yield curve is upward sloping. -Based upon the information provided in the table above, you can conclude


A) that the yield curve is flat.
B) nothing about the shape of the yield curve.
C) that the yield curve is downward sloping.
D) that the yield curve is upward sloping.

E) A) and B)
F) All of the above

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Use the information for the question(s) below. The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually. -Assuming the appropriate YTM on the Sisyphean bond is 7.5%, then this bond will trade at


A) par.
B) a discount.
C) a premium.
D) None of the above

E) A) and C)
F) B) and D)

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