Question 1

The coupon of a bond indicates the income that the bond investor will receive over the life of the bond.

Accepted Answer

A) True 
 B)False

Question 2

TIPS are U.S Treasury securities where the coupon rate is

Accepted Answer

A)   zero.
B)   indexed to the rate of inflation.
C)   indexed to the discount rate.
D)   indexed to the prime rate.
E)   indexed to the stock market.F) A) and D)
G) A) and E)

Question 3

High-yield bonds are considered "investment" grade.

Accepted Answer

A) True 
 B)False

Question 4

Samurai bonds are yen-denominated bonds sold in markets outside Japan by international syndicates.

Accepted Answer

A) True 
 B)False

Question 5

Consider a bond with a price of $944.44 and a coupon of 8 1/2 percent. What is the current yield?

Accepted Answer

A)   9.4 percent
B)   6.8 percent
C)   8.6 percent
D)   9.0 percent
E)   11.0 percentF) A) and B)
G) C) and E)

Question 6

What is the current price of a zero-coupon bond with a 6 percent yield to maturity that matures in 15 years?

Accepted Answer

A)   $4.17
B)   $41.27
C)   $417.27
D)   $4,172.00
E)   $41,720.00F) C) and E)
G) B) and D)

Question 7

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) 
 
-Refer to Exhibit 12.1. What is the estimated yield on Treasury securities?

Accepted Answer

A)   4.188 percent
B)   5.428 percent
C)   5.371 percent
D)   4.132 percent
E)   4.753 percentF) None of the above
G) C) and D)

Question 8

Suppose you have a 12 percent, 20-year bond traded at $850. If it is callable in 5 years at $1,100, what is the bond's yield to call? Interest is paid semiannually.

Accepted Answer

A)   8 percent
B)   9.0 percent
C)   18.0 percent
D)   9.4 percent
E)   16.5 percentF) B) and E)
G) A) and D)

Question 9

A bond's price is determined by the issue's coupon rate, length to maturity, and the prevailing yield in the market.

Accepted Answer

A) True 
 B)False

Question 10

A 15-year bond, purchased five years ago, has a $1,000 par value bond, a 10 percent coupon, and a yield to maturity of 12 percent. Interest is paid annually. The bond's price is

Accepted Answer

A)   $864.
B)   $887.
C)   $1152.
D)   $1123.
E)   $1253.F) A) and D)
G) B) and E)

Question 11

The market for short-term issues with maturities of one year or less is commonly known as the money market.

Accepted Answer

A) True 
 B)False

Question 12

____ measures the expected rate of return of a bond assuming that you sell it prior to its maturity.

Accepted Answer

A)   Yield to maturity
B)   Current yield
C)   Realized yield
D)   Coupon rate
E)   None of these are correct.F) C) and D)
G) B) and D)

Question 13

Of the following provisions that may be found in a bond indenture, which would tend to reduce the coupon interest rate?

Accepted Answer

A)   a call provision
B)   no restrictive covenants
C)   a sinking fund provision
D)   change in bond rating from Aaa to Aa
E)   an indenture provisionF) B) and E)
G) All of the above

Question 14

The term structure of interest rates is a dynamic function that relates the term to maturity to the yield to maturity of bonds.

Accepted Answer

A) True 
 B)False

Question 15

If the yield to maturity for a par value TIPS bond with eight years to maturity is 3 percent, and the yield to maturity of a U.S Treasury note with 8 years is 4.25 percent, this implies that

Accepted Answer

A)   the expected annual rate of inflation over the next eight years is -1.25 percent.
B)   the expected annual rate of inflation over the next eight years is 1.25 percent.
C)   the expected annual rate of inflation over the next eight years is -2.25 percent.
D)   the expected annual rate of inflation over the next eight years is 2.25 percent.
E)   the expected annual rate of inflation over the next eight years is 0 percent.F) B) and D)
G) None of the above

Question 16

Calculate the price of a zero-coupon bond with yield to maturity of 8.75 percent, a face value of $1000, and maturing in five years.

Accepted Answer

A)   $1000
B)   $756.43
C)   $675.44
D)   $435.12
E)   $875.14F) All of the above
G) A) and E)

Question 17

The yield to call is a more conservative yield measure whenever the price of a callable bond is quoted at a value

Accepted Answer

A)   equal to or greater than par plus one year's interest.
B)   equal to par.
C)   equal to par less one year's interest.
D)   less than par.
E)   5 percent over par.F) B) and D)
G) B) and E)

Question 18

Junk bonds are high yield bond bonds rated below

Accepted Answer

A)   BBB.
B)   BB.
C)   B.
D)   CCC.
E)   CC.F) All of the above
G) D) and E)

Question 19

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) 
XLR Corporation just issued a $1,000 par value bond with a 7 percent yield to maturity, twenty years to maturity, with an 8 percent semi-annual coupon rate.
-Refer to Exhibit 12.2. If market interest rates rise to 10 percent, what will the price of the XLR Corporate bond be in three years?

Accepted Answer

A)   $832.89
B)   $838.07
C)   $1097.63
D)   $1,102.85
E)   $1,191.43F) B) and C)
G) A) and B)

Question 20

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) 
XLR Corporation just issued a $1,000 par value bond with a 7 percent yield to maturity, twenty years to maturity, with an 8 percent semi-annual coupon rate.
-Refer to Exhibit 12.2. If market interest rates are constant, what will the price of the XLR Corporate bond be in three years?

Accepted Answer

A)   $904.29
B)   $1,097.63
C)   $1,098.50
D)   $1,102.85
E)   $1,105.62F) A) and B)
G) C) and E)

Exam 12: Bond Fundamentals and Valuation

High-yield bonds are considered "investment" grade.

Correct Answer
verified

The term structure of interest rates is a dynamic function that relates the term to maturity to the yield to maturity of bonds.

Correct Answer
verified

Samurai bonds are yen-denominated bonds sold in markets outside Japan by international syndicates.

Correct Answer
verified

Of the following provisions that may be found in a bond indenture, which would tend to reduce the coupon interest rate?

Correct Answer
verified

The market for short-term issues with maturities of one year or less is commonly known as the money market.

Correct Answer
verified

Suppose you have a 12 percent, 20-year bond traded at $850. If it is callable in 5 years at $1,100, what is the bond's yield to call? Interest is paid semiannually.

Correct Answer
verified

A 15-year bond, purchased five years ago, has a $1,000 par value bond, a 10 percent coupon, and a yield to maturity of 12 percent. Interest is paid annually. The bond's price is

Correct Answer
verified

Calculate the price of a zero-coupon bond with yield to maturity of 8.75 percent, a face value of $1000, and maturing in five years.

Correct Answer
verified

What is the current price of a zero-coupon bond with a 6 percent yield to maturity that matures in 15 years?

Correct Answer
verified

____ measures the expected rate of return of a bond assuming that you sell it prior to its maturity.

Correct Answer
verified

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 12.1. What is the estimated yield on Treasury securities?

Correct Answer
verified

TIPS are U.S Treasury securities where the coupon rate is

Correct Answer
verified

The coupon of a bond indicates the income that the bond investor will receive over the life of the bond.

Correct Answer
verified

The yield to call is a more conservative yield measure whenever the price of a callable bond is quoted at a value

Correct Answer
verified

If the yield to maturity for a par value TIPS bond with eight years to maturity is 3 percent, and the yield to maturity of a U.S Treasury note with 8 years is 4.25 percent, this implies that

Correct Answer
verified

Correct Answer
verified

Consider a bond with a price of $944.44 and a coupon of 8 1/2 percent. What is the current yield?

Correct Answer
verified

Junk bonds are high yield bond bonds rated below

Correct Answer
verified

Correct Answer
verified

A bond's price is determined by the issue's coupon rate, length to maturity, and the prevailing yield in the market.

Correct Answer
verified

Exam 12: Bond Fundamentals and Valuation

High-yield bonds are considered "investment" grade.

Correct AnswerverifiedShow Answer

The term structure of interest rates is a dynamic function that relates the term to maturity to the yield to maturity of bonds.

Correct AnswerverifiedShow Answer

Samurai bonds are yen-denominated bonds sold in markets outside Japan by international syndicates.

Correct AnswerverifiedShow Answer

Of the following provisions that may be found in a bond indenture, which would tend to reduce the coupon interest rate?

Correct AnswerverifiedShow Answer

The market for short-term issues with maturities of one year or less is commonly known as the money market.

Correct AnswerverifiedShow Answer

Suppose you have a 12 percent, 20-year bond traded at $850. If it is callable in 5 years at $1,100, what is the bond's yield to call? Interest is paid semiannually.

Correct AnswerverifiedShow Answer

A 15-year bond, purchased five years ago, has a $1,000 par value bond, a 10 percent coupon, and a yield to maturity of 12 percent. Interest is paid annually. The bond's price is

Correct AnswerverifiedShow Answer

Calculate the price of a zero-coupon bond with yield to maturity of 8.75 percent, a face value of $1000, and maturing in five years.

Correct AnswerverifiedShow Answer

What is the current price of a zero-coupon bond with a 6 percent yield to maturity that matures in 15 years?

Correct AnswerverifiedShow Answer

____ measures the expected rate of return of a bond assuming that you sell it prior to its maturity.

Correct AnswerverifiedShow Answer

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 12.1. What is the estimated yield on Treasury securities?

Correct AnswerverifiedShow Answer

TIPS are U.S Treasury securities where the coupon rate is

Correct AnswerverifiedShow Answer

The coupon of a bond indicates the income that the bond investor will receive over the life of the bond.

Correct AnswerverifiedShow Answer

The yield to call is a more conservative yield measure whenever the price of a callable bond is quoted at a value

Correct AnswerverifiedShow Answer

If the yield to maturity for a par value TIPS bond with eight years to maturity is 3 percent, and the yield to maturity of a U.S Treasury note with 8 years is 4.25 percent, this implies that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Consider a bond with a price of $944.44 and a coupon of 8 1/2 percent. What is the current yield?

Correct AnswerverifiedShow Answer

Junk bonds are high yield bond bonds rated below

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A bond's price is determined by the issue's coupon rate, length to maturity, and the prevailing yield in the market.

Correct AnswerverifiedShow Answer

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