Chapter 07 Interest Rates And Bond ValuationStudent: ___________________________________________________________________________ 1. Allison just received her semiannual payment of $35 on a bond she owns. Which term refers to this payment? A. Coupon. B. Face value. C. Discount. D. Call premium. E. Yield. 2. Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity. What is the $1,000 called? A. Coupon. B. Face value. C. Discount. D. Yield. E. Dirty price. 3. A bond's coupon rate is equal to the annual interest divided by which one of the following? A. Call price. B. Current price. C. Face value. D. Clean price. E. Dirty price. 4. The bond principal is repaid on which one of these dates? A. Coupon date. B. Yield date. C. Maturity date. D. Dirty date. E. Clean date. 5. The bond market requires a return of 9.8 percent on the fiveyear bonds issued by JW Industries. The 9.8 percent is referred to as which one of the following? A. Coupon rate. B. Face rate. C. Call rate. D. Yield to maturity. E. Current yield. 6. The current yield is defined as the annual interest on a bond divided by which one of the following? A. Coupon rate. B. Face value. C. Market price. D. Call price. E. Par value. 7. Which one of these is most apt to be included in a bond’s indenture one year after the bond has been issued? A. Current yield. B. Written record of all the current bond holders. . C. List of collateral used as bond security. D. Current market price. E. Price at which a bondholder can resell the bond to another bondholder 8. Road Hazards has 12year bonds outstanding. The interest payments on these bonds are sent directly to each of the individual bondholders. These direct payments are a clear indication that the bonds can accurately be defined as being issued: A. At par. B. In registered form. C. In street form. D. As debentures. E. As callable bonds. 9. A bond that is payable to whomever has physical possession of the bond is said to be in: A. Newissue condition. B. Registered form. C. Bearer form. D. Debenture status. E. Collateral status. 10. Jason’s Paints just issued 20year, 7.25 percent, unsecured bonds at par. These bonds fit the definition of which one of the following terms? A. Note. B. Discounted. C. Zerocoupon. D. Callable. E. Debenture. 11. A note is generally defined as: A. A secured bond with an initial maturity of 10 years or more. B. A secured bond that initially matures in less than 10 years. C. Any bond secured by a blanket mortgage. D. An unsecured bond with an initial maturity of 10 years or less. E. Any bond maturing in 10 years or more. 12. A sinking fund is managed by a trustee for which one of the following purposes? A. Paying bond interest payments. B. Early bond redemption. C. Converting bonds into equity securities. D. Paying preferred dividends. . E. Reducing bond coupon rates. 13. A bond that can be paid off early at the issuer's discretion is referred to as being which type of bond? A. Par value. B. Callable. C. Senior. D. Subordinated. E. Unsecured. 14. A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus any accrued interest. The additional $30 is called the: A. Dirty price. B. Redemption value. C. Call premium. D. Originalissue discount. E. Redemption discount. 15. A deferred call provision is which one of the following? A. Requirement that a bond issuer pay the current market price, plus accrued interest, should the firm decide to call a bond. B. Ability of a bond issuer to delay repaying a bond until after the maturity date should the issuer so opt. C. Prohibition placed on an issuer which prevents that issuer from ever redeeming bonds prior to maturity. D. Prohibition which prevents bond issuers from redeeming callable bonds prior to a specified date. E. Requirement that a bond issuer pay a call premium that is equal to or greater than one year's coupon should that issuer decide to call a bond. 16. A callprotected bond is a bond that: A. Is guaranteed to be called. B. Can never be called. C. Is currently being called. D. Is callable at any time. E. Cannot be called at this point in time. D. A bond that has only one payment. Zero coupon. Callable. B. 18. If you sell a 6 percent bond to a dealer when the market rate is 7 percent. Par value 20. 19. . D. Trustee relationships. Call price B. Asked price. Trust deed. E. C. defines which one of these types of bonds? A. The items included in an indenture that limit certain actions of the issuer in order to protect a bondholder's interests are referred to as the: A. Floatingrate. which occurs at maturity. Protective covenants. Junk. Asked price C. C. B. B. Bid price D. Bidask spread E. Call price. Bylaws.17. Bid price. Par value. Which one of the following is the price at which a dealer will sell a bond? A. Bidask spread. C. which one of the following prices will you receive? A. D. E. E. Legal bounds. Debenture. 22. Default risk. The difference between the price that a dealer is willing to pay and the price at which he or she will sell is called the: A. D. 23. Clean price. C. Premium. 24. This price is referred to as the: A. C. Dirty price.011. B. E. Call price. This price is referred to as the: A. Inflation. Equilibrium. E.189 to purchase a bond that has 7 of its initial 20 years left until maturity. D. Dirty price. Accrued interest. Real rates are defined as nominal rates that have been adjusted for which of the following? A. E.21. Both inflation and interest rate risk. C. A bond is quoted at a price of $1. Call price. Quoted price. Call price. B. . D. Maturity price. E. Interest rate risk. Clean price. Spread. Rosita paid a total of $1. Discount. Face value. B. Spread price. C. D. B. Liquidity effect. and nominal rates 27. Liquidity. Annual percentage rates. interest rate risk premium. 28. B. The pure time value of money is known as the: A. C. C. Default risk. and interest rate risk premium C. real rates. The Fisher effect is defined as the relationship between which of the following variables? A. Real rates. D. inflation rates. Interest rates that include an inflation premium are referred to as: A. and default risk premium D. Interest rate factor. and nominal rates E. Inflation factor. 26. Nominal rates. and real rates B. Effective annual rates. Interest rate risk. E. Which one of the following premiums is compensation for the possibility that a bond issuer may not pay a bond’s interest or principal payments as expected? A. D. Term structure of interest rates. inflation risk premium. Fisher effect. real rates. Nominal rates. . C. Real rates. Interest rate risk premium. Inflation. D. Stripped rates. B. Default risk premium. E. B. Taxability. E.25. Real rates. Default risk. D. Interest rate risk. Lack of coupon payments. D. Decrease in a municipality's credit rating. B. E. C. B. Difference between the yield to maturity and the current yield. Taxability. C. A Treasury yield curve plots Treasury interest rates relative to which one of the following? A. E. Liquidity. 32. Possibility of default. Comparable corporate bond rates. Yield decreases in response to market changes. Difference between the coupon rate and the current yield. D. Inflation. B. Compensation investors demand for accepting interest rate risk. A bond's unfavorable tax status. E. 31. Additional compensation paid to investors to offset rising prices. E. Which one of the following risk premiums compensates for the inability to easily resell a bond prior to maturity? A. C. . The interest rate risk premium is the: A. B. Inflation. D. C. Difference between the market interest rate and the coupon rate.29. 30. Maturity. Market rates. The taxability risk premium compensates bondholders for which one of the following? A. The riskfree rate. B. less than D. All else constant. a premium. highquality. higher than E. 35. E. Yield to maturity equal to the current yield. E. less than . Longterm. The current yield exceeds the coupon rate. highly liquid bond C. a discount. equal to C. A bond has a market price that exceeds its face value. Shortterm. taxable junk bond 34. B. C. Longterm. The current yield exceeds the yieldtomaturity. Which bond would you generally expect to have the highest yield? A. Discount bond. Currently selling at par. a premium. a bond will sell at _____ when the coupon rate is _____ the yield to maturity. Yield to maturity less than the coupon rate. inflationadjusted bond E. par. The coupon rate has increased to 7 percent. taxfree bond D. a discount. Which one of these would apply to this bond today if the current yield to maturity is 7 percent? A.33. The bond is currently selling at a premium. C. The bond is selling at par value. Riskfree Treasury bond B. Nontaxable. D. A corporate bond with a 6 percent coupon was issued last year. Current yield greater than coupon rate. Which one of these features currently applies to this bond? A. 36. A. less than B. D. D. Coupon rate < yield to maturity < current yield. B. Which one of the following relationships applies to a par value bond? A. B. E. D. DLQ Inc. 39. Coupon rate will also increase. The call price must equal the par value. The coupon rate exceeds the current yield when a bond sells at a discount. then the: A. E. C. Yield to maturity > current yield > coupon rate. C. all else constant. B. D. all else constant. Coupon rate > yieldtomaturity > current yield. Coupon payment will increase. Market price of the bond will decrease. E. Current yield will decrease.37. 38. An increase in market rates increases the market price of a bond. 40. Which one of the following applies to a premium bond? A. Decreasing the time to maturity increases the price of a discount bond. Coupon rate = current yield = yieldtomaturity. E. Yield to maturity will be less than the coupon rate. Coupon rate < yield to maturity < current yield. Which one of the following relationships is stated correctly? A. D. Coupon rate > current yield > yield to maturity. Coupon rate = current yield = yieldtomaturity. Increasing the coupon rate decreases the current yield. Coupon rate > yieldtomaturity > current yield. bonds mature in 12 years and have a coupon rate of 6 percent. Coupon rate > current yield > yield to maturity. C. B. Yield to maturity > current yield > coupon rate. . If the market rate of interest increases. C. C. The bonds are currently priced at par.5 percent but less than 7 percent. D. Greater than 3. E. 6 percent coupon. The bonds will mature in 10 years and will be sold at par. Time to maturity and coupon rate both decrease. Which one of the following bonds is the least sensitive to interest rate risk? A. B. Coupon rate and time to maturity both increase.5 percent. The bonds will sell at a premium if the market rate is 5. E. Time to maturity decreases. E. B. 4 percent coupon. 7year. 6 percent coupon. Less than 3. Greater than 7 percent. C. 7 percent. 4 percent coupon.41.060. D. The bonds will become discount bonds if the market rate of interest declines. 43. 5year.030 each. 44.5 percent. 42. . D. C. The price sensitivity of a bond increases in response to a change in the market rate of interest as the: A. The final payment will be in the amount of $1. 3year. E. C. 6 percent coupon. A newly issued bond has a 7 percent coupon with semiannual interest payments. D. 3year. Coupon rate increases. B. The bonds will initially sell for $1. Given this. Coupon rate decreases and the time to maturity increases.5 percent. The bonds will pay 10 interest payments of $60 each. The effective annual rate provided by these bonds must be: A. paid semiannually. and a face value of $1. which one of the following statements is correct? A.000. Round Dot Inns is preparing a bond offering with a coupon rate of 6 percent. 7year. B. 3. C. E. zero coupon. . C. Increases at a decreasing rate. Which one of the following bonds should you purchase now to maximize your gains if the rate decline does occur? A. high coupon. A premium bond that pays $60 in interest annually matures in seven years. The yieldtomaturity equals the current yield. E. Decreases at a decreasing rate. The yieldtomaturity is less than the coupon rate. Which one of the following statements applies to this bond if the relevant market interest rate is now 5. D. B. The bond was originally issued three years ago at par. high coupon. The coupon rate is greater than the current yield. B. Shortterm. The current yieldtomaturity is greater than 6 percent. 48. Longterm. You own a bond that has a 6 percent annual coupon and matures five years from now.8 percent? A. the bond's sensitivity to interest rate risk: A. Decreases at an increasing rate. Longterm. The bond is worth less today than when it was issued. low coupon. The current yield is 6 percent. You will realize a capital gain on the bond if you sell it today. E. B. Shortterm. Longterm. low coupon. You expect interest rates to decline in the near future even though the bond market is not indicating any sign of this change. D. B. The face value of the bond today is greater than it was when the bond was issued. Which one of the following statements is accurate in respect to this bond today? A. 47.45. Increases at an increasing rate. The next interest payment will be $30. The bond is currently valued at onehalf of its issue price. E. As a bond's time to maturity increases. Increases at a constant rate. D. C. 46. You purchased this 10year bond at par value when it was originally issued. C. D. The coupon rate is 3 percent. Trust deed. D. Which one of the following correctly describes this bond? A. 52. Last year. Are called when market interest rates increase. Variable Interest payments are variable. Semiannual coupon. Note. The bonds sell at par and are callable at a price equal to the present value of all future interest and principal payments discounted at a rate equal to the comparable Treasury rate plus .000 and the market price is $1. C. E. C. Callable bonds generally: A. Hot Foods has an investmentgrade bond issue outstanding that pays $30 semiannual interest payments. It has a "make whole" call price.020. Bonds provide tax benefits to issuers. C. Market value is less than face value. B.50 percent. This debt pays an annual interest payment of $55 and matures six years from now. B. D. Are called within the first three years after issuance. C. B. D. The bond rating is B. noncallable debt. B. . Which one of these terms correctly describes a feature of this debt? A. The face value is $1. 51. The risk of a firm financially failing decreases when a firm issues bonds. All bonds are treated equally in a bankruptcy proceeding. D. Have a sinking fund provision. A debenture is a senior secured debt. Are callable at par as soon as the callprotection period ends. E. E. Most longterm bond issues are referred to as unfunded debt. Which one of these statements is correct? A. Collateralized. E. Discount bond. 50. Grant the bondholder the option to call the bond anytime after the deferment period.49. Lexington Homes issued $1 million in unsecured. 1 or higher. Splitrated bonds are called crossover bonds. D. Which one of the following statements concerning bond ratings is correct? A. B. A "fallen angel" is a bond that has moved from: A. The company shall maintain a cash surplus of $100. Poor's. Which one of these is a negative covenant that might be found in a bond indenture? A. Are primarily designed to protect bondholders. Being publicly traded to being privately traded. . Only apply to bonds that have a deferred call provision.53. E. The highest rating issued by Moody's is AAA. Bond ratings assess both interest rate risk and default risk. Being a longterm obligation to being a shortterm obligation. B. B. D. Investment grade to speculative grade. Apply to shortterm debt issues but not to longterm debt issues.000 at all times. The company must maintain the loan collateral in good working order. E. C. E. The company shall provide audited financial statements in a timely manner. 55. B. D. Investment grade bonds are rated BB or higher by Standard amp. C. Protective covenants: A. Senior status to junior status for liquidation purposes. 56. Are a feature found only in governmentissued bond indentures. Only apply to privately issued bonds. E. The company cannot lease any major assets without bondholder approval. D. The company shall maintain a current ratio of 1. Being a premium bond to being a discount bond. 54. A "fallen angel" is a term applied to all "junk" bonds. C. C. B. E. Are called "munis. E. Issued only on the first day of each fiscal year by the U. D." 58. Are totally risk free.05 (1 t ) = . C. Generally have higher coupon rates than corporate bonds.S. Are considered to be free of default risk. 59. C.05 (1 t ) = .S. Bonds issued by the U.07. . Treasury bonds are: A. * C. Are rarely callable. Pay interest that is exempt from federal income taxes. Are free of default risk. * D.05. Department of Treasury. Generally have higher coupons than comparable bonds issued by a corporation.07 + (1 t ) = . B.07. . . E. Are considered to be free of interest rate risk.05 (1 + t*) = . B. Pay interest that is federally tax free. C. E. .57.07. government: A. D. .S. 60. Issued by any governmental agency in the U. . D. Municipal bonds: A.07. The breakeven tax rate between a taxable corporate bond yielding 7 percent and a comparable nontaxable municipal bond yielding 5 percent can be expressed as: * A. Bonds that offer the best tax benefits of any bonds currently available. * B. Totally riskfree.05 / (1 t ) = . Generally issued as semiannual coupon bonds. both market interest rates and the inflation rate have increased by . E. you purchased a TIPS at par. 64. 62. Market prices. Has more interest rate risk than a comparable coupon bond. Is sold at a large premium. C.25 percent. Can only be issued by the U. Real rate risk B. Pays interest that is tax deductible to the issuer at the time of payment. Liquidity risk E. E. Experienced an increase in its bond rating. Maintained a fixed real rate of return. Treasury. Taxability risk 63. Which one of the following risks would a floatingrate bond tend to have less of as compared to a fixedrate coupon bond? A. Since that time. D. E. yields to maturity. B. C.61. D. B.S. The collar of a floatingrate bond refers to the minimum and maximum: A. Increased in value due to a decrease in time to maturity. Call periods. B. Increased in value in response to the change in market rates. C. A zero coupon bond: A. Coupon rates. Decreased in value due to the change in inflation rates. Your bond has most likely done which one of the following since last year? A. Provides no taxable income to the bondholder until the bond matures. D. . Maturity dates. Last year. Default risk D. Interest rate risk C. 6year. Which one of the following bonds should best ease Al's concerns? A. If you purchase this bond you will have the right to: A. C.65. 5year TIPS. 5year TIPS C. 6year coupon bonds B. Although he has sufficient principal to live on. D. C. Nadine is a retired widow who is financially dependent upon the interest income produced by her bond portfolio. E. D. 20year coupon bonds 220 D. 66. Force the issuer to repurchase the bond prior to maturity. 10year AAA coupon bond. highcoupon. B. Recently. Have the principal amount adjusted for inflation. D. Convert the bond into a 5 percent perpetuity. 7 year income bond. Which one of the following bonds is the least suitable for her to own? A. Defer all taxable income until the bond matures. Insurance companies fund excessive claims. he only wants to spend the interest income and thus is concerned about the purchasing power of that income. put bond. 67. Convert the bond into equity shares. Municipalities survive economic recessions. E. B. C. Al is retired and his sole source of income is his bond portfolio. Cat bonds are primarily designed to help: A. E. Corporations recover from involuntary reorganizations. callable bond with a 5 percent semiannual coupon. 7 year income bonds . B. you discovered a convertible. 68. 5year floating rate bond. Corporations respond to overseas competition. 5year municipal bonds E. The federal government cope with huge deficits. Bid price. One month's interest. Are quoted at the dirty price. Today. . 70. E. E. U. C. between this bond's clean and dirty prices today? A. Pay interest that is federally taxexempt. No difference. June 15. D. you want to buy a bond with a quoted price of 98. Warrant. if any. Put provision. What will be the difference. B. Treasury bonds: A. S. Must be held until maturity. B. The bond pays interest on January 1 and July 1. Kurt has researched TTek and believes the firm is poised to vastly increase in value. A sixyear. C. 71. Asked price. Are highly illiquid. Call provision. B. D. $1. Five month's interest. B. Dirty price. Two month's interest. Clean price. However. C. Four month's interest. E. Positive covenant. Which one of the following prices represents your total cost of purchasing this bond today? A. He has decided to purchase TTek bonds as he needs a steady stream of income. Quoted price.69. D. Crossover rating.000 face value bond issued by Taylor Tools pays interest semiannually on February 1 and August 1. 72. Assume today is October 1. D.64. Which one of the following bond features will help him fulfill his wish? A. he still wishes that he could share in the firm's success along with the shareholders. E. C. Are quoted as a percentage of par. The time to maturity. C. The real rate must be less than the nominal rate given a positive rate of inflation. Any return greater than the inflation rate represents the risk premium. 74. A. Historical real rates of return must be positive. D.73. One stream is expressed in nominal values and the other stream is expressed in real values. Inflation. EAR of 8 percent compounded monthly. Nominal rates exceed real rates by the amount of the riskfree rate. 8 percent. Default. Nominal rateriskfree rate . Realized rate. D. The Fisher effect primarily emphasizes the effects of _____ on an investor's rate of return. 75. B. What rate should you use to discount the real cash flows? A. C. Real rate. The riskfree rate represents the change in purchasing power. B. E. Current rate. B. C. Interest rate changes. in your purchasing power as a result of owning a bond? A. D. Which one of the following statements is correct? A. if any. Comparable real rate. E. B. Which one of the following rates represents the change. Riskfree rate. 76. E. You are trying to compare the present values of two separate streams of cash flows that have equivalent risks. E. Comparable riskfree rate. You decide to discount the nominal cash flows using a nominal annual rate of 8 percent. C. Nominal rate. market movements. D. E. Sue is considering purchasing a bond that will only return its principal at maturity if the stock market declines. The interest rate risk premium increases as the time to maturity increases. B. Sukuk. C. Default. Which one of the following statements is false concerning the term structure of interest rates? A. The term structure of interest rates and the time to maturity are always directly related. E. inflation. Expectations of lower inflation rates in the future tend to lower the slope of the term structure of interest rates. C. affect on the slope of the term structure of interest rates. Put bond. E. B. The real rate of return has minimal. Contingent. Taxes and default risk. Liquidity and inflation rate risks. D. if any. and interest rate risks. The term structure of interest rates includes both an inflation premium and an interest rate risk premium. C. she will receive both the bond principal and a percentage of the stock market gain. Structured note. What type of bond is this? A. Default and interest rate risks. 78. if the stock market increases in value during the bond term. D. . at maturity. 79. However. NoNo bond. Interest rate risk and taxes. D. B. callable bond. The yields on a corporate bond differ from those on a comparable Treasury security primarily because of: A.77. 5 percent coupon bonds with semiannual payments and a yield to maturity of 6. What is the yield to maturity? A.48 D. The bond matures in 11 years.87 percent B.22 percent C.60 E.50. You own a bond that pays $64 in interest annually.36 percent B. 6. Currently.5 percent that matures in 8. 6.46 percent D. What is the yield to maturity? A. 5.08 percent D.000 and the current market price is $1. 5. 6.80 percent 82.61 percent D.71 percent E. the bonds sell for $1.000 and a market price of $972. 6. $902. 5. The face value is $1. Oil Wells offers 6.70 B. The 7 percent bonds issued by Modern Kitchens pay interest semiannually. What is the yield to maturity? A. $913. New Homes has a bond issue with a coupon rate of 5. 7.62 percent B.48 percent E.92 percent 83.74 percent E.94 percent.062. 6.42 percent C. The bonds mature in seven years. and have a $1.92 percent C. 5.48 . 6.000 face value.5 years.93 C. 6. The bonds have a par value of $1.032. mature in eight years. $989. $975. What is the market price per bond if the face value is $1.80. Interest is paid semiannually.20 percent 81. $996. 5.000? A. 6. 6. 37 years E. The yield to maturity is 13.000.42 D.53 years C. Roadside Markets has a 6.84.007. $899. $893. $1. How many years is it until these bonds mature? A.023.32 years 87. 24.30 86.72 percent. 5. $967.19 years C. The yield to maturity is 11.80 B.05 years .000 and the yield to maturity is 7. 6. 4. a par value of $1.18 E.24 E.2 percent? A. $941.41 years D. $903.20 D.67 C.85 C.99 B. Luxury Properties offers bond with a coupon rate of 9. $953. How many years is it until these bonds mature? A. $946. $899. World Travel has 7 percent.5 percent coupon bonds outstanding with a current market price of $742.000.2 percent and the face value is $1.5 years. 8.73 years B. Interest is paid annually. What is the market price per bond if the face value is $1. 7.16 years E. 18. semiannual.75 percent coupon bond outstanding that matures in 10. What is the market price of this bond if the face value is $1. 12.5 percent paid semiannually.49 years D. $896.000? A. and a yield to maturity of 6. Redesigned Computers has 6.26 years B. The bond pays interest semiannually. 12. coupon bonds outstanding with a current market price of $1.52 85.2 percent and the maturity date is 11 years from today.46. 25. 92 years B. 21. A 13year.19 percent? Ignore any accrued interest. $106.50 E. 22. 1. What is the percentage change in the price of this bond if the market yield to maturity rises to 5. 1. $741.43 years D.09 C. You are purchasing a 20year.39 percent.79 percent decrease B.5 years.18 C.08 D.79 percent increase .59 years 91. A.60 B. $228. Today. $896.percent decrease C. The bond matures in 3.80 D. The zero coupon bonds of JK Industries have a market price of $211.47 89.16.000.01 years E.68 percent and the face value is $1. zerocoupon bond.28 years C.14 E. 1. The yield to maturity is 8.88.000. a face value of $1. $221.5 percent? A. $182.6 percent decrease D. $756.000 face value zero coupon bond you currently own. 44.67 B.97 percent increase E. and a yield to maturity of 7. How much will you receive for your bond if the market yield to maturity is currently 6. The bond has a face value of $1. you want to sell a $1. $108. $807. 1.86 90. 1. What is the current market price? A. 6 percent coupon bond pays interest semiannually. $798.000. 23. 46. How many years is it until these bonds mature? A.7 percent from the current rate of 5. What is the current yield on these bonds? A. The Corner Grocer has a 7year.000 par value bond? A. Which one of the following statements is correct if the market yield suddenly increases to 7 percent? A. B. The bond price will decrease by 2. 6.000 and are currently quoted at 86. The bond price will decrease by 1. 93. 8. D.42 percent B.000 par value bonds of Uptown Tours have a coupon rate of 6. 7.49 percent E. 6. 6.92 percent. What is the amount of the call premium on a $1. semiannual coupon bonds offered by House Renovators are callable in two years at $1.29 percent. 7. The bonds have a 7 percent coupon rate.37 percent C.23. The bond has a yield to maturity of 5. The bond price will increase by 1. $84 E.47 percent 94.054. C.725.58 percent 95.5 and a current price quote of 101. 6.5 percent semiannual coupon bond outstanding with a $1.14 percent.000 par value. The $1. $54 C. E. 9. $72 D. 6. The bond price will increase by 2. The 7 percent.07 percent D. 6.92.67 percent C. DoWell bonds have a face value of $1. What is the current yield? A.60 percent B.42 percent D. The bond price will decrease by 1.36 percent.74 percent.5 percent. 8.03 percent E. $89 . $52 B. What is the coupon rate on a $10. $0.46 B.00 99.48 percent C.25 E.000? A. $30.19. A 10year.273. What is the clean price of this bond if the next interest payment will occur 2 months from today? A. 6.20 percent B.27 percent .10 D. $5. $5. 6. $5.105.00 D.005. $5. semiannual coupon bond issued by Tyler Rentals has a $1. 7.00 97. $1. $5. A corporate bond was quoted yesterday at 102.38 percent E.50 98. What is the market price of this bond if the face value is $5.264.96. $994.5 percent. A Treasury bond is quoted at a price of 105.4620.022.002.00 D.41 percent D. 4.50 C. A Treasury bond is quoted at a price of 101. $1. $1.30 B. 6.46 C.000? A.50 C. $15.000 bond? A.276 percent. $1.215.6533 with a current yield of 6.00 B. 6.16 while today's quote is 102. $3. The bond is currently quoted at 98.000 face value.011. What is the change in the value of a bond that has a face value of $5.44 E. $987.7.00 E. $16. $41. 8year bonds of Alto Music are selling at par and have an effective annual yield of 8. What is the bidask spread in dollars on a $5.96 and has a coupon rate of 4.66 percent 101.1250 bid. $.15 D. 3. 4. paid semiannually.00 E.50 B.8 percent.36 percent D. What is the amount of each interest payment if the face value of the bonds is $1.25 percent Treasury bond is quoted at a price of 101.06 percent B. 3. 4. $86. The bond pays interest semiannually.85 percent C. $85.675 C.000? A. $25.21 percent D.000 face value bond? A.6325 asked and 99. A corporate bond is quoted at a price of 98.500 D.100.29 . 3. $43.24 percent B.375 E. $17.250 103.508 B. 3.6285 percent. The semiannual.17 percent C.38 percent 102. A 3. 5. 4.16. 3.62 percent E. $. $42.33 percent E.25 C. A Treasury bond is quoted as 99. 5. What is the current yield? A. What is the current yield? A. 9.58 percent B.25 percent C.19 percent B. The inflation rate for the same period was 2.22 percent E.49 percent 105. 8. provide a real rate of return of 5. 9.68 percent.86 percent B. 4. what is the actual nominal rate of return on these bonds? A.76 percent E.71 percent . 6. 8. The yield to maturity on a bond is currently 9. what is the real rate of return on the bond? A. The real rate of return is 3.29 percent.33 percent C.54 percent 107.6 percent.64 percent C. 6. 10. A bond that pays interest annually yielded 6. 6. 9.104. 3.41 percent E.84 percent. 9. 4.48 percent last year.90 percent C.04 percent D. A bond has a yield to maturity of 11. 8. If the current rate of inflation is 4. 6. 5.19 percent 106.88 percent D.5 percent.2 percent.34 percent B.71 percent D.68 percent.24 percent D.53 percent E. The outstanding bonds of Winter Tires Inc. If the inflation rate is 3. 3. What was the actual real rate of return? A. 15. 15. What is the rate of inflation? A. 3. 47 D. $1.72 B. The relevant nominal discount rate is 10.000. $17.800 C. $17. The bonds will be priced to yield 7. What is the minimum number of bonds it must sell to raise the money it needs? A. 135.907 D. 139. zero coupon bond just sold for $311.000 a year in real terms for the next 5 years.75 percent. $17.411 B. What is the implicit interest.401 D. $1.725 percent and the inflation rate is 3 percent. To accomplish this. $17.108. $18. $17. You will receive $5.838 .500 E.436 110.029 E. Each payment will be received at the end of the period with the first payment occurring one year from today.229 B. Global Exporters wants to raise $29.63 E.89 109.367 C. What are your winnings worth today in real dollars? A. for the first year of the bond's life? A. $17.000 face value. $21. $20. 154. 110. $18. A newly issued 20year.6 million to expand its business. zero coupon bonds. in dollars.70 C. 126.05. it plans to sell 20year. 02.00 percent 114.000.072 C. The bonds make semiannual payments and have a par value of $1. with 14 years to maturity. $23.90 C. $1.50 percent E.111.000 face value bond has a coupon rate of 7 percent.00 percent B.720 B. $1. If the inflation rate is 2. $1. $25.16 D.00 . At this price.5 percent. $21.042. a par value of $1. What is the coupon rate? A. What is the present value of these payments in real dollars? A.38 percent E.511 D. the bonds yield 7. If the YTM on these bonds is 9.2 percent.50 percent B.112 E. $985.92 percent D. 10. a year for the next three years. Each payment will be received at the end of the period with the first payment occurring one year from today. in real dollars.098.50 percent C. Kaiser Industries has bonds on the market making annual payments. 5.8 percent. Interest is paid semiannually.9 percent.897 percent and the inflation rate is 2. $22.68 percent C.529 112. A $1.000. The nominal discount rate is 9.68 percent 113.2 percent. 12.02 E.089. 8. 5. 4. 4. $991.382.01. a market price of $911.55 B. Dexter Mills issued 20year bonds a year ago at a coupon rate of 10. You purchased an investment that will pay you $8.000. and 10 years left to maturity. what is the current bond price? A. $21. what is the yieldtomaturity when expressed in real terms? A. 5. 8. 9.00 percent D. and selling for $1. Suppose the real rate is 2.56 percent E. What is the coupon rate? A.98. 3.35 percent B. The bonds make semiannual payments and have a face value of $1. 2.42 percent 116.68 percent C.5 percent. 6.29 percent D. 6.70 percent E. 6. 4. 8.58 percent .52 percent B. The bonds make semiannual payments. 3. 2. 4. Bare Trees United issued 15year bonds 2 years ago at a coupon rate of 8. what is the YTM? A.67 percent C.33 percent C. 6. 8.30 percent C. 2.8 percent. 2.46 percent D. 2.7 percent.67percent E.45 percent and the inflation rate is 1.13 percent D. If these bonds currently sell for 98. What do you believe the exact inflation rate will be for the next year? A. 9. Wheeler’s has bonds on the market with 13 years to maturity. What rate would you expect to see on a Treasury bill? A.6 percent of par value.98 percent B. An investment offers a total return of 12. 3.000. 8.4 percent over the coming year.60 percent 118. 6. and a current price of $901. 9.50 percent 117. a YTM of 7.27 percent E.6 percent.115.60 percent D.40 percent B. You believe the total real return will be only 9. 7 years to maturity.17 C.67 percent 122.41 percent D. 10.56 percent D. make semiannual payments. 10. The company currently has 8.314. a face value of $1.12 E. You purchase a bond with an invoice price of $1. 8. A bond has a coupon rate of 8 percent. The bonds make semiannual payments and currently sell for 98. What is the effective annual yield? A.17 B.16 percent B. 9.39 percent C.298. 7. 9.14 D. and there are two months to the next semiannual coupon date. Sunset Sales has 7. semiannual interest payments.2 percent coupon bonds on the market with 11 years left to maturity. 8. What is the clean price of this bond? A. 10.319.5 percent bonds on the market that sell for $959. 7. 8.99 percent E. $1.283.34 percent B.23 percent C.93 percent D. $1.87 percent C. 9.75 percent B. The bond has a coupon rate of 6. What should the coupon rate be on the new bonds if the firm wants to sell them at par? A. what will be the percentage change in the bond price? A.000.67 percent 120.47 percent 121. 7. and mature in 16 years. $1.52 percent E. $1. $1.408.352. Bonner Metals wants to issue new 20year bonds for some muchneeded expansion projects.02 percent E.25 percent. If interest rates suddenly rise by 2 percent. 7. 8.6 percent of par.119. 7. and a YTM of 7 percent.50 . 01 percent E.83 percent .939 percent and the inflation rate is 3.711 124.49 percent C. The nominal return on your investment is 9. $10. $10. the yieldtomaturity has declined to 7 percent and you decide to sell. The bond has 12 years to maturity.96 percent D.210 D.84 percent B. 12. 10. Three years from now. $9.887 E. $8.2 percent. $9. 13. You want to have $2 million in real dollars in an account when you retire in 43 years. your realized return is known as the holding period yield. What is the real amount you must deposit each year to achieve your goal? A. If you actually sell the bond before it matures.403 B. 8. The yieldtomaturity on a bond is the interest rate you earn on your investment if interest rates do not change. 9.000. Suppose that today you buy a 9 percent annual coupon bond for $1.123.878 C. What is your holding period yield? A. Dirty price.1 Bonds and Bond Valuation Topic: Bond types . Section: 7. D. Yield. 2. Face value.1. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds. E. What is the $1. Discount. Chapter 07 Interest Rates And Bond Valuation Key Allison just received her semiannual payment of $35 on a bond she owns.000 called? A. C. B. Discount. C. Section: 7. E. Coupon. Yield. Which term refers to this payment? A. Coupon. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds. Face value. B. D.000 principal payment at maturity.1 Bonds and Bond Valuation Topic: Bond types Bert owns a bond that will pay him $75 each year in interest plus a $1. Call premium. C. E. Section: 7. B. E. Coupon rate. C. B. Face rate. Clean date. Yield date. Dirty price. The 9.8 percent on the fiveyear bonds issued by JW Industries. Call price. Yield to maturity. Face value. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds. Clean price. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds. D. A bond's coupon rate is equal to the annual interest divided by which one of the following? A.8 percent is referred to as which one of the following? A. Call rate. 4. 5. Coupon date.3. Current price. C.1 Bonds and Bond Valuation Topic: Bond types The bond market requires a return of 9. D. D. Section: 7. . Maturity date. Current yield. E.1 Bonds and Bond Valuation Topic: Bond coupons The bond principal is repaid on which one of these dates? A. B. Dirty date. Written record of all the current bond holders. The interest payments on these bonds are sent directly to each of the individual bondholders. Section: 7.6. D. D. At par. C. Which one of these is most apt to be included in a bond’s indenture one year after the bond has been issued? A. C. E. Section: 7.2 More about Bond Features Topic: Indenture provisions Road Hazards has 12year bonds outstanding. Market price. B. In street form. E. B. 7. In registered form. The current yield is defined as the annual interest on a bond divided by which one of the following? A. . Call price. Current market price. As debentures.2 More about Bond Features Topic: Bond types . List of collateral used as bond security. Face value. These direct payments are a clear indication that the bonds can accurately be defined as being issued: A. Par value. E. Price at which a bondholder can resell the bond to another bondholder 8. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds. Current yield. D. B. Coupon rate. As callable bonds. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds. C. Newissue condition. Debenture status. An unsecured bond with an initial maturity of 10 years or less. B. Section: 7. C. 7. D. Note. E.2 More about Bond Features Topic: Bond types 11. E. B. Any bond secured by a blanket mortgage. C. A secured bond with an initial maturity of 10 years or more. D. 10. Bearer form. C.2 More about Bond Features Topic: Bond types . unsecured bonds at par. Discounted. E. Section: 7. A note is generally defined as: A. Registered form. D. Collateral status. Jason’s Paints just issued 20year. Debenture. Any bond maturing in 10 years or more.9. A secured bond that initially matures in less than 10 years. These bonds fit the definition of which one of the following terms? A. Callable.25 percent. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds. Zerocoupon. B. A bond that is payable to whomever has physical possession of the bond is said to be in: A. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds. Subordinated. Paying bond interest payments.12. Reducing bond coupon rates. D. . E. Section: 7. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds.2 More about Bond Features Topic: Indenture provisions . B. C. E. Early bond redemption. Senior.2 More about Bond Features Topic: Indenture provisions A bond that can be paid off early at the issuer's discretion is referred to as being which type of bond? A. A sinking fund is managed by a trustee for which one of the following purposes? A. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds. Converting bonds into equity securities. Par value. Unsecured. Callable. B. Section: 7. Paying preferred dividends. 13. C. D. C. Is guaranteed to be called. A $1. Prohibition placed on an issuer which prevents that issuer from ever redeeming bonds prior to maturity.000 face value bond can be redeemed early at the issuer's discretion for $1. Redemption value. C. B. plus accrued interest. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds. Redemption discount. Call premium. Is callable at any time. A deferred call provision is which one of the following? A. Requirement that a bond issuer pay the current market price. Dirty price. Originalissue discount. Ability of a bond issuer to delay repaying a bond until after the maturity date should the issuer so opt. D. Is currently being called.2 More about Bond Features Topic: Indenture provisions . E. Cannot be called at this point in time. 16. plus any accrued interest. Requirement that a bond issuer pay a call premium that is equal to or greater than one year's coupon should that issuer decide to call a bond.030. C. D.14. should the firm decide to call a bond. B. Prohibition which prevents bond issuers from redeeming callable bonds prior to a specified date. Section: 7. A callprotected bond is a bond that: A. Section: 7. B. E. D. The additional $30 is called the: A. E. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds.2 More about Bond Features Topic: Indenture provisions 15. Can never be called. Callable. E. Bylaws. Legal bounds. C. The items included in an indenture that limit certain actions of the issuer in order to protect a bondholder's interests are referred to as the: A. Section: 7. Junk. Trust deed. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds. Floatingrate.5 Bond Markets Topic: Bond quotes and training . Asked price C. B. Call price B. 18. E. C. which occurs at maturity. Bid price D.17. D. Section: 7. B. Debenture. Zero coupon. Section: 7.4 Some Different Types of Bonds Topic: Bond types Which one of the following is the price at which a dealer will sell a bond? A. Bidask spread E. 19. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds. Par value AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate.2 More about Bond Features Topic: Indenture provisions A bond that has only one payment. D. Protective covenants. defines which one of these types of bonds? A. Trustee relationships. which one of the following prices will you receive? A. C. 21.5 Bond Markets Topic: Bond quotes and training . E. Asked price. Discount. D. B. Call price. E. E. D. Face value. This price is referred to as the: A. Dirty price. C. Par value. Section: 7. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate. Clean price. Equilibrium. Section: 7. B. Spread.5 Bond Markets Topic: Bond quotes and training A bond is quoted at a price of $1. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate.20. Premium. Bidask spread.5 Bond Markets Topic: Bond quotes and training The difference between the price that a dealer is willing to pay and the price at which he or she will sell is called the: A. D. 22.011. Maturity price. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate. Call price. C. If you sell a 6 percent bond to a dealer when the market rate is 7 percent. B. Call price. Bid price. Section: 7. B. D.23. E. Call price. Nominal rates. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0704 The impact of inflation on interest rates. Dirty price. D. E. Clean price. B. Section: 7. E. Section: 7. B.5 Bond Markets Topic: Bond quotes and training Real rates are defined as nominal rates that have been adjusted for which of the following? A. C. Spread price. Inflation. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate. 24. Default risk. Real rates. Interest rate risk. Effective annual rates. C. Section: 7. Stripped rates. C. Annual percentage rates. 25. Accrued interest. Both inflation and interest rate risk.189 to purchase a bond that has 7 of its initial 20 years left until maturity.6 Inflation and Interest Rates Topic: Nominal and real rates .6 Inflation and Interest Rates Topic: Nominal and real rates Interest rates that include an inflation premium are referred to as: A. This price is referred to as the: A. D. Rosita paid a total of $1. Quoted price. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0704 The impact of inflation on interest rates. E. real rates. Inflation factor. Term structure of interest rates. Interest rate factor. Nominal rates. and nominal rates 27. Default risk. real rates. Liquidity. D. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0705 The term structure of interest rates and the determinants of bond yields.7 Determinants of Bond Yields Topic: Term structure of interest rates Which one of the following premiums is compensation for the possibility that a bond issuer may not pay a bond’s interest or principal payments as expected? A. and interest rate risk premium C. Fisher effect. C. C. inflation rates. Real rates.26.6 Inflation and Interest Rates Topic: Fisher effect The pure time value of money is known as the: A. Default risk premium. and nominal rates E. Real rates. B. Taxability. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0704 The impact of inflation on interest rates. inflation risk premium. 28. and real rates B. Interest rate risk. Section: 7. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0705 The term structure of interest rates and the determinants of bond yields.7 Determinants of Bond Yields Topic: Bond yields and returns . Inflation. interest rate risk premium. Liquidity effect. Section: 7. and default risk premium D. E. Interest rate risk premium. B. Section: 7. The Fisher effect is defined as the relationship between which of the following variables? A. D. C. Compensation investors demand for accepting interest rate risk. Section: 7. E. Market rates. B. Section: 7.7 Determinants of Bond Yields Topic: Treasury yield curve Which one of the following risk premiums compensates for the inability to easily resell a bond prior to maturity? A. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0705 The term structure of interest rates and the determinants of bond yields. C. Comparable corporate bond rates. B. Taxability. The riskfree rate. The interest rate risk premium is the: A. D. 30.7 Determinants of Bond Yields Topic: Bond yields and returns A Treasury yield curve plots Treasury interest rates relative to which one of the following? A. D. C. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0705 The term structure of interest rates and the determinants of bond yields. E. Liquidity. Additional compensation paid to investors to offset rising prices. Inflation. Maturity. B. Default risk. Inflation. 31. E. D. Interest rate risk. Difference between the yield to maturity and the current yield.7 Determinants of Bond Yields Topic: Bond yields and returns . Section: 7. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0705 The term structure of interest rates and the determinants of bond yields. Difference between the market interest rate and the coupon rate.29. Difference between the coupon rate and the current yield. Section: 7. inflationadjusted bond E. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0705 The term structure of interest rates and the determinants of bond yields.7 Determinants of Bond Yields Topic: Bond yields and returns A corporate bond with a 6 percent coupon was issued last year. D. 33. taxable junk bond 34. Nontaxable. Which one of these would apply to this bond today if the current yield to maturity is 7 percent? A. Yield decreases in response to market changes.32. The current yield exceeds the coupon rate. B. The bond is selling at par value. B. Decrease in a municipality's credit rating. Shortterm. E. A bond's unfavorable tax status. C. E. Riskfree Treasury bond B. The current yield exceeds the yieldtomaturity. Lack of coupon payments. highly liquid bond C. The coupon rate has increased to 7 percent. Section: 7. The bond is currently selling at a premium.1 Bonds and Bond Valuation Topic: Bond yields and returns . Possibility of default. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0705 The term structure of interest rates and the determinants of bond yields. Section: 7. C. Longterm. The taxability risk premium compensates bondholders for which one of the following? A. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate.7 Determinants of Bond Yields Topic: Bond yields and returns Which bond would you generally expect to have the highest yield? A. taxfree bond D. highquality. D. Longterm. a premium. D. Coupon payment will increase.35. Yield to maturity will be less than the coupon rate. Section: 7. Currently selling at par. less than B. a bond will sell at _____ when the coupon rate is _____ the yield to maturity. E. C. B. C. Current yield greater than coupon rate.1 Bonds and Bond Valuation Topic: Bond yields and returns DLQ Inc. a premium. less than D. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate. par. higher than E. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate.1 Bonds and Bond Valuation Topic: Bond yields and returns All else constant. B. If the market rate of interest increases. Current yield will decrease. then the: A. less than 37. D. Market price of the bond will decrease. Which one of these features currently applies to this bond? A. a discount. Section: 7. a discount. Coupon rate will also increase. A. equal to C.1 Bonds and Bond Valuation Topic: Interest rate risk . Discount bond. 36. Section: 7. Yield to maturity equal to the current yield. E. Yield to maturity less than the coupon rate. bonds mature in 12 years and have a coupon rate of 6 percent. A bond has a market price that exceeds its face value. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 0702 Bond values and yields and why they fluctuate. 1 Bonds and Bond Valuation Topic: Time to maturity . D.38. Increasing the coupon rate decreases the current yield. Coupon rate < yield to maturity < current yield. B. 40. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 0702 Bond values and yields and why they fluctuate. Coupon rate = current yield = yieldtomaturity. Section: 7. Coupon rate > current yield > yield to maturity. D. E. C. The coupon rate exceeds the current yield when a bond sells at a discount. An increase in market rates increases the market price of a bond. Which one of the following applies to a premium bond? A. The call price must equal the par value. Yield to maturity > current yield > coupon rate. all else constant.1 Bonds and Bond Valuation Topic: Bond yields and returns Which one of the following relationships applies to a par value bond? A. C. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 0702 Bond values and yields and why they fluctuate. C. B. B. Coupon rate > yieldtomaturity > current yield. 39. Section: 7. all else constant. Section: 7. Coupon rate > yieldtomaturity > current yield. Coupon rate = current yield = yieldtomaturity. E. Coupon rate > current yield > yield to maturity. E.1 Bonds and Bond Valuation Topic: Bond yields and returns Which one of the following relationships is stated correctly? A. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 0702 Bond values and yields and why they fluctuate. Decreasing the time to maturity increases the price of a discount bond. Coupon rate < yield to maturity < current yield. D. Yield to maturity > current yield > coupon rate. Section: 7. 3. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 0702 Bond values and yields and why they fluctuate. C.1 Bonds and Bond Valuation Topic: Interest rates . Round Dot Inns is preparing a bond offering with a coupon rate of 6 percent. B. Given this. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds. The bonds will mature in 10 years and will be sold at par. The final payment will be in the amount of $1. B. The bonds will become discount bonds if the market rate of interest declines. D. E. Section: 7.1 Bonds and Bond Valuation Topic: Bond yields and returns 42. C. A newly issued bond has a 7 percent coupon with semiannual interest payments.000. The bonds will sell at a premium if the market rate is 5.5 percent.030 each. 7 percent. and a face value of $1. The effective annual rate provided by these bonds must be: A. The bonds are currently priced at par.5 percent.060. which one of the following statements is correct? A. paid semiannually.41. The bonds will pay 10 interest payments of $60 each. E.5 percent but less than 7 percent. Greater than 7 percent. D. The bonds will initially sell for $1.5 percent. Greater than 3. Less than 3. Section: 7. E. Coupon rate and time to maturity both increase. Section: 7. Section: 7. The price sensitivity of a bond increases in response to a change in the market rate of interest as the: A. 7year. E. 44. the bond's sensitivity to interest rate risk: A. 3year.1 Bonds and Bond Valuation Topic: Interest rate risk . 6 percent coupon. 4 percent coupon. Increases at a constant rate. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate. C. 7year. Increases at an increasing rate. C. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate. Decreases at an increasing rate. E.1 Bonds and Bond Valuation Topic: Interest rate risk As a bond's time to maturity increases. D.43. B. Coupon rate increases. 3year. Increases at a decreasing rate. 45. 6 percent coupon. B. Time to maturity decreases. 6 percent coupon. Coupon rate decreases and the time to maturity increases. 4 percent coupon. Decreases at a decreasing rate. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate. 5year. B. Time to maturity and coupon rate both decrease. C. D.1 Bonds and Bond Valuation Topic: Interest rate risk Which one of the following bonds is the least sensitive to interest rate risk? A. D. C. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 0702 Bond values and yields and why they fluctuate. Section: 7. E. C. Shortterm. Section: 7. Which one of the following bonds should you purchase now to maximize your gains if the rate decline does occur? A. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate. Which one of the following statements applies to this bond if the relevant market interest rate is now 5. Shortterm.1 Bonds and Bond Valuation Topic: Interest rate risk . The current yield is 6 percent. B. The current yieldtomaturity is greater than 6 percent. The bond is currently valued at onehalf of its issue price. zero coupon. You will realize a capital gain on the bond if you sell it today. high coupon. Longterm.46. Longterm. B. D. Longterm. You purchased this 10year bond at par value when it was originally issued. high coupon. You own a bond that has a 6 percent annual coupon and matures five years from now. E. D.8 percent? A. low coupon.1 Bonds and Bond Valuation Topic: Interest rate risk You expect interest rates to decline in the near future even though the bond market is not indicating any sign of this change. low coupon. 47. The next interest payment will be $30. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate Learning Objective: 0702 Bond values and yields and why they fluctuate. The bonds sell at par and are callable at a price equal to the present value of all future interest and principal payments discounted at a rate equal to the comparable Treasury rate plus . The coupon rate is greater than the current yield. The coupon rate is 3 percent. B. Which one of the following correctly describes this bond? A. Bonds provide tax benefits to issuers. The bond rating is B. C. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds.1 Bonds and Bond Valuation Topic: Bond yields and returns 49. B. C. A premium bond that pays $60 in interest annually matures in seven years. Hot Foods has an investmentgrade bond issue outstanding that pays $30 semiannual interest payments. The bond is worth less today than when it was issued.48. A debenture is a senior secured debt. D. All bonds are treated equally in a bankruptcy proceeding.2 More about Bond Features Topic: Bond features 50. D.50 percent. Which one of these statements is correct? A. The yieldtomaturity is less than the coupon rate. Section: 7. The face value of the bond today is greater than it was when the bond was issued. C. E. It has a "make whole" call price. The bond was originally issued three years ago at par. E. D. Market value is less than face value. E. B. Section: 7. . Variable Interest payments are variable. Which one of the following statements is accurate in respect to this bond today? A. Most longterm bond issues are referred to as unfunded debt. The risk of a firm financially failing decreases when a firm issues bonds. The yieldtomaturity equals the current yield. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds. E. D. Lexington Homes issued $1 million in unsecured. D.1 or higher. E. 52. Callable bonds generally: A. Trust deed. C. noncallable debt.000 and the market price is $1. The face value is $1. Are called within the first three years after issuance. E. Note. 53. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds.000 at all times. The company shall maintain a current ratio of 1. Are called when market interest rates increase. C. This debt pays an annual interest payment of $55 and matures six years from now. Which one of these terms correctly describes a feature of this debt? A.020. The company shall provide audited financial statements in a timely manner. Grant the bondholder the option to call the bond anytime after the deferment period. C. Last year. B. The company shall maintain a cash surplus of $100. Are callable at par as soon as the callprotection period ends. Collateralized. B.2 More about Bond Features Topic: Bond features Which one of these is a negative covenant that might be found in a bond indenture? A. Have a sinking fund provision.2 More about Bond Features Topic: Indenture provisions . Semiannual coupon. Section: 7. B. Section: 7. D.51. Discount bond. The company cannot lease any major assets without bondholder approval. The company must maintain the loan collateral in good working order. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Intermediate Learning Objective: 0703 Bond ratings and what they mean. E. Only apply to privately issued bonds. Poor's.54. Protective covenants: A. D. Splitrated bonds are called crossover bonds. Are primarily designed to protect bondholders. Are a feature found only in governmentissued bond indentures. D. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0703 Bond ratings and what they mean. Investment grade bonds are rated BB or higher by Standard amp. Investment grade to speculative grade. Only apply to bonds that have a deferred call provision.2 More about Bond Features Topic: Indenture provisions Which one of the following statements concerning bond ratings is correct? A. B. B. The highest rating issued by Moody's is AAA. B. Being a premium bond to being a discount bond. Being a longterm obligation to being a shortterm obligation. 55.3 Bond Ratings Topic: Bond ratings and credit risk A "fallen angel" is a bond that has moved from: A. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds. E. C. C. Section: 7. A "fallen angel" is a term applied to all "junk" bonds. Apply to shortterm debt issues but not to longterm debt issues. Bond ratings assess both interest rate risk and default risk. Section: 7. D. C. Section: 7.3 Bond Ratings Topic: Bond ratings and credit risk . 56. E. Being publicly traded to being privately traded. Senior status to junior status for liquidation purposes. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds. Section: 7. Pay interest that is exempt from federal income taxes. Are rarely callable. government: A.S.S. Generally issued as semiannual coupon bonds. D. D. Generally have higher coupons than comparable bonds issued by a corporation. Are considered to be free of default risk. Generally have higher coupon rates than corporate bonds. 59. E. Section: 7.57.S." 58. Section: 7.4 Some Different Types of Bonds Topic: Bond types Treasury bonds are: A. Are considered to be free of interest rate risk. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds.4 Some Different Types of Bonds Topic: Bond types . Are free of default risk. E. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds. Bonds issued by the U. Issued by any governmental agency in the U.4 Some Different Types of Bonds Topic: Bond types Municipal bonds: A. Pay interest that is federally tax free. Department of Treasury. Are totally risk free. E. C. D. C. B. Issued only on the first day of each fiscal year by the U. C. Are called "munis. B. Totally riskfree. Bonds that offer the best tax benefits of any bonds currently available. B. Liquidity risk E. . The breakeven tax rate between a taxable corporate bond yielding 7 percent and a comparable nontaxable municipal bond yielding 5 percent can be expressed as: * A. . Interest rate risk C.05 (1 t*) = .07.07 + (1 t ) = .60. Real rate risk B. Provides no taxable income to the bondholder until the bond matures.S.4 Some Different Types of Bonds Topic: Bond types . E. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds. * C. Has more interest rate risk than a comparable coupon bond. Which one of the following risks would a floatingrate bond tend to have less of as compared to a fixedrate coupon bond? A.07. Section: 7.05 (1 t ) = . * B.07.05 / (1 t ) = .4 Some Different Types of Bonds Topic: Bond types 62.07.05. Can only be issued by the U. Is sold at a large premium. A zero coupon bond: A. Taxability risk AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 0705 The term structure of interest rates and the determinants of bond yields.05 (1 + t*) = . . .4 Some Different Types of Bonds Topic: Bond yields and returns 61. D. Pays interest that is tax deductible to the issuer at the time of payment. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 0701 Important bond features and types of bonds. Default risk D. D. . B. E. Section: 7. Section: 7. Treasury. C. Maintained a fixed real rate of return. Decreased in value due to the change in inflation rates. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate Learning Objective: 0701 Important bond features and types of bonds. Increased in value due to a decrease in time to maturity. Experienced an increase in its bond rating. E.4 Some Different Types of Bonds Topic: Bond types Last year.25 percent. Maturity dates. Section: 7. Section: 7. yields to maturity. B. E. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds. C. C. you purchased a TIPS at par. Since that time. Call periods. Coupon rates. Market prices. D. D. Your bond has most likely done which one of the following since last year? A.4 Some Different Types of Bonds Topic: Bond types . both market interest rates and the inflation rate have increased by .63. 64. The collar of a floatingrate bond refers to the minimum and maximum: A. Increased in value in response to the change in market rates. B. Section: 7. Cat bonds are primarily designed to help: A. callable bond with a 5 percent semiannual coupon. E. C. Have the principal amount adjusted for inflation. you discovered a convertible. Force the issuer to repurchase the bond prior to maturity. Corporations recover from involuntary reorganizations.4 Some Different Types of Bonds Topic: Bond types . Insurance companies fund excessive claims. Corporations respond to overseas competition. B. Defer all taxable income until the bond matures. B. Recently. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds.4 Some Different Types of Bonds Topic: Bond types 66. If you purchase this bond you will have the right to: A. D. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds. C. E. The federal government cope with huge deficits. Convert the bond into equity shares. Municipalities survive economic recessions. Convert the bond into a 5 percent perpetuity. Section: 7.65. D. Crossover rating. Call provision.4 Some Different Types of Bonds Topic: Bond types 68. 5year TIPS. highcoupon. He has decided to purchase TTek bonds as he needs a steady stream of income. Al is retired and his sole source of income is his bond portfolio. 5year TIPS C. Section: 7. 7 year income bonds AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate Learning Objective: 0701 Important bond features and types of bonds. B. D. 20year coupon bonds 220 D. C. 10year AAA coupon bond. However. Although he has sufficient principal to live on. E.67. Warrant. Nadine is a retired widow who is financially dependent upon the interest income produced by her bond portfolio. Positive covenant. Which one of the following bond features will help him fulfill his wish? A. Which one of the following bonds should best ease Al's concerns? A. 6year coupon bonds B. 5year floating rate bond. Which one of the following bonds is the least suitable for her to own? A.4 Some Different Types of Bonds Topic: Bond types 69. put bond. C. he only wants to spend the interest income and thus is concerned about the purchasing power of that income. 5year municipal bonds E. 6year. 7 year income bond. E. Kurt has researched TTek and believes the firm is poised to vastly increase in value. B. Section: 7. Put provision. D. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate Learning Objective: 0701 Important bond features and types of bonds. . he still wishes that he could share in the firm's success along with the shareholders. B.000 face value bond issued by Taylor Tools pays interest semiannually on February 1 and August 1. C. Four month's interest. What will be the difference. E. Two month's interest. The bond pays interest on January 1 and July 1.5 Bond Markets Topic: Bond valuation 72. you want to buy a bond with a quoted price of 98. One month's interest. Asked price. Bid price. E. Which one of the following prices represents your total cost of purchasing this bond today? A. Today. if any. Must be held until maturity. C. Pay interest that is federally taxexempt. Dirty price. Clean price. 71. Are highly illiquid. D. Five month's interest. Treasury bonds: A. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate.70. Quoted price. Are quoted as a percentage of par. Assume today is October 1. between this bond's clean and dirty prices today? A. C. Are quoted at the dirty price.64. U. Section: 7. No difference. B. E. D. B. $1. S. Section: 7. June 15.5 Bond Markets Topic: Bond valuation . A sixyear. D. Section: 7. B. E. Nominal rate. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0704 The impact of inflation on interest rates. Realized rate. 74.73. Any return greater than the inflation rate represents the risk premium. Current rate. D. The time to maturity. C. Real rate. Riskfree rate. Section: 7. Nominal rates exceed real rates by the amount of the riskfree rate. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 0705 The term structure of interest rates and the determinants of bond yields. E. market movements. The riskfree rate represents the change in purchasing power.6 Inflation and Interest Rates Topic: Fisher effect .6 Inflation and Interest Rates Topic: Bond yields and returns Which one of the following statements is correct? A. in your purchasing power as a result of owning a bond? A. The real rate must be less than the nominal rate given a positive rate of inflation. B. B. C. Historical real rates of return must be positive. D. Section: 7. Which one of the following rates represents the change. 75. C.6 Inflation and Interest Rates Topic: Bond yields and returns The Fisher effect primarily emphasizes the effects of _____ on an investor's rate of return. E. if any. Interest rate changes. A. D. Default. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Basic Learning Objective: 0704 The impact of inflation on interest rates. Inflation. You are trying to compare the present values of two separate streams of cash flows that have equivalent risks. E. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 0705 The term structure of interest rates and the determinants of bond yields.7 Determinants of Bond Yields Topic: Term structure of interest rates 78. You decide to discount the nominal cash flows using a nominal annual rate of 8 percent. The interest rate risk premium increases as the time to maturity increases. The yields on a corporate bond differ from those on a comparable Treasury security primarily because of: A. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 0704 The impact of inflation on interest rates. Liquidity and inflation rate risks. Comparable riskfree rate. One stream is expressed in nominal values and the other stream is expressed in real values. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Intermediate Learning Objective: 0705 The term structure of interest rates and the determinants of bond yields.76. affect on the slope of the term structure of interest rates. C.6 Inflation and Interest Rates Topic: Nominal and real rates Which one of the following statements is false concerning the term structure of interest rates? A. D. and interest rate risks. B. C. if any. 8 percent. Taxes and default risk. Interest rate risk and taxes. Nominal rateriskfree rate 77. What rate should you use to discount the real cash flows? A. Default and interest rate risks. D. B. Default. Section: 7. The term structure of interest rates and the time to maturity are always directly related. E. Expectations of lower inflation rates in the future tend to lower the slope of the term structure of interest rates. E. C. Comparable real rate. The term structure of interest rates includes both an inflation premium and an interest rate risk premium. inflation.7 Determinants of Bond Yields Topic: Bond yields and returns . B. Section: 7. Section: 7. D. EAR of 8 percent compounded monthly. The real rate of return has minimal. if the stock market increases in value during the bond term. E. NoNo bond. at maturity. B. What is the yield to maturity? A.92 percent C. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Basic Learning Objective: 0701 Important bond features and types of bonds.20 percent AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate. 6. Sukuk.000 face value.1 Bonds and Bond Valuation Topic: Bond yields and returns . Sue is considering purchasing a bond that will only return its principal at maturity if the stock market declines. 6. Structured note.5 Bond Markets Topic: Bond types The 7 percent bonds issued by Modern Kitchens pay interest semiannually. 6. What type of bond is this? A.87 percent B. C. Section: 7. Section: 7. 80.79. the bonds sell for $1. and have a $1.48 percent E. However. she will receive both the bond principal and a percentage of the stock market gain. Currently. mature in eight years. Contingent. 6. D.08 percent D. Put bond. 7. callable bond.032. 62 percent B.22 percent C.062. 5. Interest is paid semiannually.36 percent B.5 percent coupon bonds with semiannual payments and a yield to maturity of 6. You own a bond that pays $64 in interest annually.46 percent D. 5.000? A. The bond matures in 11 years. The bonds have a par value of $1.48 AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate. 6. 6. What is the yield to maturity? A. The face value is $1. $996. 6.81.48 D. $913.42 percent C. $989. What is the yield to maturity? A. Section: 7. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate.000 and a market price of $972.93 C. The bonds mature in seven years.94 percent.1 Bonds and Bond Valuation Topic: Bond yields and returns Oil Wells offers 6.1 Bonds and Bond Valuation Topic: Bond yields and returns 82. Section: 7. Section: 7. $975. 5.80 percent AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate. New Homes has a bond issue with a coupon rate of 5.50.71 percent E.61 percent D. 6. 5.5 years.5 percent that matures in 8.74 percent E. 6.60 E. $902.92 percent 83. 5.000 and the current market price is $1.70 B.1 Bonds and Bond Valuation Topic: Bond valuation . What is the market price per bond if the face value is $1. Luxury Properties offers bond with a coupon rate of 9.2 percent and the maturity date is 11 years from today. Section: 7.16 years E.73 years B. Interest is paid annually. $946. The yield to maturity is 13.80 B.2 percent? A. Section: 7.19 years C. Roadside Markets has a 6.41 years D.1 Bonds and Bond Valuation Topic: Time to maturity .42 D. $967. 7.84. The yield to maturity is 11. What is the market price per bond if the face value is $1. $899.24 E.000 and the yield to maturity is 7.75 percent coupon bond outstanding that matures in 10.52 AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate.000? A. 8. How many years is it until these bonds mature? A.20 D. $896. $953. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate.30 86. $941.67 C.5 percent paid semiannually. $893. $899.1 Bonds and Bond Valuation Topic: Bond valuation 85. What is the market price of this bond if the face value is $1. $1. 4.007.18 E. Section: 7. The bond pays interest semiannually.99 B.5 percent coupon bonds outstanding with a current market price of $742. 6.32 years AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate.5 years.2 percent and the face value is $1. $903.000.85 C.1 Bonds and Bond Valuation Topic: Bond valuation Redesigned Computers has 6. 5. How much will you receive for your bond if the market yield to maturity is currently 6.37 years E.5 years.68 percent and the face value is $1.26 years B. You are purchasing a 20year. 24. zerocoupon bond. coupon bonds outstanding with a current market price of $1.09 C. A. a par value of $1.60 B. $221. and a yield to maturity of 6. Section: 7. $741.47 89.023.05 years AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate.72 percent.53 years C. The bond matures in 3. 12.08 D.19 percent? Ignore any accrued interest. 18. $807.86 AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate.46. 25. Section: 7.67 B.49 years D. Today.87.000 face value zero coupon bond you currently own. $182. $228. $798.1 Bonds and Bond Valuation Topic: Time to maturity 88. What is the current market price? A. 12. How many years is it until these bonds mature? A. $756. $896.000.18 C. semiannual.80 D.14 E. $106. you want to sell a $1. The yield to maturity is 8. $108. World Travel has 7 percent.50 E.000.4 Some Different Types of Bonds Topic: Bond valuation . 43 years D. 6 percent coupon bond pays interest semiannually.4 Some Different Types of Bonds Topic: Time to maturity 91.5 percent? A. and a yield to maturity of 7. C.14 percent. 1.5 percent semiannual coupon bond outstanding with a $1. 44.01 years E.000.percent decrease C. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate Learning Objective: 0702 Bond values and yields and why they fluctuate. The bond price will increase by 1.36 percent. a face value of $1. The bond price will decrease by 1. The bond price will increase by 2. Section: 7. Section: 7. E. 21.6 percent decrease D. 1.28 years C. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate Learning Objective: 0702 Bond values and yields and why they fluctuate. The zero coupon bonds of JK Industries have a market price of $211. B.1 Bonds and Bond Valuation Topic: Interest rate risk . 1. The bond has a yield to maturity of 5. D.92 percent.000.59 years AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Intermediate Learning Objective: 0702 Bond values and yields and why they fluctuate. What is the percentage change in the price of this bond if the market yield to maturity rises to 5. 1. Section: 7.92 years B.39 percent. How many years is it until these bonds mature? A. 46.29 percent. A 13year. The bond price will decrease by 1. 1. 6. 22.5 percent.97 percent increase E.000 par value.16.1 Bonds and Bond Valuation Topic: Interest rate risk The Corner Grocer has a 7year.74 percent.90. The bond price will decrease by 2. Which one of the following statements is correct if the market yield suddenly increases to 7 percent? A.7 percent from the current rate of 5.79 percent increase 92. 23. The bond has a face value of $1.79 percent decrease B. 7. Section: 7.67 percent C. 8. $84 E. Section: 7. 6. 6. $72 D.725. 8. $52 B. semiannual coupon bonds offered by House Renovators are callable in two years at $1.60 percent B. 6. 9.03 percent E.000 par value bond? A.42 percent D. Section: 7.1 Bonds and Bond Valuation Topic: Bond yields and returns 95.054. What is the current yield? A. $54 C. The bonds have a 7 percent coupon rate.93.49 percent E.5 and a current price quote of 101. What is the current yield on these bonds? A. 6. 6.000 par value bonds of Uptown Tours have a coupon rate of 6.000 and are currently quoted at 86. $89 AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate.42 percent B.58 percent AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate.1 Bonds and Bond Valuation Topic: Bond yields and returns 94. What is the amount of the call premium on a $1.47 percent AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate.07 percent D.2 More about Bond Features Topic: Bond valuation . The $1. The 7 percent. 7. DoWell bonds have a face value of $1.23.37 percent C. What is the market price of this bond if the face value is $5. $1. The bond is currently quoted at 98.46 C.000? A.5 Bond Markets Topic: Bond quotes and training A Treasury bond is quoted at a price of 105. Section: 7. $15.00 D.105. $987. A 10year. $5.19.273.00 B.25 E. A corporate bond was quoted yesterday at 102.00 97.50 98. $1. semiannual coupon bond issued by Tyler Rentals has a $1. $0. 4.011.00 D. Section: 7.00 AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate. $5.50 C. $994.16 while today's quote is 102. $5.7.5 Bond Markets Topic: Bond quotes and training . AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate. $3.215.005. $1.44 E.50 C.000 face value. $1.10 D.000? A.5 percent.00 E.002.4620. $5. $30. What is the change in the value of a bond that has a face value of $5. $5.30 B.022.264.96.46 B. What is the clean price of this bond if the next interest payment will occur 2 months from today? A. 4.85 percent C. What is the current yield? A.24 percent B.33 percent E.48 percent C. 3. 5. A corporate bond is quoted at a price of 98. 3.38 percent E.1 Bonds and Bond Valuation Topic: Bond yields and returns A 3.16.000 bond? A. 5.1 Bonds and Bond Valuation Topic: Bond yields and returns . 6.66 percent 101.276 percent. The bond pays interest semiannually.8 percent.21 percent D. A Treasury bond is quoted at a price of 101.25 percent Treasury bond is quoted at a price of 101.27 percent 100. paid semiannually. 6. 3.6533 with a current yield of 6. What is the current yield? A. 3. 7. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate.96 and has a coupon rate of 4.17 percent C. 6. Section: 7. What is the coupon rate on a $10. 6.38 percent AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate.20 percent B. 3.06 percent B. 4. 4. Section: 7.99.62 percent E.36 percent D.41 percent D. 5 Bond Markets Topic: Bond quotes and training The semiannual.6 Inflation and Interest Rates Topic: Fisher effect . 3.48 percent last year.6325 asked and 99. $17.50 B. $41. What was the actual real rate of return? A. A Treasury bond is quoted as 99.500 D.19 percent B. $25.00 E. $85.675 C. 3.15 D. 8year bonds of Alto Music are selling at par and have an effective annual yield of 8.1 Bonds and Bond Valuation Topic: Bond yields and returns 104. What is the bidask spread in dollars on a $5. 4.250 103.508 B. 4.41 percent E.49 percent AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 0704 The impact of inflation on interest rates.29 AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate Learning Objective: 0702 Bond values and yields and why they fluctuate.5 percent. What is the amount of each interest payment if the face value of the bonds is $1.88 percent D.1250 bid. Section: 7. Section: 7. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate.102. $16.25 percent C.000 face value bond? A. $. Section: 7. The inflation rate for the same period was 2. 3. A bond that pays interest annually yielded 6.375 E. $86.000? A. $.25 C. $43.6285 percent. $42. 8. 9. If the inflation rate is 3. 6.54 percent AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 0704 The impact of inflation on interest rates. 5. 6.76 percent E. What is the rate of inflation? A. The outstanding bonds of Winter Tires Inc.6 percent. If the current rate of inflation is 4. 15. 9. 8.105. A bond has a yield to maturity of 11. The yield to maturity on a bond is currently 9. 10. what is the actual nominal rate of return on these bonds? A. Section: 7. 9.68 percent.6 Inflation and Interest Rates Topic: Fisher effect .29 percent.86 percent B. 6. provide a real rate of return of 5.71 percent D.19 percent 106.68 percent. The real rate of return is 3. 8. 9.71 percent AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 0704 The impact of inflation on interest rates. 15. 6.64 percent C. Section: 7.84 percent.90 percent C. what is the real rate of return on the bond? A.04 percent D.24 percent D.22 percent E.33 percent C.58 percent B.2 percent.53 percent E.6 Inflation and Interest Rates Topic: Fisher effect 107.34 percent B. $18. zero coupon bonds.000 face value. $18.47 D.05. 139.108. $17.6 million to expand its business. $17.72 B. for the first year of the bond's life? A. it plans to sell 20year.4 Some Different Types of Bonds Topic: Accrued and implicit interest 109.436 AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic Learning Objective: 0702 Bond values and yields and why they fluctuate. zero coupon bond just sold for $311. in dollars. A newly issued 20year. $17.4 Some Different Types of Bonds Topic: Bond valuation .000. Global Exporters wants to raise $29.029 E.89 AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Intermediate Learning Objective: 0702 Bond values and yields and why they fluctuate. Section: 7.800 C.75 percent. What is the minimum number of bonds it must sell to raise the money it needs? A. 154.63 E. To accomplish this. What is the implicit interest.411 B. 126.70 C.907 D. The bonds will be priced to yield 7. Section: 7. $1. $1. 110. 135. 110. You will receive $5,000 a year in real terms for the next 5 years. Each payment will be received at the end of the period with the first payment occurring one year from today. The relevant nominal discount rate is 10.725 percent and the inflation rate is 3 percent. What are your winnings worth today in real dollars? A. $20,229 B. $17,367 C. $17,401 D. $21,500 E. $17,838 111. AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Intermediate Learning Objective: 0704 The impact of inflation on interest rates. Section: 7.6 Inflation and Interest Rates Topic: Nominal and real rates You purchased an investment that will pay you $8,000, in real dollars, a year for the next three years. Each payment will be received at the end of the period with the first payment occurring one year from today. The nominal discount rate is 9.897 percent and the inflation rate is 2.9 percent. What is the present value of these payments in real dollars? A. $21,720 B. $21,072 C. $22,511 D. $25,112 E. $23,529 AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Intermediate Learning Objective: 0704 The impact of inflation on interest rates. Section: 7.6 Inflation and Interest Rates Topic: Nominal and real rates 112. A $1,000 face value bond has a coupon rate of 7 percent, a market price of $911.02, and 10 years left to maturity. Interest is paid semiannually. If the inflation rate is 2.8 percent, what is the yieldtomaturity when expressed in real terms? A. 5.50 percent B. 4.68 percent C. 4.92 percent D. 5.38 percent E. 5.68 percent AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Intermediate Learning Objective: 0702 Bond values and yields and why they fluctuate. Section: 7.1 Bonds and Bond Valuation Topic: Nominal and real rates 113. Kaiser Industries has bonds on the market making annual payments, with 14 years to maturity, a par value of $1,000, and selling for $1,382.01. At this price, the bonds yield 7.5 percent. What is the coupon rate? A. 8.00 percent B. 8.50 percent C. 9.00 percent D. 10.50 percent E. 12.00 percent AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic EOC: 705 Learning Objective: 0702 Bond values and yields and why they fluctuate. Section: 7.1 Bonds and Bond Valuation Topic: Bond coupons 114. Dexter Mills issued 20year bonds a year ago at a coupon rate of 10.2 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 9.2 percent, what is the current bond price? A. $985.55 B. $991.90 C. $1,042.16 D. $1,089.02 E. $1,098.00 AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic EOC: 706 Learning Objective: 0702 Bond values and yields and why they fluctuate. Section: 7.1 Bonds and Bond Valuation Topic: Bond valuation 115. Bare Trees United issued 15year bonds 2 years ago at a coupon rate of 8.5 percent. The bonds make semiannual payments. If these bonds currently sell for 98.6 percent of par value, what is the YTM? A. 8.98 percent B. 8.68 percent C. 9.13 percent D. 9.27 percent E. 8.42 percent AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic EOC: 707 Learning Objective: 0702 Bond values and yields and why they fluctuate. Section: 7.1 Bonds and Bond Valuation Topic: Bond yields and returns 116. Wheeler’s has bonds on the market with 13 years to maturity, a YTM of 7.6 percent, and a current price of $901.98. The bonds make semiannual payments and have a face value of $1,000. What is the coupon rate? A. 6.40 percent B. 6.33 percent C. 6.60 percent D. 6.67percent E. 6.50 percent AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic EOC: 708 Learning Objective: 0702 Bond values and yields and why they fluctuate. Section: 7.1 Bonds and Bond Valuation Topic: Bond coupons 117. Suppose the real rate is 2.45 percent and the inflation rate is 1.8 percent. What rate would you expect to see on a Treasury bill? A. 3.35 percent B. 3.30 percent C. 4.29 percent D. 3.56 percent E. 4.60 percent AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic EOC: 713 Learning Objective: 0704 The impact of inflation on interest rates. Section: 7.6 Inflation and Interest Rates Topic: Fisher effect 87 percent C.58 percent AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Basic EOC: 714 Learning Objective: 0704 The impact of inflation on interest rates.46 percent D.52 percent B.67 percent C.6 Inflation and Interest Rates Topic: Fisher effect 119. and a YTM of 7 percent. 9. If interest rates suddenly rise by 2 percent. You believe the total real return will be only 9. Section: 7.118.16 percent B. 10. 2.56 percent D.7 percent. what will be the percentage change in the bond price? A. 7 years to maturity. 9. 2. 2. Section: 7.70 percent E.02 percent E. 10.4 percent over the coming year.67 percent AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Intermediate EOC: 719 Learning Objective: 0702 Bond values and yields and why they fluctuate. What do you believe the exact inflation rate will be for the next year? A.1 Bonds and Bond Valuation Topic: Interest rate risk . 10. An investment offers a total return of 12. 2. 2. semiannual interest payments. A bond has a coupon rate of 8 percent. 7. Section: 7.5 percent bonds on the market that sell for $959. Section: 7. 7. 7.39 percent C.93 percent D. What should the coupon rate be on the new bonds if the firm wants to sell them at par? A.6 percent of par. The bonds make semiannual payments and currently sell for 98. 9.1 Bonds and Bond Valuation Topic: Bond yields and returns 121. 8. What is the effective annual yield? A. 8. 8. 7. and mature in 16 years. make semiannual payments.99 percent E. 7. Sunset Sales has 7. Bonner Metals wants to issue new 20year bonds for some muchneeded expansion projects.1 Bonds and Bond Valuation Topic: Bond yields and returns .47 percent AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate EOC: 721 Learning Objective: 0702 Bond values and yields and why they fluctuate.2 percent coupon bonds on the market with 11 years left to maturity.41 percent D.67 percent AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate EOC: 722 Learning Objective: 0702 Bond values and yields and why they fluctuate.23 percent C. 8.75 percent B. The company currently has 8.120.52 percent E.34 percent B. $1.122.6 Inflation and Interest Rates Topic: Nominal and real rates .283.50 AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Intermediate EOC: 723 Learning Objective: 0702 Bond values and yields and why they fluctuate. $1. a face value of $1. $9. $9. $10.408. You want to have $2 million in real dollars in an account when you retire in 43 years.25 percent. What is the clean price of this bond? A. $1. Section: 7. The bond has a coupon rate of 6.314.298.403 B.210 D.887 E.352. $1. $8. $1.000. $10.939 percent and the inflation rate is 3.12 E.17 C. The nominal return on your investment is 9.711 AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Intermediate EOC: 731 Learning Objective: 0704 The impact of inflation on interest rates.319. and there are two months to the next semiannual coupon date.14 D.878 C.5 Bond Markets Topic: Accrued and implicit interest 123.2 percent. What is the real amount you must deposit each year to achieve your goal? A.17 B. You purchase a bond with an invoice price of $1. Section: 7. 13. 8. What is your holding period yield? A.000.96 percent D. Three years from now. The bond has 12 years to maturity. If you actually sell the bond before it matures. 9. The yieldtomaturity on a bond is the interest rate you earn on your investment if interest rates do not change.01 percent E. the yieldtomaturity has declined to 7 percent and you decide to sell. 10.124.84 percent B.83 percent AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Challenge EOC: 733 Learning Objective: 0702 Bond values and yields and why they fluctuate. Section: 7.49 percent C. 12.1 Bonds and Bond Valuation Topic: Interest rates . your realized return is known as the holding period yield. Suppose that today you buy a 9 percent annual coupon bond for $1. 3 Bond Ratings 2 Section: 7.4 Some Different Types of Bonds 19 Section: 7. 57 Learning Objective: 0703 Bond ratings and what they mean.7 Determinants of Bond Yields 9 Topic: Accrued and implicit interest 2 Topic: Bond coupons 3 Topic: Bond features 5 Topic: Bond quotes and training 9 Topic: Bond ratings and credit risk 2 Topic: Bond types 21 Topic: Bond valuation 10 Topic: Bond yields and returns 30 . 11 Section: 7.Chapter 07 Interest Rates And Bond Valuation Summary Category # of Questions AACSB: Analytic 124 Accessibility: Keyboard Navigation 124 Blooms: Analyze 12 Blooms: Apply 37 Blooms: Remember 52 Blooms: Understand 23 Difficulty: Basic 94 Difficulty: Challenge 1 Difficulty: Intermediate 29 EOC: 705 1 EOC: 706 1 EOC: 707 1 EOC: 708 1 EOC: 713 1 EOC: 714 1 EOC: 719 1 EOC: 721 1 EOC: 722 1 EOC: 723 1 EOC: 731 1 EOC: 733 1 Learning Objective: 0701 Important bond features and types of bonds.5 Bond Markets 14 Section: 7. 39 Learning Objective: 0702 Bond values and yields and why they fluctuate.1 Bonds and Bond Valuation 46 Section: 7.2 More about Bond Features 18 Section: 7.6 Inflation and Interest Rates 16 Section: 7. 2 Learning Objective: 0704 The impact of inflation on interest rates. 15 Learning Objective: 0705 The term structure of interest rates and the determinants of bond yields. Topic: Fisher effect 8 Topic: Indenture provisions 9 Topic: Interest rate risk 9 Topic: Interest rates 2 Topic: Nominal and real rates 7 Topic: Term structure of interest rates 2 Topic: Time to maturity 4 Topic: Treasury yield curve 1 .