Question 1

Arts and Crafts Warehouse wants to issue 15-year,zero-coupon bonds that yield 7.5 percent.What price should it charge for these bonds if the face value is $1,000? Assume semiannual compounding.

Accepted Answer

A)  $308.15
B)  $331.40
C)  $356.08
D)  $362.14
E)  $369.94F) B) and E)
G) A) and B)

Question 2

Dairy Delight wants to raise $1.4 million by selling 15-year coupon bonds at par.Comparable bonds in the market have a coupon rate of 5.4 percent,semiannual payments,15 years to maturity,and are selling at 97.8 percent of par.What coupon rate should Dairy Delight set on its bonds?

Accepted Answer

A)  5.25 percent
B)  5.40 percent
C)  5.50 percent
D)  5.17 percent
E)  5.62 percentF) All of the above
G) B) and E)

Question 3

AB Builders has 15-year bonds outstanding with a face value of $1,000 and a market price of $974.The bonds pay interest annually and have a yield to maturity of 4.03 percent.What is the coupon rate?

Accepted Answer

A)  3.80 percent
B)  4.20 percent
C)  4.25 percent
D)  3.75 percent
E)  3.95 percentF) A) and B)
G) All of the above

Question 4

The term structure of interest rates is primarily based on which three of the following?
I.Interest rate risk premium
II.Real rate of interest
III.Default risk premium
IV.Inflation premium
V.Liquidity premium

Accepted Answer

A)  I, II, and V
B)  I, III, and V
C)  II, III, and IV
D)  I, II, and IV
E)  II, IV, and VF) A) and B)
G) C) and D)

Question 5

When a bond's yield to maturity is less than the bond's coupon rate,the bond:

Accepted Answer

A)  had to be recently issued.
B)  is selling at a premium.
C)  has reached its maturity date.
D)  is priced at par.
E)  is selling at a discount.F) B) and C)
G) C) and D)

Question 6

Suppose that a small,rural city in the countryside of North Dakota plans to issue $150,000 worth of 10-year bonds.Which one of the following components of the bond's yield will be affected by the fact that no active secondary market is expected for these bonds?

Accepted Answer

A)  Real rate
B)  Liquidity premium
C)  Interest rate risk premium
D)  Inflation premium
E)  Taxability premiumF) D) and E)
G) A) and E)

Question 7

Jeffries,Inc.,has semiannual,6 percent coupon bonds on the market that currently have 11 years left to maturity.If the market rate of return for this bond is 7.13 percent three years from now,what will be the bond's clean price at that time?

Accepted Answer

A)  $925.88
B)  $932.00
C)  $903.14
D)  $921.42
E)  $933.33F) C) and D)
G) None of the above

Question 8

The price at which a dealer will purchase a bond is referred to as the _____ price.

Accepted Answer

A)  asked
B)  face
C)  call
D)  put
E)  bidF) None of the above
G) D) and E)

Question 9

All else held constant,the present value of a bond increases when the:

Accepted Answer

A)  coupon rate decreases.
B)  yield to maturity decreases.
C)  current yield increases.
D)  time to maturity of a premium bond decreases.
E)  time to maturity of a zero coupon bond increases.F) C) and D)
G) None of the above

Question 10

Which one of the following bonds is most apt to have the smallest liquidity premium?

Accepted Answer

A)  Treasury bill
B)  Corporate bond issued by a new firm
C)  Municipal bond issued by the State of New York
D)  Municipal bond issued by a rural city in Alaska
E)  Corporate bond issued by General Motors (GM) F) C) and D)
G) All of the above

Question 11

Changes in interest rates affect bond prices.Which one of the following compensates bond investors for this risk?

Accepted Answer

A)  Taxability risk premium
B)  Default risk premium
C)  Interest rate risk premium
D)  Real rate of return
E)  Bond premiumF) None of the above
G) B) and D)

Question 12

The current yield on a bond is equal to the annual interest divided by the:

Accepted Answer

A)  issue price.
B)  maturity value.
C)  face amount.
D)  current market price.
E)  current par value.F) B) and C)
G) A) and D)

Question 13

Of these choices,a risk-adverse investor who prefers to minimize interest rate risk is most apt to invest in:

Accepted Answer

A)  5-year, 7 percent coupon bonds.
B)  20-year, 6 percent coupon bonds.
C)  20-year, zero coupon bonds.
D)  2-year, 7 percent coupon bonds.
E)  3-year, zero coupon bonds.F) A) and B)
G) B) and E)

Question 14

The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of those securities.

Accepted Answer

A)  face value
B)  market price
C)  maturity
D)  coupon rate
E)  issue dateF) All of the above
G) A) and B)

Question 15

A real rate of return is defined as a rate that has been adjusted for which one of the following?

Accepted Answer

A)  Inflation
B)  Interest rate risk
C)  Taxes
D)  Liquidity
E)  Default riskF) None of the above
G) C) and D)

Question 16

The App Store needs to raise $2.8 million for expansion.The firm wants to raise this money by selling 20-year,zero-coupon bonds with a par value of $1,000.The market yield on similar bonds is 6.49 percent.How many bonds must the company sell to raise the money it needs? Assume semiannual compounding.

Accepted Answer

A)  2,800 bonds
B)  9,450 bonds
C)  11,508 bonds
D)  10,315 bonds
E)  10,044 bondsF) C) and E)
G) A) and B)

Question 17

Which statement is correct?

Accepted Answer

A)  Bond markets have less daily trading volume than equity markets.
B)  There are fewer bond issues outstanding than there are equity issues.
C)  Municipal bond prices are highly transparent.
D)  Bond markets are dealer based.
E)  Most bond trades occur on the NYSE.F) A) and B)
G) C) and D)

Question 18

The primary purpose of bond covenants is to:

Accepted Answer

A)  meet regulatory requirements.
B)  define the bond?s repayment terms.
C)  protect the bondholders.
D)  identify the bond's rating.
E)  protect the bond issuer from lawsuits.F) A) and B)
G) B) and E)

Question 19

A corporate bond pays 6.65 percent interest.How much would a municipal bond have to pay to be equivalent to this on an after tax basis if you are in the 25 marginal percent tax bracket?

Accepted Answer

A)  8.31percent
B)  6.28 percent
C)  4.99 percent
D)  7.75 percent
E)  8.87 percentF) B) and C)
G) C) and D)

Question 20

On which one of the following dates is the principal amount of a semiannual coupon bond repaid?

Accepted Answer

A)  A portion of the principal is repaid on each coupon date.
B)  The entire bond is repaid on the issue date.
C)  Half of the principal is repaid evenly over each coupon period with the remainder paid on the issue date.
D)  The entire bond is repaid on the maturity date.
E)  Half of the principal is repaid evenly over each coupon period with the remainder paid on the maturity date.F) B) and C)
G) C) and E)

Exam 6: Interest Rates and Bond Valuation

Jeffries,Inc.,has semiannual,6 percent coupon bonds on the market that currently have 11 years left to maturity.If the market rate of return for this bond is 7.13 percent three years from now,what will be the bond's clean price at that time?

Correct Answer
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Changes in interest rates affect bond prices.Which one of the following compensates bond investors for this risk?

Correct Answer
verified

Of these choices,a risk-adverse investor who prefers to minimize interest rate risk is most apt to invest in:

Correct Answer
verified

AB Builders has 15-year bonds outstanding with a face value of $1,000 and a market price of $974.The bonds pay interest annually and have a yield to maturity of 4.03 percent.What is the coupon rate?

Correct Answer
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On which one of the following dates is the principal amount of a semiannual coupon bond repaid?

Correct Answer
verified

Which statement is correct?

Correct Answer
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Arts and Crafts Warehouse wants to issue 15-year,zero-coupon bonds that yield 7.5 percent.What price should it charge for these bonds if the face value is $1,000? Assume semiannual compounding.

Correct Answer
verified

Dairy Delight wants to raise $1.4 million by selling 15-year coupon bonds at par.Comparable bonds in the market have a coupon rate of 5.4 percent,semiannual payments,15 years to maturity,and are selling at 97.8 percent of par.What coupon rate should Dairy Delight set on its bonds?

Correct Answer
verified

A real rate of return is defined as a rate that has been adjusted for which one of the following?

Correct Answer
verified

Suppose that a small,rural city in the countryside of North Dakota plans to issue $150,000 worth of 10-year bonds.Which one of the following components of the bond's yield will be affected by the fact that no active secondary market is expected for these bonds?

Correct Answer
verified

All else held constant,the present value of a bond increases when the:

Correct Answer
verified

Correct Answer
verified

Which one of the following bonds is most apt to have the smallest liquidity premium?

Correct Answer
verified

The price at which a dealer will purchase a bond is referred to as the _____ price.

Correct Answer
verified

The current yield on a bond is equal to the annual interest divided by the:

Correct Answer
verified

The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of those securities.

Correct Answer
verified

The term structure of interest rates is primarily based on which three of the following? I.Interest rate risk premium II.Real rate of interest III.Default risk premium IV.Inflation premium V.Liquidity premium

Correct Answer
verified

When a bond's yield to maturity is less than the bond's coupon rate,the bond:

Correct Answer
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A corporate bond pays 6.65 percent interest.How much would a municipal bond have to pay to be equivalent to this on an after tax basis if you are in the 25 marginal percent tax bracket?

Correct Answer
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The primary purpose of bond covenants is to:

Correct Answer
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Exam 6: Interest Rates and Bond Valuation

Jeffries,Inc.,has semiannual,6 percent coupon bonds on the market that currently have 11 years left to maturity.If the market rate of return for this bond is 7.13 percent three years from now,what will be the bond's clean price at that time?

Correct AnswerverifiedShow Answer

Changes in interest rates affect bond prices.Which one of the following compensates bond investors for this risk?

Correct AnswerverifiedShow Answer

Of these choices,a risk-adverse investor who prefers to minimize interest rate risk is most apt to invest in:

Correct AnswerverifiedShow Answer

AB Builders has 15-year bonds outstanding with a face value of $1,000 and a market price of $974.The bonds pay interest annually and have a yield to maturity of 4.03 percent.What is the coupon rate?

Correct AnswerverifiedShow Answer

On which one of the following dates is the principal amount of a semiannual coupon bond repaid?

Correct AnswerverifiedShow Answer

Which statement is correct?

Correct AnswerverifiedShow Answer

Arts and Crafts Warehouse wants to issue 15-year,zero-coupon bonds that yield 7.5 percent.What price should it charge for these bonds if the face value is $1,000? Assume semiannual compounding.

Correct AnswerverifiedShow Answer

Dairy Delight wants to raise $1.4 million by selling 15-year coupon bonds at par.Comparable bonds in the market have a coupon rate of 5.4 percent,semiannual payments,15 years to maturity,and are selling at 97.8 percent of par.What coupon rate should Dairy Delight set on its bonds?

Correct AnswerverifiedShow Answer

A real rate of return is defined as a rate that has been adjusted for which one of the following?

Correct AnswerverifiedShow Answer

Suppose that a small,rural city in the countryside of North Dakota plans to issue $150,000 worth of 10-year bonds.Which one of the following components of the bond's yield will be affected by the fact that no active secondary market is expected for these bonds?

Correct AnswerverifiedShow Answer

All else held constant,the present value of a bond increases when the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following bonds is most apt to have the smallest liquidity premium?

Correct AnswerverifiedShow Answer

The price at which a dealer will purchase a bond is referred to as the _____ price.

Correct AnswerverifiedShow Answer

The current yield on a bond is equal to the annual interest divided by the:

Correct AnswerverifiedShow Answer

The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of those securities.

Correct AnswerverifiedShow Answer

The term structure of interest rates is primarily based on which three of the following? I.Interest rate risk premium II.Real rate of interest III.Default risk premium IV.Inflation premium V.Liquidity premium

Correct AnswerverifiedShow Answer

When a bond's yield to maturity is less than the bond's coupon rate,the bond:

Correct AnswerverifiedShow Answer

A corporate bond pays 6.65 percent interest.How much would a municipal bond have to pay to be equivalent to this on an after tax basis if you are in the 25 marginal percent tax bracket?

Correct AnswerverifiedShow Answer

The primary purpose of bond covenants is to:

Correct AnswerverifiedShow Answer

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