Question 1

A bond with a 6% coupon that pays interest semi-annually and is priced at par will have a market price of _____ and interest payments in the amount of _____ each.

Accepted Answer

A)   $1,006; $60
B)   $1,060; $30
C)   $1,060; $60
D)   $1,000; $30
E)   $1,000; $60F) C) and D)
G) C) and E)

Question 2

A bond that pays interest annually yields a 7.25% rate of return. The inflation rate for the same period is 3.5%. What is the real rate of return on this bond?

Accepted Answer

A)   3.50%
B)   3.57%
C)   3.62%
D)   3.72%
E)   3.75%F) B) and E)
G) A) and D)

Question 3

Chocolate and Rum,Inc. offers a 7% coupon bond with semiannual payments and a yield to maturity of 7.73%. The bonds mature in 9 years. What is the market price of a $1,000 face value bond?

Accepted Answer

A)   $953.28
B)   $963.88
C)   $1,108.16
D)   $1,401.26
E)   $1,401.86F) B) and E)
G) None of the above

Question 4

The yield to maturity is:

Accepted Answer

A)   the rate that equates the price of the bond with the discounted cash flows.
B)   the expected rate to be earned if held to maturity.
C)   the rate that is used to determine the market price of the bond.
D)   equal to the current yield for bonds priced at par.
E)   All ofF) A) and C)
G) C) and D)

Question 5

Part of the Rock,Inc. has a 6% coupon bond that matures in 11 years. The bond pays interest semiannually. What is the market price of a $1,000 face value bond if the yield to maturity is 12.9%?

Accepted Answer

A)   $434.59
B)   $580.86
C)   $600.34
D)   $605.92
E)   $947.87F) C) and D)
G) A) and D)

Question 6

Emmett Corporation has issued a $1,000 face value zero-coupon bond. Which of the following values is closest to the correct price for the bond if the appropriate discount rate is 4% and the bond matures in 8 years?

Accepted Answer

A)   $644.61
B)   $869.32
C)   $1,000.00
D)   $1,058.00
E)   This problem cannot be worked without the annual interest payments providedF) C) and D)
G) A) and B)

Question 7

The specified date on which the principal amount of a bond is repaid is called the bond's:

Accepted Answer

A)   coupon.
B)   face value.
C)   maturity.
D)   yield to maturity.
E)   coupon ratE.F) All of the above
G) None of the above

Question 8

The value of a 25 year zero-coupon bond when the market required rate of return is 10% (semiannual)  is ____.

Accepted Answer

A)   $87.20
B)   $92.30
C)   $95.26
D)   $98.31
E)   None of these.F) C) and E)
G) B) and C)

Question 9

Your firm offers a 10-year,zero coupon bond. The yield to maturity is 8.8%. What is the current market price of a $1,000 face value bond?

Accepted Answer

A)   $430.24
B)   $473.26
C)   $835.56
D)   $919.12
E)   $1,088.00F) A) and E)
G) None of the above

Question 10

The annual coupon of a bond divided by its face value is called the bond's:

Accepted Answer

A)   coupon.
B)   face value.
C)   maturity.
D)   yield to maturity.
E)   coupon ratE.F) None of the above
G) A) and C)

Question 11

An asset characterized by cash flows that increase at a constant rate forever is called a:

Accepted Answer

A)   growing perpetuity.
B)   growing annuity.
C)   common annuity.
D)   perpetuity due.
E)   preferred stock.F) A) and E)
G) A) and D)

Question 12

The rate of return required by investors in the market for owning a bond is called the:

Accepted Answer

A)   coupon.
B)   face value.
C)   maturity.
D)   yield to maturity.
E)   coupon ratE.F) A) and E)
G) A) and D)

Question 13

Otto Enterprises has a 15-year bond issue outstanding that pays a 9% coupon. The bond is currently priced at $894.60 and has a par value of $1,000. Interest is paid semiannually. What is the yield to maturity?

Accepted Answer

A)   8.67%
B)   10.13%
C)   10.16%
D)   10.40%
E)   10.45%F) B) and D)
G) A) and D)

Question 14

A Corporate bond has an 8% coupon and pays interest annually. The face value is $1,000 and the current market price is $1,020.50. The bond matures in 20 years. What is the yield to maturity?

Accepted Answer

A)   7.79%
B)   7.82%
C)   8.00%
D)   8.04%
E)   8.12%F) D) and E)
G) A) and C)

Question 15

Which of the following amounts is closest to the value of a bond that pays $55 semiannually and has an effective semiannual interest rate of 5%? The face value is $1,000 and the bond matures in 3 years. There are exactly six months before the first interest payment.

Accepted Answer

A)   $888
B)   $1,000
C)   $1,014
D)   $1,025
E)   $1,055F) C) and D)
G) A) and C)

Question 16

The _____ premium is that portion of a nominal interest rate or bond yield that represents compensation for expected future overall price appreciation.

Accepted Answer

A)   default risk
B)   taxability
C)   liquidity
D)   inflation
E)   interest rate riskF) All of the above
G) D) and E)

Question 17

The Fisher formula is expressed as _____ where R is the nominal rate,r is the real rate,and h is the inflation rate.

Accepted Answer

A)   1 + r = (1 + R)  ÷ (1 + h) 
B)   1 + r = (1 + R)  × (1 + h) 
C)   1 + h = (1 + r)  ÷ (1 + R) 
D)   1 + R = (1 + r)  ÷ (1 + h) 
E)   1 + R = (1 + r)  × (1 + h) F) C) and D)
G) A) and E)

Question 18

A 12-year,5% coupon bond pays interest annually. The bond has a face value of $1,000. What is the change in the price of this bond if the market yield rises to 6% from the current yield of 4.5%?

Accepted Answer

A)   11.11% decrease
B)   12.38% decrease
C)   12.38% increase
D)   14.13% decrease
E)   14.13% increaseF) A) and B)
G) C) and D)

Question 19

Define what is meant by interest rate risk. Assume you are the manager of a $100 million portfolio of corporate bonds and you believe interest rates will fall. What adjustments should you make to your portfolio based on your beliefs?

Accepted Answer

Interest rate risk is the risk that aris...

Question 20

Calculate the YTM on a bond priced at $1,036 which has 2 years to maturity,a 10% annual coupon rate,and a return of $1,000 at maturity.

Accepted Answer

To calculate the Yield to Maturity (YTM)...

Exam 8: Interest Rates and Bond Valuation

The rate of return required by investors in the market for owning a bond is called the:

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A Corporate bond has an 8% coupon and pays interest annually. The face value is $1,000 and the current market price is $1,020.50. The bond matures in 20 years. What is the yield to maturity?

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A 12-year,5% coupon bond pays interest annually. The bond has a face value of $1,000. What is the change in the price of this bond if the market yield rises to 6% from the current yield of 4.5%?

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Calculate the YTM on a bond priced at $1,036 which has 2 years to maturity,a 10% annual coupon rate,and a return of $1,000 at maturity.

Correct AnswerAnswered by ExamLex AITo calculate the Yield to Maturity (YTM)...View AnswerShow Answer

Which of the following amounts is closest to the value of a bond that pays $55 semiannually and has an effective semiannual interest rate of 5%? The face value is $1,000 and the bond matures in 3 years. There are exactly six months before the first interest payment.

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Part of the Rock,Inc. has a 6% coupon bond that matures in 11 years. The bond pays interest semiannually. What is the market price of a $1,000 face value bond if the yield to maturity is 12.9%?

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The specified date on which the principal amount of a bond is repaid is called the bond's:

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The value of a 25 year zero-coupon bond when the market required rate of return is 10% (semiannual) is ____.

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Emmett Corporation has issued a $1,000 face value zero-coupon bond. Which of the following values is closest to the correct price for the bond if the appropriate discount rate is 4% and the bond matures in 8 years?

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A bond that pays interest annually yields a 7.25% rate of return. The inflation rate for the same period is 3.5%. What is the real rate of return on this bond?

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Otto Enterprises has a 15-year bond issue outstanding that pays a 9% coupon. The bond is currently priced at $894.60 and has a par value of $1,000. Interest is paid semiannually. What is the yield to maturity?

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The _____ premium is that portion of a nominal interest rate or bond yield that represents compensation for expected future overall price appreciation.

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The annual coupon of a bond divided by its face value is called the bond's:

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Define what is meant by interest rate risk. Assume you are the manager of a $100 million portfolio of corporate bonds and you believe interest rates will fall. What adjustments should you make to your portfolio based on your beliefs?

Correct AnswerverifiedInterest rate risk is the risk that aris...View AnswerShow Answer

Your firm offers a 10-year,zero coupon bond. The yield to maturity is 8.8%. What is the current market price of a $1,000 face value bond?

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Chocolate and Rum,Inc. offers a 7% coupon bond with semiannual payments and a yield to maturity of 7.73%. The bonds mature in 9 years. What is the market price of a $1,000 face value bond?

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The yield to maturity is:

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An asset characterized by cash flows that increase at a constant rate forever is called a:

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A bond with a 6% coupon that pays interest semi-annually and is priced at par will have a market price of _____ and interest payments in the amount of _____ each.

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The Fisher formula is expressed as _____ where R is the nominal rate,r is the real rate,and h is the inflation rate.

Correct AnswerverifiedShow Answer

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To calculate the Yield to Maturity (YTM)...
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Interest rate risk is the risk that aris...
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A bond with a 6% coupon that pays interest semi-annually and is priced at par will have a market price of _ and interest payments in the amount of _ each.

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