Chapter 07 Interest Rates A

Chapter07InterestRatesAndBondValuation
Student:___________________________________________________________________________
1.
Allisonjustreceivedhersemiannualpaymentof$35onabondsheowns.Whichtermreferstothispayment?
A. Coupon.
B. Facevalue.
C. Discount.
D. Callpremium.
E. Yield.
2.
Bertownsabondthatwillpayhim$75eachyearininterestplusa$1,000principalpaymentatmaturity.Whatisthe$1,000called?
A. Coupon.
B. Facevalue.
C. Discount.
D. Yield.
E. Dirtyprice.
3.
Abond'scouponrateisequaltotheannualinterestdividedbywhichoneofthefollowing?
A. Callprice.
B. Currentprice.
C. Facevalue.
D. Cleanprice.
E. Dirtyprice.
4.
Thebondprincipalisrepaidonwhichoneofthesedates?
A. Coupondate.
B. Yielddate.
C. Maturitydate.
D. Dirtydate.
E. Cleandate.
5.
Thebondmarketrequiresareturnof9.8percentonthefiveyearbondsissuedbyJWIndustries.The9.8percentisreferredtoaswhichone
ofthefollowing?
A. Couponrate.
B. Facerate.
C. Callrate.
D. Yieldtomaturity.
E. Currentyield.
6.
Thecurrentyieldisdefinedastheannualinterestonabonddividedbywhichoneofthefollowing?
A. Couponrate.
B. Facevalue.
C. Marketprice.
D. Callprice.
E. Parvalue.
7.
Whichoneoftheseismostapttobeincludedinabondsindentureoneyearafterthebondhasbeenissued?
A. Currentyield.
B. Writtenrecordofallthecurrentbondholders..
C. Listofcollateralusedasbondsecurity.
D. Currentmarketprice.
E. Priceatwhichabondholdercanresellthebondtoanotherbondholder
8.
RoadHazardshas12yearbondsoutstanding.Theinterestpaymentsonthesebondsaresentdirectlytoeachoftheindividualbondholders.
Thesedirectpaymentsareaclearindicationthatthebondscanaccuratelybedefinedasbeingissued:
A. Atpar.
B. Inregisteredform.
C. Instreetform.
D. Asdebentures.
E. Ascallablebonds.
9.
Abondthatispayabletowhomeverhasphysicalpossessionofthebondissaidtobein:
A. Newissuecondition.
B. Registeredform.
C. Bearerform.
D. Debenturestatus.
E. Collateralstatus.
10.
JasonsPaintsjustissued20year,7.25percent,unsecuredbondsatpar.Thesebondsfitthedefinitionofwhichoneofthefollowingterms?
A. Note.
B. Discounted.
C. Zerocoupon.
D. Callable.
E. Debenture.
11.
Anoteisgenerallydefinedas:
A. Asecuredbondwithaninitialmaturityof10yearsormore.
B. Asecuredbondthatinitiallymaturesinlessthan10years.
C. Anybondsecuredbyablanketmortgage.
D. Anunsecuredbondwithaninitialmaturityof10yearsorless.
E. Anybondmaturingin10yearsormore.
12.
Asinkingfundismanagedbyatrusteeforwhichoneofthefollowingpurposes?
A. Payingbondinterestpayments.
B. Earlybondredemption.
C. Convertingbondsintoequitysecurities.
D. Payingpreferreddividends..
E. Reducingbondcouponrates.
13.
Abondthatcanbepaidoffearlyattheissuer'sdiscretionisreferredtoasbeingwhichtypeofbond?
A. Parvalue.
B. Callable.
C.
Senior.
D. Subordinated.
E. Unsecured.
14.
A$1,000facevaluebondcanberedeemedearlyattheissuer'sdiscretionfor$1,030,plusanyaccruedinterest.Theadditional$30iscalled
the:
A. Dirtyprice.
B. Redemptionvalue.
C. Callpremium.
D. Originalissuediscount.
E. Redemptiondiscount.
15.
Adeferredcallprovisioniswhichoneofthefollowing?
A. Requirementthatabondissuerpaythecurrentmarketprice,plusaccruedinterest,shouldthefirmdecidetocallabond.
B. Abilityofabondissuertodelayrepayingabonduntilafterthematuritydateshouldtheissuersoopt.
C. Prohibitionplacedonanissuerwhichpreventsthatissuerfromeverredeemingbondspriortomaturity.
D. Prohibitionwhichpreventsbondissuersfromredeemingcallablebondspriortoaspecifieddate.
E. Requirementthatabondissuerpayacallpremiumthatisequaltoorgreaterthanoneyear'scouponshouldthatissuerdecidetocalla
bond.
16.
Acallprotectedbondisabondthat:
A. Isguaranteedtobecalled.
B. Canneverbecalled.
C. Iscurrentlybeingcalled.
D. Iscallableatanytime.
E. Cannotbecalledatthispointintime.
17.
Theitemsincludedinanindenturethatlimitcertainactionsoftheissuerinordertoprotectabondholder'sinterestsarereferredtoasthe:
A. Trusteerelationships.
B. Bylaws.
C. Legalbounds.
D. Trustdeed.
E. Protectivecovenants.
18.
Abondthathasonlyonepayment,whichoccursatmaturity,defineswhichoneofthesetypesofbonds?
A. Debenture.
B. Callable.
C. Floatingrate.
D. Junk.
E. Zerocoupon.
19.
Whichoneofthefollowingisthepriceatwhichadealerwillsellabond?
A. Callprice
B. Askedprice
C. Bidprice
D. Bidaskspread
E. Parvalue
20.
Ifyousella6percentbondtoadealerwhenthemarketrateis7percent,whichoneofthefollowingpriceswillyoureceive?
A. Callprice.
B. Parvalue.
C. Bidprice.
D. Askedprice.
E. Bidaskspread.
21.
Thedifferencebetweenthepricethatadealeriswillingtopayandthepriceatwhichheorshewillselliscalledthe:
A. Equilibrium.
B. Premium.
C. Discount.
D.
Callprice.
E. Spread.
22.
Abondisquotedatapriceof$1,011.Thispriceisreferredtoasthe:
A. Callprice.
B. Facevalue.
C. Cleanprice.
D. Dirtyprice.
E. Maturityprice.
23.
Rositapaidatotalof$1,189topurchaseabondthathas7ofitsinitial20yearsleftuntilmaturity.Thispriceisreferredtoasthe:
A. Quotedprice.
B. Spreadprice.
C. Cleanprice.
D. Dirtyprice.
E. Callprice.
24.
Realratesaredefinedasnominalratesthathavebeenadjustedforwhichofthefollowing?
A. Inflation.
B. Defaultrisk.
C. Accruedinterest.
D. Interestraterisk.
E. Bothinflationandinterestraterisk.
25.
Interestratesthatincludeaninflationpremiumarereferredtoas:
A. Annualpercentagerates.
B. Strippedrates.
C. Effectiveannualrates.
D. Realrates.
E. Nominalrates.
26.
TheFishereffectisdefinedastherelationshipbetweenwhichofthefollowingvariables?
A. Defaultriskpremium,inflationriskpremium,andrealrates
B. Nominalrates,realrates,andinterestrateriskpremium
C. Interestrateriskpremium,realrates,anddefaultriskpremium
D. Realrates,inflationrates,andnominalrates
E. Realrates,interestrateriskpremium,andnominalrates
27.
Thepuretimevalueofmoneyisknownasthe:
A. Liquidityeffect.
B. Fishereffect.
C. Termstructureofinterestrates.
D. Inflationfactor.
E. Interestratefactor.
28.
Whichoneofthefollowingpremiumsiscompensationforthepossibilitythatabondissuermaynotpayabondsinterestorprincipal
paymentsasexpected?
A. Defaultrisk.
B. Taxability.
C. Liquidity.
D. Inflation.
E. Interestraterisk.
29.
Theinterestrateriskpremiumisthe:
A. Additionalcompensationpaidtoinvestorstooffsetrisingprices.
B. Compensationinvestorsdemandforacceptinginterestraterisk.
C. Differencebetweentheyieldtomaturityandthecurrentyield.
D. Differencebetweenthemarketinterestrateandthecouponrate.
E. Differencebetweenthecouponrateandthecurrentyield.
30.
ATreasuryyieldcurveplotsTreasuryinterestratesrelativetowhichoneofthefollowing?
A. Marketrates.
B. Comparablecorporatebondrates.
C. Theriskfreerate.
D. Inflation.
E. Maturity.
31.
Whichoneofthefollowingriskpremiumscompensatesfortheinabilitytoeasilyresellabondpriortomaturity?
A. Defaultrisk.
B.
Taxability.
C. Liquidity.
D. Inflation.
32.
Thetaxabilityriskpremiumcompensatesbondholdersforwhichoneofthefollowing?
A. Yielddecreasesinresponsetomarketchanges.
B. Lackofcouponpayments.
C. Possibilityofdefault.
D. Abond'sunfavorabletaxstatus.
E. Decreaseinamunicipality'screditrating.
33.
Whichbondwouldyougenerallyexpecttohavethehighestyield?
A. RiskfreeTreasurybond
B. Nontaxable,highlyliquidbond
C. Longterm,highquality,taxfreebond
D. Shortterm,inflationadjustedbond
E. Longterm,taxablejunkbond
34.
Acorporatebondwitha6percentcouponwasissuedlastyear.Whichoneofthesewouldapplytothisbondtodayifthecurrentyieldto
maturityis7percent?
A. Thebondiscurrentlysellingatapremium.
B. Thecurrentyieldexceedsthecouponrate.
C. Thebondissellingatparvalue.
D. Thecurrentyieldexceedstheyieldtomaturity.
E. Thecouponratehasincreasedto7percent.
35.
Abondhasamarketpricethatexceedsitsfacevalue.Whichoneofthesefeaturescurrentlyappliestothisbond?
A. Discountbond.
B. Yieldtomaturityequaltothecurrentyield.
C. Currentlysellingatpar.
D. Currentyieldgreaterthancouponrate.
E. Yieldtomaturitylessthanthecouponrate.
36.
Allelseconstant,abondwillsellat_____whenthecouponrateis_____theyieldtomaturity.
A. apremium;lessthan
B. apremium;equalto
C. adiscount;lessthan
D. adiscount;higherthan
E. par;lessthan
37.
DLQInc.bondsmaturein12yearsandhaveacouponrateof6percent.Ifthemarketrateofinterestincreases,thenthe:
A. Couponratewillalsoincrease.
B. Currentyieldwilldecrease.
C. Yieldtomaturitywillbelessthanthecouponrate.
D. Marketpriceofthebondwilldecrease.
E. Couponpaymentwillincrease.
38.
Whichoneofthefollowingappliestoapremiumbond?
A.
Yieldtomaturity>currentyield>couponrate.
B. Couponrate=currentyield=yieldtomaturity.
C. Couponrate>yieldtomaturity>currentyield.
D. Couponrate<yieldtomaturity<currentyield.
E. Couponrate>currentyield>yieldtomaturity.
39.
Whichoneofthefollowingrelationshipsappliestoaparvaluebond?
A. Yieldtomaturity>currentyield>couponrate.
B. Couponrate>yieldtomaturity>currentyield.
C. Couponrate=currentyield=yieldtomaturity.
40.
Whichoneofthefollowingrelationshipsisstatedcorrectly?
A. Thecouponrateexceedsthecurrentyieldwhenabondsellsatadiscount.
B. Thecallpricemustequaltheparvalue.
C. Anincreaseinmarketratesincreasesthemarketpriceofabond.
D. Decreasingthetimetomaturityincreasesthepriceofadiscountbond,allelseconstant.
E. Increasingthecouponratedecreasesthecurrentyield,allelseconstant.
41.
RoundDotInnsispreparingabondofferingwithacouponrateof6percent,paidsemiannually,andafacevalueof$1,000.Thebondswill
maturein10yearsandwillbesoldatpar.Giventhis,whichoneofthefollowingstatementsiscorrect?
A. Thebondswillbecomediscountbondsifthemarketrateofinterestdeclines.
B. Thebondswillpay10interestpaymentsof$60each.
C. Thebondswillsellatapremiumifthemarketrateis5.5percent.
D. Thebondswillinitiallysellfor$1,030each.
E. Thefinalpaymentwillbeintheamountof$1,060.
42.
Anewlyissuedbondhasa7percentcouponwithsemiannualinterestpayments.Thebondsarecurrentlypricedatpar.Theeffectiveannual
rateprovidedbythesebondsmustbe:
A. 3.5percent.
B. Greaterthan3.5percentbutlessthan7percent.
C. 7percent.
D. Greaterthan7percent.
E. Lessthan3.5percent.
43.
Thepricesensitivityofabondincreasesinresponsetoachangeinthemarketrateofinterestasthe:
A.
Couponrateincreases.
B. Timetomaturitydecreases.
C. Couponratedecreasesandthetimetomaturityincreases.
D. Timetomaturityandcouponratebothdecrease.
E. Couponrateandtimetomaturitybothincrease.
44.
Whichoneofthefollowingbondsistheleastsensitivetointerestraterisk?
A. 3year;4percentcoupon.
B. 3year;6percentcoupon.
C. 5year;6percentcoupon.
D. 7year;6percentcoupon.
E. 7year;4percentcoupon.
45.
Asabond'stimetomaturityincreases,thebond'ssensitivitytointerestraterisk:
A. Increasesatanincreasingrate.
B. Increasesatadecreasingrate.
C. Increasesataconstantrate.
D. Decreasesatanincreasingrate.
E. Decreasesatadecreasingrate.
46.
Youownabondthathasa6percentannualcouponandmaturesfiveyearsfromnow.Youpurchasedthis10yearbondatparvaluewhenit
wasoriginallyissued.Whichoneofthefollowingstatementsappliestothisbondiftherelevantmarketinterestrateisnow5.8percent?
A. Thecurrentyieldtomaturityisgreaterthan6percent.
B. Thecurrentyieldis6percent.
C. Thenextinterestpaymentwillbe$30.
D. Thebondiscurrentlyvaluedatonehalfofitsissueprice.
E. Youwillrealizeacapitalgainonthebondifyousellittoday.
47.
Youexpectinterestratestodeclineinthenearfutureeventhoughthebondmarketisnotindicatinganysignofthischange.Whichoneof
thefollowingbondsshouldyoupurchasenowtomaximizeyourgainsiftheratedeclinedoesoccur?
A. Shortterm;lowcoupon.
B. Shortterm;highcoupon.
C. Longterm;zerocoupon.
D. Longterm;lowcoupon.
E. Longterm;highcoupon.
48.
Apremiumbondthatpays$60ininterestannuallymaturesinsevenyears.Thebondwasoriginallyissuedthreeyearsagoatpar.Whichone
ofthefollowingstatementsisaccurateinrespecttothisbondtoday?
A. Thefacevalueofthebondtodayisgreaterthanitwaswhenthebondwasissued.
B. Thebondisworthlesstodaythanwhenitwasissued.
C. Theyieldtomaturityislessthanthecouponrate.
D. Thecouponrateisgreaterthanthecurrentyield.
E. Theyieldtomaturityequalsthecurrentyield.
49.
Whichoneofthesestatementsiscorrect?
A.
Mostlongtermbondissuesarereferredtoasunfundeddebt.
B. Bondsprovidetaxbenefitstoissuers.
C. Theriskofafirmfinanciallyfailingdecreaseswhenafirmissuesbonds.
D. Allbondsaretreatedequallyinabankruptcyproceeding.
E. Adebentureisaseniorsecureddebt.
50.
HotFoodshasaninvestmentgradebondissueoutstandingthatpays$30semiannualinterestpayments.Thebondssellatparandare
callableatapriceequaltothepresentvalueofallfutureinterestandprincipalpaymentsdiscountedatarateequaltothecomparable
Treasuryrateplus.50percent.Whichoneofthefollowingcorrectlydescribesthisbond?
A.
ThebondratingisB.
B. Marketvalueislessthanfacevalue.
C. Thecouponrateis3percent.
D. Ithasa"makewhole"callprice.
E. VariableInterestpaymentsarevariable.
51.
Lastyear,LexingtonHomesissued$1millioninunsecured,noncallabledebt.Thisdebtpaysanannualinterestpaymentof$55andmatures
sixyearsfromnow.Thefacevalueis$1,000andthemarketpriceis$1,020.Whichoneofthesetermscorrectlydescribesafeatureofthis
debt?
A. Semiannualcoupon.
B. Discountbond.
C. Note.
D. Trustdeed.
E. Collateralized.
52.
Callablebondsgenerally:
A. Grantthebondholdertheoptiontocallthebondanytimeafterthedefermentperiod.
B. Arecallableatparassoonasthecallprotectionperiodends.
C. Arecalledwhenmarketinterestratesincrease.
D. Arecalledwithinthefirstthreeyearsafterissuance.
E. Haveasinkingfundprovision.
53.
Whichoneoftheseisanegativecovenantthatmightbefoundinabondindenture?
A.
Thecompanyshallmaintainacurrentratioof1.1orhigher.
B. Thecompanycannotleaseanymajorassetswithoutbondholderapproval.
C. Thecompanymustmaintaintheloancollateralingoodworkingorder.
D. Thecompanyshallprovideauditedfinancialstatementsinatimelymanner.
E. Thecompanyshallmaintainacashsurplusof$100,000atalltimes.
54.
Protectivecovenants:
A. Applytoshorttermdebtissuesbutnottolongtermdebtissues.
B. Onlyapplytoprivatelyissuedbonds.
C. Areafeaturefoundonlyingovernmentissuedbondindentures.
D. Onlyapplytobondsthathaveadeferredcallprovision.
E. Areprimarilydesignedtoprotectbondholders.
55.
Whichoneofthefollowingstatementsconcerningbondratingsiscorrect?
A. InvestmentgradebondsareratedBBorhigherbyStandardamp;Poor's.
B. Bondratingsassessbothinterestrateriskanddefaultrisk.
C. Splitratedbondsarecalledcrossoverbonds.
D. ThehighestratingissuedbyMoody'sisAAA.
E. A"fallenangel"isatermappliedtoall"junk"bonds.
56.
A"fallenangel"isabondthathasmovedfrom:
A. Beingpubliclytradedtobeingprivatelytraded.
B. Beingalongtermobligationtobeingashorttermobligation.
C. Beingapremiumbondtobeingadiscountbond.
D. Seniorstatustojuniorstatusforliquidationpurposes.
E. Investmentgradetospeculativegrade.
57.
BondsissuedbytheU.S.government:
A. Areconsideredtobefreeofinterestraterisk.
B. Generallyhavehighercouponsthancomparablebondsissuedbyacorporation.
C. Areconsideredtobefreeofdefaultrisk.
D. Payinterestthatisexemptfromfederalincometaxes.
E. Arecalled"munis."
58.
Treasurybondsare:
A. IssuedbyanygovernmentalagencyintheU.S.
B. IssuedonlyonthefirstdayofeachfiscalyearbytheU.S.DepartmentofTreasury.
C. Bondsthatofferthebesttaxbenefitsofanybondscurrentlyavailable.
D. Generallyissuedassemiannualcouponbonds.
E. Totallyriskfree.
59.
Municipalbonds:
A. Aretotallyriskfree.
B. Generallyhavehighercouponratesthancorporatebonds.
C. Payinterestthatisfederallytaxfree.
D. Arerarelycallable.
E. Arefreeofdefaultrisk.
60.
Thebreakeventaxratebetweenataxablecorporatebondyielding7percentandacomparablenontaxablemunicipalbondyielding5
percentcanbeexpressedas:
*
A. .05/(1t )=.07.
*
B. .05(1t )=.07.
*
C. .07+(1t )=.05.
*
D. .05(1t )=.07.
E. .05(1+t*)=.07.
61.
Azerocouponbond:
A. Issoldatalargepremium.
B. Paysinterestthatistaxdeductibletotheissueratthetimeofpayment.
C. CanonlybeissuedbytheU.S.Treasury.
D. Hasmoreinterestrateriskthanacomparablecouponbond.
E. Providesnotaxableincometothebondholderuntilthebondmatures.
62.
Whichoneofthefollowingriskswouldafloatingratebondtendtohavelessofascomparedtoafixedratecouponbond?
A. Realraterisk
B. Interestraterisk
C. Defaultrisk
D. Liquidityrisk
E. Taxabilityrisk
63.
Thecollarofafloatingratebondreferstotheminimumandmaximum:
A. Callperiods.
B. Maturitydates.
C. Marketprices.
D. Couponrates.
E. yieldstomaturity.
64.
Lastyear,youpurchasedaTIPSatpar.Sincethattime,bothmarketinterestratesandtheinflationratehaveincreasedby.25percent.Your
bondhasmostlikelydonewhichoneofthefollowingsincelastyear?
A. Decreasedinvalueduetothechangeininflationrates.
B. Experiencedanincreaseinitsbondrating.
C. Maintainedafixedrealrateofreturn.
D. Increasedinvalueinresponsetothechangeinmarketrates.
E. Increasedinvalueduetoadecreaseintimetomaturity.
65.
Recently,youdiscoveredaconvertible,callablebondwitha5percentsemiannualcoupon.Ifyoupurchasethisbondyouwillhavetheright
to:
A.
Forcetheissuertorepurchasethebondpriortomaturity.
B. Convertthebondintoequityshares.
C. Deferalltaxableincomeuntilthebondmatures.
D. Convertthebondintoa5percentperpetuity.
E. Havetheprincipalamountadjustedforinflation.
66.
Catbondsareprimarilydesignedtohelp:
A. Municipalitiessurviveeconomicrecessions.
B. Corporationsrespondtooverseascompetition.
C. Thefederalgovernmentcopewithhugedeficits.
D. Corporationsrecoverfrominvoluntaryreorganizations.
E. Insurancecompaniesfundexcessiveclaims.
67.
Nadineisaretiredwidowwhoisfinanciallydependentupontheinterestincomeproducedbyherbondportfolio.Whichoneofthefollowing
bondsistheleastsuitableforhertoown?
A. 6year,highcoupon,putbond.
B. 5yearTIPS.
C. 10yearAAAcouponbond.
D. 5yearfloatingratebond.
E. 7yearincomebond.
68.
Alisretiredandhissolesourceofincomeishisbondportfolio.Althoughhehassufficientprincipaltoliveon,heonlywantstospendthe
interestincomeandthusisconcernedaboutthepurchasingpowerofthatincome.WhichoneofthefollowingbondsshouldbesteaseAl's
concerns?
A. 6yearcouponbonds
B. 5yearTIPS
C. 20yearcouponbonds220
D.
5yearmunicipalbonds
E. 7yearincomebonds
69.
KurthasresearchedTTekandbelievesthefirmispoisedtovastlyincreaseinvalue.HehasdecidedtopurchaseTTekbondsasheneedsa
steadystreamofincome.However,hestillwishesthathecouldshareinthefirm'ssuccessalongwiththeshareholders.Whichoneofthe
followingbondfeatureswillhelphimfulfillhiswish?
A. Putprovision.
B. Positivecovenant.
C. Warrant.
D. Crossoverrating.
E. Callprovision.
70.
U.S.Treasurybonds:
A.
Arehighlyilliquid.
B. Arequotedasapercentageofpar.
C. Arequotedatthedirtyprice.
D. Payinterestthatisfederallytaxexempt.
E. Mustbehelduntilmaturity.
71.
Asixyear,$1,000facevaluebondissuedbyTaylorToolspaysinterestsemiannuallyonFebruary1andAugust1.AssumetodayisOctober
1.Whatwillbethedifference,ifany,betweenthisbond'scleananddirtypricestoday?
A. Nodifference.
B. Onemonth'sinterest.
C. Twomonth'sinterest.
D. Fourmonth'sinterest.
E. Fivemonth'sinterest.
72.
Today,June15,youwanttobuyabondwithaquotedpriceof98.64.ThebondpaysinterestonJanuary1andJuly1.Whichoneofthe
followingpricesrepresentsyourtotalcostofpurchasingthisbondtoday?
A. Cleanprice.
B. Dirtyprice.
C. Askedprice.
D. Quotedprice.
E. Bidprice.
73.
Whichoneofthefollowingratesrepresentsthechange,ifany,inyourpurchasingpowerasaresultofowningabond?
A. Riskfreerate.
B. Realizedrate.
C. Nominalrate.
D. Realrate.
E. Currentrate.
74.
Whichoneofthefollowingstatementsiscorrect?
A. Theriskfreeraterepresentsthechangeinpurchasingpower.
B. Anyreturngreaterthantheinflationraterepresentstheriskpremium.
C. Historicalrealratesofreturnmustbepositive.
D. Nominalratesexceedrealratesbytheamountoftheriskfreerate.
E. Therealratemustbelessthanthenominalrategivenapositiverateofinflation.
75.
TheFishereffectprimarilyemphasizestheeffectsof_____onaninvestor'srateofreturn.
A. Default.
B. marketmovements.
C. Interestratechanges.
D. Inflation.
E. Thetimetomaturity.
76.
Youaretryingtocomparethepresentvaluesoftwoseparatestreamsofcashflowsthathaveequivalentrisks.Onestreamisexpressedin
nominalvaluesandtheotherstreamisexpressedinrealvalues.Youdecidetodiscountthenominalcashflowsusinganominalannualrate
of8percent.Whatrateshouldyouusetodiscounttherealcashflows?
A. 8percent.
B. EARof8percentcompoundedmonthly.
C. Comparableriskfreerate.
D. Comparablerealrate.
E. Nominalrateriskfreerate
77.
Whichoneofthefollowingstatementsisfalseconcerningthetermstructureofinterestrates?
A.Expectationsoflowerinflationratesinthefuturetendtolowertheslopeofthetermstructureofinterestrates.
B. Thetermstructureofinterestratesincludesbothaninflationpremiumandaninterestrateriskpremium.
C. Thetermstructureofinterestratesandthetimetomaturityarealwaysdirectlyrelated.
D. Therealrateofreturnhasminimal,ifany,affectontheslopeofthetermstructureofinterestrates.
E. Theinterestrateriskpremiumincreasesasthetimetomaturityincreases.
78.
TheyieldsonacorporatebonddifferfromthoseonacomparableTreasurysecurityprimarilybecauseof:
A. Interestrateriskandtaxes.
B. Taxesanddefaultrisk.
C. Defaultandinterestraterisks.
D. Liquidityandinflationraterisks.
E. Default,inflation,andinterestraterisks.
79.
Sueisconsideringpurchasingabondthatwillonlyreturnitsprincipalatmaturityifthestockmarketdeclines.However,ifthestockmarket
increasesinvalueduringthebondterm,atmaturity,shewillreceiveboththebondprincipalandapercentageofthestockmarketgain.What
typeofbondisthis?
A. NoNobond.
B.
Putbond.
C.
Contingent,callablebond.
D. Structurednote.
E.
Sukuk.
80.
The7percentbondsissuedbyModernKitchenspayinterestsemiannually,matureineightyears,andhavea$1,000facevalue.Currently,
thebondssellfor$1,032.Whatistheyieldtomaturity?
A. 6.87percent
B. 6.92percent
C. 6.08percent
D. 6.48percent
E. 7.20percent
81.
Youownabondthatpays$64ininterestannually.Thefacevalueis$1,000andthecurrentmarketpriceis$1,062.50.Thebondmaturesin
11years.Whatistheyieldtomaturity?
A. 5.62percent
B. 6.22percent
C. 6.46percent
D. 6.71percent
E. 5.80percent
82.
NewHomeshasabondissuewithacouponrateof5.5percentthatmaturesin8.5years.Thebondshaveaparvalueof$1,000andamarket
priceof$972.Interestispaidsemiannually.Whatistheyieldtomaturity?
A. 6.36percent
B. 6.42percent
C. 5.61percent
D. 5.74percent
E. 5.92percent
83.
OilWellsoffers6.5percentcouponbondswithsemiannualpaymentsandayieldtomaturityof6.94percent.Thebondsmatureinseven
years.Whatisthemarketpriceperbondifthefacevalueis$1,000?
A. $989.70
B. $975.93
C. $996.48
D. $902.60
E. $913.48
84.
RoadsideMarketshasa6.75percentcouponbondoutstandingthatmaturesin10.5years.Thebondpaysinterestsemiannually.Whatisthe
marketpriceperbondifthefacevalueis$1,000andtheyieldtomaturityis7.2percent?
A. $899.80
B. $899.85
C. $903.42
D. $967.24
E. $1,007.52
85.
LuxuryPropertiesoffersbondwithacouponrateof9.5percentpaidsemiannually.Theyieldtomaturityis11.2percentandthematurity
dateis11yearsfromtoday.Whatisthemarketpriceofthisbondifthefacevalueis$1,000?
A. $893.99
B. $896.67
C. $941.20
D. $946.18
E. $953.30
86.
RedesignedComputershas6.5percentcouponbondsoutstandingwithacurrentmarketpriceof$742.Theyieldtomaturityis13.2percent
andthefacevalueis$1,000.Interestispaidannually.Howmanyyearsisituntilthesebondsmature?
A. 5.73years
B. 4.19years
C. 7.41years
D. 6.16years
E. 8.32years
87.
WorldTravelhas7percent,semiannual,couponbondsoutstandingwithacurrentmarketpriceof$1,023.46,aparvalueof$1,000,anda
yieldtomaturityof6.72percent.Howmanyyearsisituntilthesebondsmature?
A. 12.26years
B. 12.53years
C. 18.49years
D. 24.37years
E. 25.05years
88.
Youarepurchasinga20year,zerocouponbond.Theyieldtomaturityis8.68percentandthefacevalueis$1,000.Whatisthecurrent
marketprice?
A. $106.67
B. $108.18
C. $182.80
D. $221.50
E. $228.47
89.
Today,youwanttosella$1,000facevaluezerocouponbondyoucurrentlyown.Thebondmaturesin3.5years.Howmuchwillyou
receiveforyourbondifthemarketyieldtomaturityiscurrently6.19percent?Ignoreanyaccruedinterest.
A. $896.60
B. $798.09
C. $741.08
D. $756.14
E. $807.86
90.
ThezerocouponbondsofJKIndustrieshaveamarketpriceof$211.16,afacevalueof$1,000,andayieldtomaturityof7.39percent.How
manyyearsisituntilthesebondsmature?
A. 23.92years
B. 22.28years
C. 21.43years
D. 44.01years
E. 46.59years
91.
A13year,6percentcouponbondpaysinterestsemiannually.Thebondhasafacevalueof$1,000.Whatisthepercentagechangeinthe
priceofthisbondifthemarketyieldtomaturityrisesto5.7percentfromthecurrentrateof5.5percent?
A. 1.79percentdecrease
B. 1.percentdecrease
C. 1.6percentdecrease
D. 1.97percentincrease
E. 1.79percentincrease
92.
TheCornerGrocerhasa7year,6.5percentsemiannualcouponbondoutstandingwitha$1,000parvalue.Thebondhasayieldtomaturity
of5.5percent.Whichoneofthefollowingstatementsiscorrectifthemarketyieldsuddenlyincreasesto7percent?
A. Thebondpricewillincreaseby1.14percent.
B. Thebondpricewillincreaseby2.29percent.
C. Thebondpricewilldecreaseby1.74percent.
D. Thebondpricewilldecreaseby1.92percent.
E. Thebondpricewilldecreaseby2.36percent.
93.
DoWellbondshaveafacevalueof$1,000andarecurrentlyquotedat86.725.Thebondshavea7percentcouponrate.Whatisthecurrent
yieldonthesebonds?
A. 7.42percent
B. 7.67percent
C. 8.07percent
D. 9.03percent
E. 8.47percent
94.
The$1,000parvaluebondsofUptownTourshaveacouponrateof6.5andacurrentpricequoteof101.23.Whatisthecurrentyield?
A. 6.60percent
B. 6.37percent
C. 6.42percent
D. 6.49percent
E. 6.58percent
95.
The7percent,semiannualcouponbondsofferedbyHouseRenovatorsarecallableintwoyearsat$1,054.Whatistheamountofthecall
premiumona$1,000parvaluebond?
A. $52
B. $54
C. $72
D. $84
E. $89
96.
Acorporatebondwasquotedyesterdayat102.16whiletoday'squoteis102.19.Whatisthechangeinthevalueofabondthathasaface
valueof$5,000?
A. $0.30
B. $1.50
C. $3.00
D. $15.00
E. $30.00
97.
A10year,4.5percent,semiannualcouponbondissuedbyTylerRentalshasa$1,000facevalue.Thebondiscurrentlyquotedat98.7.What
isthecleanpriceofthisbondifthenextinterestpaymentwilloccur2monthsfromtoday?
A. $987.00
B. $994.50
C. $1,002.00
D. $1,011.25
E. $1,022.50
98.
ATreasurybondisquotedatapriceof105.4620.Whatisthemarketpriceofthisbondifthefacevalueis$5,000?
A. $5,005.46
B. $5,105.46
C. $5,273.10
D. $5,264.44
E. $5,215.00
99.
ATreasurybondisquotedatapriceof101.6533withacurrentyieldof6.276percent.Whatisthecouponrateona$10,000bond?
A. 7.20percent
B. 6.48percent
C. 6.41percent
D. 6.38percent
E. 6.27percent
100.
Acorporatebondisquotedatapriceof98.96andhasacouponrateof4.8percent,paidsemiannually.Whatisthecurrentyield?
A. 4.24percent
B. 4.85percent
C. 5.36percent
D. 5.62percent
E. 4.66percent
101.
A3.25percentTreasurybondisquotedatapriceof101.16.Thebondpaysinterestsemiannually.Whatisthecurrentyield?
A. 3.06percent
B. 3.17percent
C. 3.21percent
D. 3.33percent
E. 3.38percent
102.
ATreasurybondisquotedas99.6325askedand99.1250bid.Whatisthebidaskspreadindollarsona$5,000facevaluebond?
A. $.508
B. $.675
C. $17.500
D. $25.375
E. $16.250
103.
Thesemiannual,8yearbondsofAltoMusicaresellingatparandhaveaneffectiveannualyieldof8.6285percent.Whatistheamountof
eachinterestpaymentifthefacevalueofthebondsis$1,000?
A. $41.50
B. $42.25
C. $43.15
D. $85.00
E. $86.29
104.
Abondthatpaysinterestannuallyyielded6.48percentlastyear.Theinflationrateforthesameperiodwas2.5percent.Whatwastheactual
realrateofreturn?
A. 4.19percent
B. 4.25percent
C. 3.88percent
D. 3.41percent
E. 3.49percent
105.
Abondhasayieldtomaturityof11.68percent.Iftheinflationrateis3.2percent,whatistherealrateofreturnonthebond?
A. 8.86percent
B. 15.90percent
C. 15.04percent
D. 8.22percent
E. 9.19percent
106.
TheoutstandingbondsofWinterTiresInc.providearealrateofreturnof5.6percent.Ifthecurrentrateofinflationis4.68percent,whatis
theactualnominalrateofreturnonthesebonds?
A. 8.58percent
B. 9.33percent
C. 9.71percent
D. 9.76percent
E. 10.54percent
107.
Theyieldtomaturityonabondiscurrently9.84percent.Therealrateofreturnis3.29percent.Whatistherateofinflation?
A. 6.34percent
B. 5.64percent
C. 6.24percent
D. 6.53percent
E. 6.71percent
108.
Anewlyissued20year,$1,000,zerocouponbondjustsoldfor$311.05.Whatistheimplicitinterest,indollars,forthefirstyearofthe
bond'slife?
A. $17.72
B. $18.70
C. $18.47
D. $17.63
E. $17.89
109.
GlobalExporterswantstoraise$29.6milliontoexpanditsbusiness.Toaccomplishthis,itplanstosell20year,$1,000facevalue,zero
couponbonds.Thebondswillbepricedtoyield7.75percent.Whatistheminimumnumberofbondsitmustselltoraisethemoneyit
needs?
A.
110,411
B.
139,800
C.
154,907
D.
126,029
E. 135,436
110.
Youwillreceive$5,000ayearinrealtermsforthenext5years.Eachpaymentwillbereceivedattheendoftheperiodwiththefirst
paymentoccurringoneyearfromtoday.Therelevantnominaldiscountrateis10.725percentandtheinflationrateis3percent.Whatare
yourwinningsworthtodayinrealdollars?
A. $20,229
B. $17,367
C. $17,401
D. $21,500
E. $17,838
111.
Youpurchasedaninvestmentthatwillpayyou$8,000,inrealdollars,ayearforthenextthreeyears.Eachpaymentwillbereceivedatthe
endoftheperiodwiththefirstpaymentoccurringoneyearfromtoday.Thenominaldiscountrateis9.897percentandtheinflationrateis
2.9percent.Whatisthepresentvalueofthesepaymentsinrealdollars?
A. $21,720
B. $21,072
C. $22,511
D. $25,112
E. $23,529
112.
A$1,000facevaluebondhasacouponrateof7percent,amarketpriceof$911.02,and10yearslefttomaturity.Interestispaid
semiannually.Iftheinflationrateis2.8percent,whatistheyieldtomaturitywhenexpressedinrealterms?
A. 5.50percent
B. 4.68percent
C. 4.92percent
D. 5.38percent
E. 5.68percent
113.
KaiserIndustrieshasbondsonthemarketmakingannualpayments,with14yearstomaturity,aparvalueof$1,000,andsellingfor
$1,382.01.Atthisprice,thebondsyield7.5percent.Whatisthecouponrate?
A. 8.00percent
B. 8.50percent
C. 9.00percent
D. 10.50percent
E. 12.00percent
114.
DexterMillsissued20yearbondsayearagoatacouponrateof10.2percent.Thebondsmakesemiannualpaymentsandhaveaparvalue
of$1,000.IftheYTMonthesebondsis9.2percent,whatisthecurrentbondprice?
A. $985.55
B. $991.90
C. $1,042.16
D. $1,089.02
E. $1,098.00
115.
BareTreesUnitedissued15yearbonds2yearsagoatacouponrateof8.5percent.Thebondsmakesemiannualpayments.Ifthesebonds
currentlysellfor98.6percentofparvalue,whatistheYTM?
A. 8.98percent
B. 8.68percent
C. 9.13percent
D. 9.27percent
E. 8.42percent
116.
Wheelershasbondsonthemarketwith13yearstomaturity,aYTMof7.6percent,andacurrentpriceof$901.98.Thebondsmake
semiannualpaymentsandhaveafacevalueof$1,000.Whatisthecouponrate?
A. 6.40percent
B. 6.33percent
C. 6.60percent
D. 6.67percent
E. 6.50percent
117.
Supposetherealrateis2.45percentandtheinflationrateis1.8percent.WhatratewouldyouexpecttoseeonaTreasurybill?
A. 3.35percent
B. 3.30percent
C. 4.29percent
D. 3.56percent
E. 4.60percent
118.
Aninvestmentoffersatotalreturnof12.4percentoverthecomingyear.Youbelievethetotalrealreturnwillbeonly9.7percent.Whatdo
youbelievetheexactinflationratewillbeforthenextyear?
A. 2.52percent
B. 2.67percent
C. 2.46percent
D. 2.70percent
E. 2.58percent
119.
Abondhasacouponrateof8percent,7yearstomaturity,semiannualinterestpayments,andaYTMof7percent.Ifinterestratessuddenly
riseby2percent,whatwillbethepercentagechangeinthebondprice?
A. 10.16percent
B. 9.87percent
C. 9.56percent
D. 10.02percent
E. 10.67percent
120.
SunsetSaleshas7.2percentcouponbondsonthemarketwith11yearslefttomaturity.Thebondsmakesemiannualpaymentsandcurrently
sellfor98.6percentofpar.Whatistheeffectiveannualyield?
A. 7.34percent
B. 7.39percent
C. 7.93percent
D. 7.52percent
E. 7.47percent
121.
BonnerMetalswantstoissuenew20yearbondsforsomemuchneededexpansionprojects.Thecompanycurrentlyhas8.5percentbonds
onthemarketthatsellfor$959,makesemiannualpayments,andmaturein16years.Whatshouldthecouponratebeonthenewbondsifthe
firmwantstosellthematpar?
A. 8.75percent
B. 9.23percent
C. 8.41percent
D. 8.99percent
E. 8.67percent
122.
Youpurchaseabondwithaninvoicepriceof$1,319.Thebondhasacouponrateof6.25percent,afacevalueof$1,000,andtherearetwo
monthstothenextsemiannualcoupondate.Whatisthecleanpriceofthisbond?
A. $1,298.17
B. $1,352.17
C. $1,314.14
D. $1,408.12
E. $1,283.50
123.
Youwanttohave$2millioninrealdollarsinanaccountwhenyouretirein43years.Thenominalreturnonyourinvestmentis9.939
percentandtheinflationrateis3.2percent.Whatistherealamountyoumustdepositeachyeartoachieveyourgoal?
A. $10,403
B. $10,878
C. $9,210
D. $8,887
E. $9,711
124.
Theyieldtomaturityonabondistheinterestrateyouearnonyourinvestmentifinterestratesdonotchange.Ifyouactuallysellthebond
beforeitmatures,yourrealizedreturnisknownastheholdingperiodyield.Supposethattodayyoubuya9percentannualcouponbondfor
$1,000.Thebondhas12yearstomaturity.Threeyearsfromnow,theyieldtomaturityhasdeclinedto7percentandyoudecidetosell.
Whatisyourholdingperiodyield?
A. 8.84percent
B. 9.49percent
C. 10.96percent
D. 13.01percent
E. 12.83percent
1.
Chapter07InterestRatesAndBondValuationKey
Allisonjustreceivedhersemiannualpaymentof$35onabondsheowns.Whichtermreferstothispayment?
A. Coupon.
B. Facevalue.
C. Discount.
D. Callpremium.
E. Yield.
2.
AACSB:Analytic
Accessibility:KeyboardNavigation
Blooms:Remember
Difficulty:Basic
LearningObjective:0701Importantbondfeaturesandtypesofbonds.
Section:7.1BondsandBondValuation
Topic:Bondtypes
Bertownsabondthatwillpayhim$75eachyearininterestplusa$1,000principalpaymentatmaturity.Whatisthe$1,000called?
A. Coupon.
B. Facevalue.
C. Discount.
D. Yield.
E. Dirtyprice.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Topic:Bondtypes
3.
Abond'scouponrateisequaltotheannualinterestdividedbywhichoneofthefollowing?
A. Callprice.
B. Currentprice.
C. Facevalue.
D. Cleanprice.
E. Dirtyprice.
4.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Topic:Bondcoupons
Thebondprincipalisrepaidonwhichoneofthesedates?
A. Coupondate.
B. Yielddate.
C. Maturitydate.
D. Dirtydate.
E. Cleandate.
5.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Topic:Bondtypes
Thebondmarketrequiresareturnof9.8percentonthefiveyearbondsissuedbyJWIndustries.The9.8percentisreferredtoaswhich
oneofthefollowing?
A. Couponrate.
B. Facerate.
C. Callrate.
D. Yieldtomaturity.
E. Currentyield.
6.
Thecurrentyieldisdefinedastheannualinterestonabonddividedbywhichoneofthefollowing?
A. Couponrate.
B. Facevalue.
C. Marketprice.
D. Callprice.
E. Parvalue.
7.
Whichoneoftheseismostapttobeincludedinabondsindentureoneyearafterthebondhasbeenissued?
A. Currentyield.
B. Writtenrecordofallthecurrentbondholders..
C. Listofcollateralusedasbondsecurity.
D. Currentmarketprice.
E. Priceatwhichabondholdercanresellthebondtoanotherbondholder
8.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Section:7.2MoreaboutBondFeatures
Topic:Indentureprovisions
RoadHazardshas12yearbondsoutstanding.Theinterestpaymentsonthesebondsaresentdirectlytoeachoftheindividual
bondholders.Thesedirectpaymentsareaclearindicationthatthebondscanaccuratelybedefinedasbeingissued:
A. Atpar.
B. Inregisteredform.
C. Instreetform.
D. Asdebentures.
E. Ascallablebonds.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Topic:Bondtypes
9.
Abondthatispayabletowhomeverhasphysicalpossessionofthebondissaidtobein:
A. Newissuecondition.
B. Registeredform.
C. Bearerform.
D. Debenturestatus.
E. Collateralstatus.
10.
JasonsPaintsjustissued20year,7.25percent,unsecuredbondsatpar.Thesebondsfitthedefinitionofwhichoneofthefollowing
terms?
A. Note.
B. Discounted.
C. Zerocoupon.
D. Callable.
E. Debenture.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Topic:Bondtypes
11.
Anoteisgenerallydefinedas:
A. Asecuredbondwithaninitialmaturityof10yearsormore.
B. Asecuredbondthatinitiallymaturesinlessthan10years.
C. Anybondsecuredbyablanketmortgage.
D. Anunsecuredbondwithaninitialmaturityof10yearsorless.
E. Anybondmaturingin10yearsormore.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Topic:Bondtypes
12.
Asinkingfundismanagedbyatrusteeforwhichoneofthefollowingpurposes?
A. Payingbondinterestpayments.
B. Earlybondredemption.
C. Convertingbondsintoequitysecurities.
D. Payingpreferreddividends..
E. Reducingbondcouponrates.
13.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Abondthatcanbepaidoffearlyattheissuer'sdiscretionisreferredtoasbeingwhichtypeofbond?
A. Parvalue.
B. Callable.
C.
Senior.
D. Subordinated.
E. Unsecured.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
14.
A$1,000facevaluebondcanberedeemedearlyattheissuer'sdiscretionfor$1,030,plusanyaccruedinterest.Theadditional$30is
calledthe:
A. Dirtyprice.
B. Redemptionvalue.
C. Callpremium.
D. Originalissuediscount.
E. Redemptiondiscount.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
15.
Adeferredcallprovisioniswhichoneofthefollowing?
A. Requirementthatabondissuerpaythecurrentmarketprice,plusaccruedinterest,shouldthefirmdecidetocallabond.
B. Abilityofabondissuertodelayrepayingabonduntilafterthematuritydateshouldtheissuersoopt.
C. Prohibitionplacedonanissuerwhichpreventsthatissuerfromeverredeemingbondspriortomaturity.
D. Prohibitionwhichpreventsbondissuersfromredeemingcallablebondspriortoaspecifieddate.
E. Requirementthatabondissuerpayacallpremiumthatisequaltoorgreaterthanoneyear'scouponshouldthatissuerdecidetocall
abond.
16.
Acallprotectedbondisabondthat:
A. Isguaranteedtobecalled.
B. Canneverbecalled.
C. Iscurrentlybeingcalled.
D. Iscallableatanytime.
E. Cannotbecalledatthispointintime.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
17.
Theitemsincludedinanindenturethatlimitcertainactionsoftheissuerinordertoprotectabondholder'sinterestsarereferredtoasthe:
A. Trusteerelationships.
B. Bylaws.
C. Legalbounds.
D. Trustdeed.
E. Protectivecovenants.
18.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Abondthathasonlyonepayment,whichoccursatmaturity,defineswhichoneofthesetypesofbonds?
A. Debenture.
B. Callable.
C. Floatingrate.
D. Junk.
E. Zerocoupon.
19.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Section:7.4SomeDifferentTypesofBonds
Topic:Bondtypes
Whichoneofthefollowingisthepriceatwhichadealerwillsellabond?
A. Callprice
B. Askedprice
C. Bidprice
D. Bidaskspread
E. Parvalue
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
LearningObjective:0702Bondvaluesandyieldsandwhytheyfluctuate.
Section:7.5BondMarkets
Topic:Bondquotesandtraining
20.
Ifyousella6percentbondtoadealerwhenthemarketrateis7percent,whichoneofthefollowingpriceswillyoureceive?
A. Callprice.
B. Parvalue.
C. Bidprice.
D. Askedprice.
E. Bidaskspread.
21.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Thedifferencebetweenthepricethatadealeriswillingtopayandthepriceatwhichheorshewillselliscalledthe:
A. Equilibrium.
B. Premium.
C. Discount.
D.
Callprice.
E. Spread.
22.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Abondisquotedatapriceof$1,011.Thispriceisreferredtoasthe:
A. Callprice.
B. Facevalue.
C. Cleanprice.
D. Dirtyprice.
E. Maturityprice.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
23.
Rositapaidatotalof$1,189topurchaseabondthathas7ofitsinitial20yearsleftuntilmaturity.Thispriceisreferredtoasthe:
A. Quotedprice.
B. Spreadprice.
C. Cleanprice.
D. Dirtyprice.
E. Callprice.
24.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Realratesaredefinedasnominalratesthathavebeenadjustedforwhichofthefollowing?
A. Inflation.
B. Defaultrisk.
C. Accruedinterest.
D. Interestraterisk.
E. Bothinflationandinterestraterisk.
25.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
LearningObjective:0704Theimpactofinflationoninterestrates.
Section:7.6InflationandInterestRates
Topic:Nominalandrealrates
Interestratesthatincludeaninflationpremiumarereferredtoas:
A. Annualpercentagerates.
B. Strippedrates.
C. Effectiveannualrates.
D. Realrates.
E. Nominalrates.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
26.
TheFishereffectisdefinedastherelationshipbetweenwhichofthefollowingvariables?
A. Defaultriskpremium,inflationriskpremium,andrealrates
B. Nominalrates,realrates,andinterestrateriskpremium
C. Interestrateriskpremium,realrates,anddefaultriskpremium
D. Realrates,inflationrates,andnominalrates
E. Realrates,interestrateriskpremium,andnominalrates
27.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Topic:Fishereffect
Thepuretimevalueofmoneyisknownasthe:
A. Liquidityeffect.
B. Fishereffect.
C. Termstructureofinterestrates.
D. Inflationfactor.
E. Interestratefactor.
28.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
LearningObjective:0705Thetermstructureofinterestratesandthedeterminantsofbondyields.
Section:7.7DeterminantsofBondYields
Topic:Termstructureofinterestrates
Whichoneofthefollowingpremiumsiscompensationforthepossibilitythatabondissuermaynotpayabondsinterestorprincipal
paymentsasexpected?
A. Defaultrisk.
B. Taxability.
C. Liquidity.
D. Inflation.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Topic:Bondyieldsandreturns
29.
Theinterestrateriskpremiumisthe:
A. Additionalcompensationpaidtoinvestorstooffsetrisingprices.
B. Compensationinvestorsdemandforacceptinginterestraterisk.
C. Differencebetweentheyieldtomaturityandthecurrentyield.
D. Differencebetweenthemarketinterestrateandthecouponrate.
E. Differencebetweenthecouponrateandthecurrentyield.
30.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
ATreasuryyieldcurveplotsTreasuryinterestratesrelativetowhichoneofthefollowing?
A. Marketrates.
B. Comparablecorporatebondrates.
C. Theriskfreerate.
D. Inflation.
E. Maturity.
31.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Topic:Treasuryyieldcurve
Whichoneofthefollowingriskpremiumscompensatesfortheinabilitytoeasilyresellabondpriortomaturity?
A. Defaultrisk.
B.
Taxability.
C. Liquidity.
D. Inflation.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
32.
Thetaxabilityriskpremiumcompensatesbondholdersforwhichoneofthefollowing?
A. Yielddecreasesinresponsetomarketchanges.
B. Lackofcouponpayments.
C. Possibilityofdefault.
D. Abond'sunfavorabletaxstatus.
E. Decreaseinamunicipality'screditrating.
33.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Whichbondwouldyougenerallyexpecttohavethehighestyield?
A. RiskfreeTreasurybond
B. Nontaxable,highlyliquidbond
C. Longterm,highquality,taxfreebond
D. Shortterm,inflationadjustedbond
E. Longterm,taxablejunkbond
34.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Acorporatebondwitha6percentcouponwasissuedlastyear.Whichoneofthesewouldapplytothisbondtodayifthecurrentyieldto
maturityis7percent?
A. Thebondiscurrentlysellingatapremium.
B. Thecurrentyieldexceedsthecouponrate.
C. Thebondissellingatparvalue.
D. Thecurrentyieldexceedstheyieldtomaturity.
E. Thecouponratehasincreasedto7percent.
AACSB:Analytic
Blooms:Understand
Difficulty:Basic
35.
Abondhasamarketpricethatexceedsitsfacevalue.Whichoneofthesefeaturescurrentlyappliestothisbond?
A. Discountbond.
B. Yieldtomaturityequaltothecurrentyield.
C. Currentlysellingatpar.
D. Currentyieldgreaterthancouponrate.
E. Yieldtomaturitylessthanthecouponrate.
36.
AACSB:Analytic
Blooms:Understand
Difficulty:Basic
Allelseconstant,abondwillsellat_____whenthecouponrateis_____theyieldtomaturity.
A. apremium;lessthan
B. apremium;equalto
C. adiscount;lessthan
D. adiscount;higherthan
E. par;lessthan
37.
AACSB:Analytic
Blooms:Understand
Difficulty:Basic
DLQInc.bondsmaturein12yearsandhaveacouponrateof6percent.Ifthemarketrateofinterestincreases,thenthe:
A. Couponratewillalsoincrease.
B. Currentyieldwilldecrease.
C. Yieldtomaturitywillbelessthanthecouponrate.
D. Marketpriceofthebondwilldecrease.
E. Couponpaymentwillincrease.
AACSB:Analytic
Blooms:Understand
Difficulty:Intermediate
Topic:Interestraterisk
38.
Whichoneofthefollowingappliestoapremiumbond?
A.
Yieldtomaturity>currentyield>couponrate.
B. Couponrate=currentyield=yieldtomaturity.
C. Couponrate>yieldtomaturity>currentyield.
39.
AACSB:Analytic
Blooms:Understand
Whichoneofthefollowingrelationshipsappliestoaparvaluebond?
A. Yieldtomaturity>currentyield>couponrate.
B. Couponrate>yieldtomaturity>currentyield.
C. Couponrate=currentyield=yieldtomaturity.
40.
AACSB:Analytic
Blooms:Understand
Whichoneofthefollowingrelationshipsisstatedcorrectly?
A. Thecouponrateexceedsthecurrentyieldwhenabondsellsatadiscount.
B. Thecallpricemustequaltheparvalue.
C. Anincreaseinmarketratesincreasesthemarketpriceofabond.
D. Decreasingthetimetomaturityincreasesthepriceofadiscountbond,allelseconstant.
E. Increasingthecouponratedecreasesthecurrentyield,allelseconstant.
AACSB:Analytic
Blooms:Understand
Topic:Timetomaturity
41.
RoundDotInnsispreparingabondofferingwithacouponrateof6percent,paidsemiannually,andafacevalueof$1,000.Thebonds
willmaturein10yearsandwillbesoldatpar.Giventhis,whichoneofthefollowingstatementsiscorrect?
A. Thebondswillbecomediscountbondsifthemarketrateofinterestdeclines.
B. Thebondswillpay10interestpaymentsof$60each.
C. Thebondswillsellatapremiumifthemarketrateis5.5percent.
D. Thebondswillinitiallysellfor$1,030each.
E. Thefinalpaymentwillbeintheamountof$1,060.
AACSB:Analytic
Blooms:Understand
42.
Anewlyissuedbondhasa7percentcouponwithsemiannualinterestpayments.Thebondsarecurrentlypricedatpar.Theeffective
annualrateprovidedbythesebondsmustbe:
A. 3.5percent.
B. Greaterthan3.5percentbutlessthan7percent.
C. 7percent.
D. Greaterthan7percent.
E. Lessthan3.5percent.
AACSB:Analytic
Blooms:Understand
Difficulty:Basic
Topic:Interestrates
43.
Thepricesensitivityofabondincreasesinresponsetoachangeinthemarketrateofinterestasthe:
A.
Couponrateincreases.
B. Timetomaturitydecreases.
C. Couponratedecreasesandthetimetomaturityincreases.
D. Timetomaturityandcouponratebothdecrease.
E. Couponrateandtimetomaturitybothincrease.
44.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Whichoneofthefollowingbondsistheleastsensitivetointerestraterisk?
A. 3year;4percentcoupon.
B. 3year;6percentcoupon.
C. 5year;6percentcoupon.
D. 7year;6percentcoupon.
E. 7year;4percentcoupon.
45.
AACSB:Analytic
Blooms:Understand
Difficulty:Basic
Asabond'stimetomaturityincreases,thebond'ssensitivitytointerestraterisk:
A. Increasesatanincreasingrate.
B. Increasesatadecreasingrate.
C. Increasesataconstantrate.
D. Decreasesatanincreasingrate.
E. Decreasesatadecreasingrate.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
46.
Youownabondthathasa6percentannualcouponandmaturesfiveyearsfromnow.Youpurchasedthis10yearbondatparvalue
whenitwasoriginallyissued.Whichoneofthefollowingstatementsappliestothisbondiftherelevantmarketinterestrateisnow5.8
percent?
A. Thecurrentyieldtomaturityisgreaterthan6percent.
B. Thecurrentyieldis6percent.
C. Thenextinterestpaymentwillbe$30.
D. Thebondiscurrentlyvaluedatonehalfofitsissueprice.
E. Youwillrealizeacapitalgainonthebondifyousellittoday.
47.
AACSB:Analytic
Blooms:Understand
Youexpectinterestratestodeclineinthenearfutureeventhoughthebondmarketisnotindicatinganysignofthischange.Whichone
ofthefollowingbondsshouldyoupurchasenowtomaximizeyourgainsiftheratedeclinedoesoccur?
A. Shortterm;lowcoupon.
B. Shortterm;highcoupon.
C. Longterm;zerocoupon.
D. Longterm;lowcoupon.
E. Longterm;highcoupon.
AACSB:Analytic
Blooms:Understand
Difficulty:Basic
48.
Apremiumbondthatpays$60ininterestannuallymaturesinsevenyears.Thebondwasoriginallyissuedthreeyearsagoatpar.Which
oneofthefollowingstatementsisaccurateinrespecttothisbondtoday?
A. Thefacevalueofthebondtodayisgreaterthanitwaswhenthebondwasissued.
B. Thebondisworthlesstodaythanwhenitwasissued.
C. Theyieldtomaturityislessthanthecouponrate.
D. Thecouponrateisgreaterthanthecurrentyield.
E. Theyieldtomaturityequalsthecurrentyield.
AACSB:Analytic
Blooms:Analyze
49.
Whichoneofthesestatementsiscorrect?
A.
Mostlongtermbondissuesarereferredtoasunfundeddebt.
B. Bondsprovidetaxbenefitstoissuers.
C. Theriskofafirmfinanciallyfailingdecreaseswhenafirmissuesbonds.
D. Allbondsaretreatedequallyinabankruptcyproceeding.
E. Adebentureisaseniorsecureddebt.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Topic:Bondfeatures
50.
HotFoodshasaninvestmentgradebondissueoutstandingthatpays$30semiannualinterestpayments.Thebondssellatparandare
callableatapriceequaltothepresentvalueofallfutureinterestandprincipalpaymentsdiscountedatarateequaltothecomparable
Treasuryrateplus.50percent.Whichoneofthefollowingcorrectlydescribesthisbond?
A.
ThebondratingisB.
B. Marketvalueislessthanfacevalue.
C. Thecouponrateis3percent.
D. Ithasa"makewhole"callprice.
E. VariableInterestpaymentsarevariable.
51.
Lastyear,LexingtonHomesissued$1millioninunsecured,noncallabledebt.Thisdebtpaysanannualinterestpaymentof$55and
maturessixyearsfromnow.Thefacevalueis$1,000andthemarketpriceis$1,020.Whichoneofthesetermscorrectlydescribesa
featureofthisdebt?
A. Semiannualcoupon.
B. Discountbond.
C. Note.
D. Trustdeed.
E. Collateralized.
52.
Callablebondsgenerally:
A. Grantthebondholdertheoptiontocallthebondanytimeafterthedefermentperiod.
B. Arecallableatparassoonasthecallprotectionperiodends.
C. Arecalledwhenmarketinterestratesincrease.
D. Arecalledwithinthefirstthreeyearsafterissuance.
E. Haveasinkingfundprovision.
53.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Topic:Bondfeatures
Whichoneoftheseisanegativecovenantthatmightbefoundinabondindenture?
A.
Thecompanyshallmaintainacurrentratioof1.1orhigher.
B. Thecompanycannotleaseanymajorassetswithoutbondholderapproval.
C. Thecompanymustmaintaintheloancollateralingoodworkingorder.
D. Thecompanyshallprovideauditedfinancialstatementsinatimelymanner.
E. Thecompanyshallmaintainacashsurplusof$100,000atalltimes.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
54.
Protectivecovenants:
A. Applytoshorttermdebtissuesbutnottolongtermdebtissues.
B. Onlyapplytoprivatelyissuedbonds.
C. Areafeaturefoundonlyingovernmentissuedbondindentures.
D. Onlyapplytobondsthathaveadeferredcallprovision.
E. Areprimarilydesignedtoprotectbondholders.
55.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Whichoneofthefollowingstatementsconcerningbondratingsiscorrect?
A. InvestmentgradebondsareratedBBorhigherbyStandardamp;Poor's.
B. Bondratingsassessbothinterestrateriskanddefaultrisk.
C. Splitratedbondsarecalledcrossoverbonds.
D. ThehighestratingissuedbyMoody'sisAAA.
E. A"fallenangel"isatermappliedtoall"junk"bonds.
56.
AACSB:Analytic
Blooms:Remember
LearningObjective:0703Bondratingsandwhattheymean.
Section:7.3BondRatings
Topic:Bondratingsandcreditrisk
A"fallenangel"isabondthathasmovedfrom:
A. Beingpubliclytradedtobeingprivatelytraded.
B. Beingalongtermobligationtobeingashorttermobligation.
C. Beingapremiumbondtobeingadiscountbond.
D. Seniorstatustojuniorstatusforliquidationpurposes.
E. Investmentgradetospeculativegrade.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
57.
BondsissuedbytheU.S.government:
A. Areconsideredtobefreeofinterestraterisk.
B. Generallyhavehighercouponsthancomparablebondsissuedbyacorporation.
C. Areconsideredtobefreeofdefaultrisk.
D. Payinterestthatisexemptfromfederalincometaxes.
E. Arecalled"munis."
58.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Topic:Bondtypes
Treasurybondsare:
A. IssuedbyanygovernmentalagencyintheU.S.
B. IssuedonlyonthefirstdayofeachfiscalyearbytheU.S.DepartmentofTreasury.
C. Bondsthatofferthebesttaxbenefitsofanybondscurrentlyavailable.
D. Generallyissuedassemiannualcouponbonds.
E. Totallyriskfree.
59.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Topic:Bondtypes
Municipalbonds:
A. Aretotallyriskfree.
B. Generallyhavehighercouponratesthancorporatebonds.
C. Payinterestthatisfederallytaxfree.
D. Arerarelycallable.
E. Arefreeofdefaultrisk.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Topic:Bondtypes
60.
Thebreakeventaxratebetweenataxablecorporatebondyielding7percentandacomparablenontaxablemunicipalbondyielding5
percentcanbeexpressedas:
*
A. .05/(1t )=.07.
*
B. .05(1t )=.07.
*
C. .07+(1t )=.05.
D. .05(1t*)=.07.
E. .05(1+t*)=.07.
AACSB:Analytic
Blooms:Understand
Difficulty:Basic
61.
Azerocouponbond:
A. Issoldatalargepremium.
B. Paysinterestthatistaxdeductibletotheissueratthetimeofpayment.
C. CanonlybeissuedbytheU.S.Treasury.
D. Hasmoreinterestrateriskthanacomparablecouponbond.
E. Providesnotaxableincometothebondholderuntilthebondmatures.
AACSB:Analytic
Blooms:Understand
Topic:Bondtypes
62.
Whichoneofthefollowingriskswouldafloatingratebondtendtohavelessofascomparedtoafixedratecouponbond?
A. Realraterisk
B. Interestraterisk
C. Defaultrisk
D. Liquidityrisk
E. Taxabilityrisk
AACSB:Analytic
Blooms:Understand
Topic:Bondtypes
63.
Thecollarofafloatingratebondreferstotheminimumandmaximum:
A. Callperiods.
B. Maturitydates.
C. Marketprices.
D. Couponrates.
E. yieldstomaturity.
64.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Topic:Bondtypes
Lastyear,youpurchasedaTIPSatpar.Sincethattime,bothmarketinterestratesandtheinflationratehaveincreasedby.25percent.
Yourbondhasmostlikelydonewhichoneofthefollowingsincelastyear?
A. Decreasedinvalueduetothechangeininflationrates.
B. Experiencedanincreaseinitsbondrating.
C. Maintainedafixedrealrateofreturn.
D. Increasedinvalueinresponsetothechangeinmarketrates.
E. Increasedinvalueduetoadecreaseintimetomaturity.
AACSB:Analytic
Blooms:Analyze
Topic:Bondtypes
65.
Recently,youdiscoveredaconvertible,callablebondwitha5percentsemiannualcoupon.Ifyoupurchasethisbondyouwillhavethe
rightto:
A.
Forcetheissuertorepurchasethebondpriortomaturity.
B. Convertthebondintoequityshares.
C. Deferalltaxableincomeuntilthebondmatures.
D. Convertthebondintoa5percentperpetuity.
E. Havetheprincipalamountadjustedforinflation.
AACSB:Analytic
Blooms:Understand
Difficulty:Basic
Topic:Bondtypes
66.
Catbondsareprimarilydesignedtohelp:
A. Municipalitiessurviveeconomicrecessions.
B. Corporationsrespondtooverseascompetition.
C. Thefederalgovernmentcopewithhugedeficits.
D. Corporationsrecoverfrominvoluntaryreorganizations.
E. Insurancecompaniesfundexcessiveclaims.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Topic:Bondtypes
67.
Nadineisaretiredwidowwhoisfinanciallydependentupontheinterestincomeproducedbyherbondportfolio.Whichoneofthe
followingbondsistheleastsuitableforhertoown?
A. 6year,highcoupon,putbond.
B. 5yearTIPS.
C. 10yearAAAcouponbond.
D. 5yearfloatingratebond.
E. 7yearincomebond.
AACSB:Analytic
Blooms:Analyze
Topic:Bondtypes
68.
Alisretiredandhissolesourceofincomeishisbondportfolio.Althoughhehassufficientprincipaltoliveon,heonlywantstospend
theinterestincomeandthusisconcernedaboutthepurchasingpowerofthatincome.Whichoneofthefollowingbondsshouldbestease
Al'sconcerns?
A. 6yearcouponbonds
B. 5yearTIPS
C. 20yearcouponbonds220
D.
5yearmunicipalbonds
E. 7yearincomebonds
AACSB:Analytic
Blooms:Analyze
Topic:Bondtypes
69.
KurthasresearchedTTekandbelievesthefirmispoisedtovastlyincreaseinvalue.HehasdecidedtopurchaseTTekbondsashe
needsasteadystreamofincome.However,hestillwishesthathecouldshareinthefirm'ssuccessalongwiththeshareholders.Which
oneofthefollowingbondfeatureswillhelphimfulfillhiswish?
A. Putprovision.
B. Positivecovenant.
C. Warrant.
D. Crossoverrating.
E. Callprovision.
70.
U.S.Treasurybonds:
A.
Arehighlyilliquid.
B. Arequotedasapercentageofpar.
C. Arequotedatthedirtyprice.
D. Payinterestthatisfederallytaxexempt.
E. Mustbehelduntilmaturity.
71.
Asixyear,$1,000facevaluebondissuedbyTaylorToolspaysinterestsemiannuallyonFebruary1andAugust1.Assumetodayis
October1.Whatwillbethedifference,ifany,betweenthisbond'scleananddirtypricestoday?
A. Nodifference.
B. Onemonth'sinterest.
C. Twomonth'sinterest.
D. Fourmonth'sinterest.
E. Fivemonth'sinterest.
AACSB:Analytic
Blooms:Understand
Difficulty:Basic
Topic:Bondvaluation
72.
Today,June15,youwanttobuyabondwithaquotedpriceof98.64.ThebondpaysinterestonJanuary1andJuly1.Whichoneofthe
followingpricesrepresentsyourtotalcostofpurchasingthisbondtoday?
A. Cleanprice.
B. Dirtyprice.
C. Askedprice.
D. Quotedprice.
E. Bidprice.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Topic:Bondvaluation
73.
Whichoneofthefollowingratesrepresentsthechange,ifany,inyourpurchasingpowerasaresultofowningabond?
A. Riskfreerate.
B. Realizedrate.
C. Nominalrate.
D. Realrate.
E. Currentrate.
74.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Whichoneofthefollowingstatementsiscorrect?
A. Theriskfreeraterepresentsthechangeinpurchasingpower.
B. Anyreturngreaterthantheinflationraterepresentstheriskpremium.
C. Historicalrealratesofreturnmustbepositive.
D. Nominalratesexceedrealratesbytheamountoftheriskfreerate.
E. Therealratemustbelessthanthenominalrategivenapositiverateofinflation.
75.
AACSB:Analytic
Blooms:Understand
TheFishereffectprimarilyemphasizestheeffectsof_____onaninvestor'srateofreturn.
A. Default.
B. marketmovements.
C. Interestratechanges.
D. Inflation.
E. Thetimetomaturity.
AACSB:Analytic
Blooms:Remember
Difficulty:Basic
Topic:Fishereffect
76.
Youaretryingtocomparethepresentvaluesoftwoseparatestreamsofcashflowsthathaveequivalentrisks.Onestreamisexpressedin
nominalvaluesandtheotherstreamisexpressedinrealvalues.Youdecidetodiscountthenominalcashflowsusinganominalannual
rateof8percent.Whatrateshouldyouusetodiscounttherealcashflows?
A. 8percent.
B. EARof8percentcompoundedmonthly.
C. Comparableriskfreerate.
D. Comparablerealrate.
E. Nominalrateriskfreerate
77.
AACSB:Analytic
Blooms:Understand
Difficulty:Basic
Whichoneofthefollowingstatementsisfalseconcerningthetermstructureofinterestrates?
A.Expectationsoflowerinflationratesinthefuturetendtolowertheslopeofthetermstructureofinterestrates.
B. Thetermstructureofinterestratesincludesbothaninflationpremiumandaninterestrateriskpremium.
C. Thetermstructureofinterestratesandthetimetomaturityarealwaysdirectlyrelated.
D. Therealrateofreturnhasminimal,ifany,affectontheslopeofthetermstructureofinterestrates.
E. Theinterestrateriskpremiumincreasesasthetimetomaturityincreases.
AACSB:Analytic
Blooms:Understand
78.
TheyieldsonacorporatebonddifferfromthoseonacomparableTreasurysecurityprimarilybecauseof:
A. Interestrateriskandtaxes.
B. Taxesanddefaultrisk.
C. Defaultandinterestraterisks.
D. Liquidityandinflationraterisks.
E. Default,inflation,andinterestraterisks.
AACSB:Analytic
Blooms:Understand
Difficulty:Basic
79.
Sueisconsideringpurchasingabondthatwillonlyreturnitsprincipalatmaturityifthestockmarketdeclines.However,ifthestock
marketincreasesinvalueduringthebondterm,atmaturity,shewillreceiveboththebondprincipalandapercentageofthestockmarket
gain.Whattypeofbondisthis?
A. NoNobond.
B.
Putbond.
C.
Contingent,callablebond.
D. Structurednote.
E.
Sukuk.
80.
AACSB:Analytic
Blooms:Understand
Difficulty:Basic
Topic:Bondtypes
The7percentbondsissuedbyModernKitchenspayinterestsemiannually,matureineightyears,andhavea$1,000facevalue.
Currently,thebondssellfor$1,032.Whatistheyieldtomaturity?
A. 6.87percent
B. 6.92percent
C. 6.08percent
D. 6.48percent
E. 7.20percent
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
81.
Youownabondthatpays$64ininterestannually.Thefacevalueis$1,000andthecurrentmarketpriceis$1,062.50.Thebondmatures
in11years.Whatistheyieldtomaturity?
A. 5.62percent
B. 6.22percent
C. 6.46percent
D. 6.71percent
E. 5.80percent
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
82.
NewHomeshasabondissuewithacouponrateof5.5percentthatmaturesin8.5years.Thebondshaveaparvalueof$1,000anda
marketpriceof$972.Interestispaidsemiannually.Whatistheyieldtomaturity?
A. 6.36percent
B. 6.42percent
C. 5.61percent
D. 5.74percent
E. 5.92percent
83.
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
OilWellsoffers6.5percentcouponbondswithsemiannualpaymentsandayieldtomaturityof6.94percent.Thebondsmatureinseven
years.Whatisthemarketpriceperbondifthefacevalueis$1,000?
A. $989.70
B. $975.93
C. $996.48
D. $902.60
E. $913.48
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
Topic:Bondvaluation
84.
RoadsideMarketshasa6.75percentcouponbondoutstandingthatmaturesin10.5years.Thebondpaysinterestsemiannually.Whatis
themarketpriceperbondifthefacevalueis$1,000andtheyieldtomaturityis7.2percent?
A. $899.80
B. $899.85
C. $903.42
D. $967.24
E. $1,007.52
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
Topic:Bondvaluation
85.
LuxuryPropertiesoffersbondwithacouponrateof9.5percentpaidsemiannually.Theyieldtomaturityis11.2percentandthematurity
dateis11yearsfromtoday.Whatisthemarketpriceofthisbondifthefacevalueis$1,000?
A. $893.99
B. $896.67
C. $941.20
D. $946.18
E. $953.30
86.
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
Topic:Bondvaluation
RedesignedComputershas6.5percentcouponbondsoutstandingwithacurrentmarketpriceof$742.Theyieldtomaturityis13.2
percentandthefacevalueis$1,000.Interestispaidannually.Howmanyyearsisituntilthesebondsmature?
A. 5.73years
B. 4.19years
C. 7.41years
D. 6.16years
E. 8.32years
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
87.
WorldTravelhas7percent,semiannual,couponbondsoutstandingwithacurrentmarketpriceof$1,023.46,aparvalueof$1,000,and
ayieldtomaturityof6.72percent.Howmanyyearsisituntilthesebondsmature?
A. 12.26years
B. 12.53years
C. 18.49years
D. 24.37years
E. 25.05years
AACSB:Analytic
Blooms:Analyze
Difficulty:Basic
88.
Youarepurchasinga20year,zerocouponbond.Theyieldtomaturityis8.68percentandthefacevalueis$1,000.Whatisthecurrent
marketprice?
A. $106.67
B. $108.18
C. $182.80
D. $221.50
E. $228.47
89.
Today,youwanttosella$1,000facevaluezerocouponbondyoucurrentlyown.Thebondmaturesin3.5years.Howmuchwillyou
receiveforyourbondifthemarketyieldtomaturityiscurrently6.19percent?Ignoreanyaccruedinterest.
A. $896.60
B. $798.09
C. $741.08
D. $756.14
E. $807.86
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
Topic:Bondvaluation
90.
ThezerocouponbondsofJKIndustrieshaveamarketpriceof$211.16,afacevalueof$1,000,andayieldtomaturityof7.39percent.
Howmanyyearsisituntilthesebondsmature?
A. 23.92years
B. 22.28years
C. 21.43years
D. 44.01years
E. 46.59years
AACSB:Analytic
Blooms:Apply
91.
A13year,6percentcouponbondpaysinterestsemiannually.Thebondhasafacevalueof$1,000.Whatisthepercentagechangeinthe
priceofthisbondifthemarketyieldtomaturityrisesto5.7percentfromthecurrentrateof5.5percent?
A. 1.79percentdecrease
B. 1.percentdecrease
C. 1.6percentdecrease
D. 1.97percentincrease
E. 1.79percentincrease
92.
AACSB:Analytic
Blooms:Analyze
TheCornerGrocerhasa7year,6.5percentsemiannualcouponbondoutstandingwitha$1,000parvalue.Thebondhasayieldto
maturityof5.5percent.Whichoneofthefollowingstatementsiscorrectifthemarketyieldsuddenlyincreasesto7percent?
A. Thebondpricewillincreaseby1.14percent.
B. Thebondpricewillincreaseby2.29percent.
C. Thebondpricewilldecreaseby1.74percent.
D. Thebondpricewilldecreaseby1.92percent.
E. Thebondpricewilldecreaseby2.36percent.
AACSB:Analytic
Blooms:Analyze
93.
DoWellbondshaveafacevalueof$1,000andarecurrentlyquotedat86.725.Thebondshavea7percentcouponrate.Whatisthe
currentyieldonthesebonds?
A. 7.42percent
B. 7.67percent
C. 8.07percent
D. 9.03percent
E. 8.47percent
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
94.
The$1,000parvaluebondsofUptownTourshaveacouponrateof6.5andacurrentpricequoteof101.23.Whatisthecurrentyield?
A. 6.60percent
B. 6.37percent
C. 6.42percent
D. 6.49percent
E. 6.58percent
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
95.
The7percent,semiannualcouponbondsofferedbyHouseRenovatorsarecallableintwoyearsat$1,054.Whatistheamountofthecall
premiumona$1,000parvaluebond?
A. $52
B. $54
C. $72
D. $84
E. $89
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
Topic:Bondvaluation
96.
Acorporatebondwasquotedyesterdayat102.16whiletoday'squoteis102.19.Whatisthechangeinthevalueofabondthathasaface
valueof$5,000?
A. $0.30
B. $1.50
C. $3.00
D. $15.00
E. $30.00
97.
A10year,4.5percent,semiannualcouponbondissuedbyTylerRentalshasa$1,000facevalue.Thebondiscurrentlyquotedat98.7.
Whatisthecleanpriceofthisbondifthenextinterestpaymentwilloccur2monthsfromtoday?
A. $987.00
B. $994.50
C. $1,002.00
D. $1,011.25
E. $1,022.50
98.
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
ATreasurybondisquotedatapriceof105.4620.Whatisthemarketpriceofthisbondifthefacevalueis$5,000?
A. $5,005.46
B. $5,105.46
C. $5,273.10
D. $5,264.44
E. $5,215.00
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
99.
ATreasurybondisquotedatapriceof101.6533withacurrentyieldof6.276percent.Whatisthecouponrateona$10,000bond?
A. 7.20percent
B. 6.48percent
C. 6.41percent
D. 6.38percent
E. 6.27percent
100.
Acorporatebondisquotedatapriceof98.96andhasacouponrateof4.8percent,paidsemiannually.Whatisthecurrentyield?
A. 4.24percent
B. 4.85percent
C. 5.36percent
D. 5.62percent
E. 4.66percent
101.
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
A3.25percentTreasurybondisquotedatapriceof101.16.Thebondpaysinterestsemiannually.Whatisthecurrentyield?
A. 3.06percent
B. 3.17percent
C. 3.21percent
D. 3.33percent
E. 3.38percent
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
102.
ATreasurybondisquotedas99.6325askedand99.1250bid.Whatisthebidaskspreadindollarsona$5,000facevaluebond?
A. $.508
B. $.675
C. $17.500
D. $25.375
E. $16.250
103.
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
Thesemiannual,8yearbondsofAltoMusicaresellingatparandhaveaneffectiveannualyieldof8.6285percent.Whatistheamount
ofeachinterestpaymentifthefacevalueofthebondsis$1,000?
A. $41.50
B. $42.25
C. $43.15
D. $85.00
E. $86.29
AACSB:Analytic
Blooms:Analyze
104.
Abondthatpaysinterestannuallyyielded6.48percentlastyear.Theinflationrateforthesameperiodwas2.5percent.Whatwasthe
actualrealrateofreturn?
A. 4.19percent
B. 4.25percent
C. 3.88percent
D. 3.41percent
E. 3.49percent
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
Topic:Fishereffect
105.
Abondhasayieldtomaturityof11.68percent.Iftheinflationrateis3.2percent,whatistherealrateofreturnonthebond?
A. 8.86percent
B. 15.90percent
C. 15.04percent
D. 8.22percent
E. 9.19percent
106.
TheoutstandingbondsofWinterTiresInc.providearealrateofreturnof5.6percent.Ifthecurrentrateofinflationis4.68percent,
whatistheactualnominalrateofreturnonthesebonds?
A. 8.58percent
B. 9.33percent
C. 9.71percent
D. 9.76percent
E. 10.54percent
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
Topic:Fishereffect
107.
Theyieldtomaturityonabondiscurrently9.84percent.Therealrateofreturnis3.29percent.Whatistherateofinflation?
A. 6.34percent
B. 5.64percent
C. 6.24percent
D. 6.53percent
E. 6.71percent
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
Topic:Fishereffect
108.
Anewlyissued20year,$1,000,zerocouponbondjustsoldfor$311.05.Whatistheimplicitinterest,indollars,forthefirstyearofthe
bond'slife?
A. $17.72
B. $18.70
C. $18.47
D. $17.63
E. $17.89
AACSB:Analytic
Blooms:Apply
Topic:Accruedandimplicitinterest
109.
GlobalExporterswantstoraise$29.6milliontoexpanditsbusiness.Toaccomplishthis,itplanstosell20year,$1,000facevalue,zero
couponbonds.Thebondswillbepricedtoyield7.75percent.Whatistheminimumnumberofbondsitmustselltoraisethemoneyit
needs?
A.
110,411
B.
139,800
C.
154,907
D.
126,029
E. 135,436
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
Topic:Bondvaluation
110.
Youwillreceive$5,000ayearinrealtermsforthenext5years.Eachpaymentwillbereceivedattheendoftheperiodwiththefirst
paymentoccurringoneyearfromtoday.Therelevantnominaldiscountrateis10.725percentandtheinflationrateis3percent.Whatare
yourwinningsworthtodayinrealdollars?
A. $20,229
B. $17,367
C. $17,401
D. $21,500
E. $17,838
111.
AACSB:Analytic
Blooms:Apply
Youpurchasedaninvestmentthatwillpayyou$8,000,inrealdollars,ayearforthenextthreeyears.Eachpaymentwillbereceivedat
theendoftheperiodwiththefirstpaymentoccurringoneyearfromtoday.Thenominaldiscountrateis9.897percentandtheinflation
rateis2.9percent.Whatisthepresentvalueofthesepaymentsinrealdollars?
A. $21,720
B. $21,072
C. $22,511
D. $25,112
E. $23,529
AACSB:Analytic
Blooms:Apply
112.
A$1,000facevaluebondhasacouponrateof7percent,amarketpriceof$911.02,and10yearslefttomaturity.Interestispaid
semiannually.Iftheinflationrateis2.8percent,whatistheyieldtomaturitywhenexpressedinrealterms?
A. 5.50percent
B. 4.68percent
C. 4.92percent
D. 5.38percent
E. 5.68percent
AACSB:Analytic
Blooms:Apply
113.
KaiserIndustrieshasbondsonthemarketmakingannualpayments,with14yearstomaturity,aparvalueof$1,000,andsellingfor
$1,382.01.Atthisprice,thebondsyield7.5percent.Whatisthecouponrate?
A. 8.00percent
B. 8.50percent
C. 9.00percent
D. 10.50percent
E. 12.00percent
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
EOC:705
Topic:Bondcoupons
114.
DexterMillsissued20yearbondsayearagoatacouponrateof10.2percent.Thebondsmakesemiannualpaymentsandhaveapar
valueof$1,000.IftheYTMonthesebondsis9.2percent,whatisthecurrentbondprice?
A. $985.55
B. $991.90
C. $1,042.16
D. $1,089.02
E. $1,098.00
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
EOC:706
Topic:Bondvaluation
115.
BareTreesUnitedissued15yearbonds2yearsagoatacouponrateof8.5percent.Thebondsmakesemiannualpayments.Ifthese
bondscurrentlysellfor98.6percentofparvalue,whatistheYTM?
A. 8.98percent
B. 8.68percent
C. 9.13percent
D. 9.27percent
E. 8.42percent
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
EOC:707
116.
Wheelershasbondsonthemarketwith13yearstomaturity,aYTMof7.6percent,andacurrentpriceof$901.98.Thebondsmake
semiannualpaymentsandhaveafacevalueof$1,000.Whatisthecouponrate?
A. 6.40percent
B. 6.33percent
C. 6.60percent
D. 6.67percent
E. 6.50percent
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
EOC:708
Topic:Bondcoupons
117.
Supposetherealrateis2.45percentandtheinflationrateis1.8percent.WhatratewouldyouexpecttoseeonaTreasurybill?
A. 3.35percent
B. 3.30percent
C. 4.29percent
D. 3.56percent
E. 4.60percent
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
EOC:713
Topic:Fishereffect
118.
Aninvestmentoffersatotalreturnof12.4percentoverthecomingyear.Youbelievethetotalrealreturnwillbeonly9.7percent.What
doyoubelievetheexactinflationratewillbeforthenextyear?
A. 2.52percent
B. 2.67percent
C. 2.46percent
D. 2.70percent
E. 2.58percent
AACSB:Analytic
Blooms:Apply
Difficulty:Basic
EOC:714
Topic:Fishereffect
119.
Abondhasacouponrateof8percent,7yearstomaturity,semiannualinterestpayments,andaYTMof7percent.Ifinterestrates
suddenlyriseby2percent,whatwillbethepercentagechangeinthebondprice?
A. 10.16percent
B. 9.87percent
C. 9.56percent
D. 10.02percent
E. 10.67percent
AACSB:Analytic
Blooms:Apply
EOC:719
120.
SunsetSaleshas7.2percentcouponbondsonthemarketwith11yearslefttomaturity.Thebondsmakesemiannualpaymentsand
currentlysellfor98.6percentofpar.Whatistheeffectiveannualyield?
A. 7.34percent
B. 7.39percent
C. 7.93percent
D. 7.52percent
E. 7.47percent
AACSB:Analytic
Blooms:Analyze
EOC:721
121.
BonnerMetalswantstoissuenew20yearbondsforsomemuchneededexpansionprojects.Thecompanycurrentlyhas8.5percent
bondsonthemarketthatsellfor$959,makesemiannualpayments,andmaturein16years.Whatshouldthecouponratebeonthenew
bondsifthefirmwantstosellthematpar?
A. 8.75percent
B. 9.23percent
C. 8.41percent
D. 8.99percent
E. 8.67percent
AACSB:Analytic
Blooms:Analyze
EOC:722
122.
Youpurchaseabondwithaninvoicepriceof$1,319.Thebondhasacouponrateof6.25percent,afacevalueof$1,000,andthereare
twomonthstothenextsemiannualcoupondate.Whatisthecleanpriceofthisbond?
A. $1,298.17
B. $1,352.17
C. $1,314.14
D. $1,408.12
E. $1,283.50
AACSB:Analytic
Blooms:Apply
EOC:723
123.
Youwanttohave$2millioninrealdollarsinanaccountwhenyouretirein43years.Thenominalreturnonyourinvestmentis9.939
percentandtheinflationrateis3.2percent.Whatistherealamountyoumustdepositeachyeartoachieveyourgoal?
A. $10,403
B. $10,878
C. $9,210
D. $8,887
E. $9,711
AACSB:Analytic
Blooms:Analyze
EOC:731
124.
Theyieldtomaturityonabondistheinterestrateyouearnonyourinvestmentifinterestratesdonotchange.Ifyouactuallysellthe
bondbeforeitmatures,yourrealizedreturnisknownastheholdingperiodyield.Supposethattodayyoubuya9percentannualcoupon
bondfor$1,000.Thebondhas12yearstomaturity.Threeyearsfromnow,theyieldtomaturityhasdeclinedto7percentandyou
decidetosell.Whatisyourholdingperiodyield?
A. 8.84percent
B. 9.49percent
C. 10.96percent
D. 13.01percent
E. 12.83percent
AACSB:Analytic
Blooms:Analyze
Difficulty:Challenge
EOC:733
Topic:Interestrates
Chapter07InterestRatesAndBondValuationSummary
Category
#ofQuestions
AACSB:Analytic
124
124
Blooms:Analyze
12
Blooms:Apply
37
Blooms:Remember
52
Blooms:Understand
23
Difficulty:Basic
94
Difficulty:Challenge
29
EOC:705
EOC:706
EOC:707
EOC:708
EOC:713
EOC:714
EOC:719
EOC:721
EOC:722
EOC:723
EOC:731
EOC:733
39
57
15
11
46
18
19
14
16
Topic:Bondcoupons
Topic:Bondfeatures
Topic:Bondtypes
21
Topic:Bondvaluation
10
30
Topic:Fishereffect
Topic:Interestrates
Topic:Treasuryyieldcurve

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