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a. It gives lender the right to redeem the bond prior to maturity at pre specified price
b. It gives issuer the right to retire all or part of the bond issue prior to maturity at pre
specified price
c. It gives lender the right to convert bond into common stock of the company
The correct answer is It gives issuer the right to retire all or part of the bond issue prior to
maturity at pre specified price.
3. Which of the following risk is least likely associated with zero coupon bonds?
a. Yield curve risk
b. Interest rate risk
c. Reinvestment risk
The correct answer is Reinvestment risk.
4. Which of the following most accurately describe the maximum price for a currently callable
bond?
a. Its par value
b. The call price
c. The present value of its par value
The correct answer is The call price.
7. A bond is currently trading at $1027.5, has a yield of 7.5%, and has duration of 8.6. If the yield
falls to 7.05%, calculate the new price of the bond.
a. $1067.26
b. $987.74
c. $1050.54
The correct answer is $1067.26.
Change in yield = 7.05% - 7.5% = -0.45%, Approximate price change is = -0.45% * (-8.6) = 3.87%,
New price is = (1 + 0.0387)* $1027.5 = $1067.26.
10. $100,000 par value TIPS with a coupon rate of 4% pays semiannual coupon, set at issuance. Six
month later the annual inflation rate (CPI) is 5%. Calculate the next payment for the said TIPS
bond.
a. $4,000
b. $4,100
c. $4,200
The correct answer is $4,100.
Annual inflation rate is 5%. So change in six month is 2.5%. So revised notional is = (1 + 0.025) *
$100,000 = $102,500. So next payment = 0.04% * $102,500 = $4,100
11. A treasury bond has a face value of $100,000 and is quoted as 104 – 11, calculate its clean price?
a. $104,171.875
b. $104,343.75
c. $104,110.00
The correct answer is $104,343.75.
Quote of 104 -11 = 104 % + (11/32)% = 104.34375%, so clean price is =$104,343.75
12. Which of the following municipal bonds typically has greater risk and is issued with higher
yields?
a. A revenue bonds
b. Limited tax GO bonds
c. Unlimited tax GO bonds
The correct answer is A revenue bonds
13. All other factors being equal, would bond yield spreads from treasury securities most likely be
larger :
a. For Liquid/Illiquid Bond Issue: Liquid, for bond with embedded Call/Put option: Call
Option
b. For Liquid/Illiquid Bond Issue: illiquid, for bond with embedded Call/Put option: Put
Option
c. For Liquid/Illiquid Bond Issue: illiquid, for bond with embedded Call/Put option: Call
Option
The correct answer is For Liquid/Illiquid Bond Issue: illiquid, for bond with embedded Call/Put
option: Call Option.
14. Value of 9 - year zero coupon bond with face value of $100,000 and with semiannual pay yield
of 7.36% is closest to :
a. $55,546.76
b. $52,178.34
c. $57,234.54
The correct answer is $52,178.34.
Put N = 18, Semiannual yield = 7.36%, FV = -$100,000 and PMT = 0 in your calculator. PV =
$52,178.34
15. A treasury bill with 56 days from settlement to maturity is selling for $0.9936 per $1 of maturity
value. The bill’s yield on a discount basis is closest to :
a. 4.1143%
b. 4.0875%
c. 5.6758%
The correct answer is 4.1143%.
T-bill yield on a discount basis is = (1 – 0.9936) * 360/56 = 4.1143%
16. A bond with 10 years to maturity and coupon rate of 5.678% has an YTM of 6.564%. Assuming
the bond’s YTM remains constant, the bond’s value as it approaches maturity will most likely :
a. Remain constant
b. Decrease
c. Increase
The correct answer is Increase.
17. The present value of a 4 year, $1,000 par value bond with a coupon rate of 6% with annual
payment, with YTM of 5.1% is closest to :
a. $1031.84
b. $1011.34
c. $967.16
The correct answer is $1031.84.
Coupon is 6% * 1,000 =PMT of $60 per annum, YTM = 5.1%, FV = -$1000, N =4 . So PV =$1031.84