Chapter 10 - Bond Prices and Yields

Chapter 10 Bond Prices and Yields

Multiple Choice Questions

1. The invoice price of a bond is the ______. A. stated or flat price in a quote sheet plus accrued interest B. stated or flat price in a quote sheet minus accrued interest C. bid price . avera!e of the bid and as" price

#. $in"in! funds are commonl% vie&ed as protectin! the _______ of the bond. A. issuer B. under&riter C. holder . dealer

'. A collateral trust bond is _______. A. secured b% other securities held b% the firm B. secured b% equipment o&ned b% the firm C. secured b% propert% o&ned b% the firm . unsecured

(. A mort!a!e bond is _______. A. secured b% other securities held b% the firm B. secured b% equipment o&ned b% the firm C. secured b% propert% o&ned b% the firm . unsecured

). A debenture is _________. A. secured b% other securities held b% the firm B. secured b% equipment o&ned b% the firm C. secured b% propert% o&ned b% the firm . unsecured

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Chapter 10 - Bond Prices and Yields

*. Bonds issued in the +.$. are __________ and most bonds issued overseas are ___________. A. bearer bonds, re!istered bonds B. re!istered bonds, bearer bonds C. strai!ht bonds, convertible bonds . puttable bonds, callable

-. .loatin! rate bonds have a __________ that is ad/usted &ith current mar"et interest rates. A. maturit% date B. coupon pa%ment date C. coupon rate . dividend %ield

0. 1nflation-inde2ed Treasur% securities are commonl% called ____. A. P13s B. CA4s C. T1P$ . $T41P$

5. 6hen discussin! bonds7 conve2it% relates to the _______. A. shape of the bond price curve &ith respect to interest rates B. shape of the %ield curve &ith respect to maturit% C. slope of the %ield curve &ith respect to liquidit% premiums . si8e of the bid-as" spread

10. A 9apanese firm issued and sold a pound denominated bond in the +nited 3in!dom. A +.$. firm issued bonds denominated in dollars but sold the bonds in 9apan. 6hich one of the follo&in! statements is correct: A. Both bonds are e2amples of ;urobonds. B. The 9apanese bond is a ;urobond and the +.$. bond is termed a forei!n bond. C. The +.$. bond is a ;urobond and the 9apanese bond is termed a forei!n bond. . <either bond is a ;urobond.

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Chapter 10 - Bond Prices and Yields

11. The primar% difference bet&een Treasur% notes and bonds is ________. A. maturit% at issue B. default ris" C. coupon rate . ta2 status

1#. T1P$ offer investors inflation protection b% ______________ b% the inflation rate each %ear. A. increasin! onl% the coupon rate B. increasin! onl% the par value C. increasin! both the par value and the coupon pa%ment . increasin! the promised %ield to maturit%

1'. You &ould t%picall% find all but &hich one of the follo&in! in a bond contract: A. A dividend restriction clause B. A sin"in! fund clause C. A requirement to subordinate an% ne& debt issued . A price-earnin!s ratio

1(. To earn a hi!h ratin! from the bond ratin! a!encies7 a compan% &ould &ant to have _________. 1. a lo& times interest earned ratio 11. a lo& debt to equit% ratio 111. a hi!h quic" ratio A. 1 onl% B. 11 and 111 onl% C. 1 and 111 onl% . 17 11 and 111

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Chapter 10 - Bond Prices and Yields

1). Accordin! to the liquidit% preference theor% of the term structure of interest rates an increase in the %ield on lon! term corporate bonds versus short term bonds could be due to _______. A. declinin! liquidit% premiums B. e2pectation of an upcomin! recession C. a decline in future inflation e2pectations . increase in e2pected interest rate volatilit%

1*. __________ are e2amples of s%ntheticall% created 8ero coupon bonds. A. C=>T$ B. =P=$$?$ C. $T41P$ . A4?s

1-. A __________ bond is a bond &here the bondholder has the ri!ht to cash in the bond before maturit% at a specific price after a specific date. A. callable B. coupon C. puttable . treasur%

10. T1P$ are an e2ample of _______________. A. ;urobonds B. convertible bonds C. inde2ed bonds . catastrophe bonds

15. Bonds issued in the currenc% of the issuer@s countr% but sold in other national mar"ets are called _____________. A. ;urobonds B. Yan"ee bonds C. $amurai bonds . forei!n bonds

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Chapter 10 - Bond Prices and Yields

#0. You bu% a T1P$ at issue at par for A17000. The bond has a 'B coupon. 1nflation turns out to be #B7 'B and (B over the ne2t three %ears. The total annual coupon income %ou &ill receive in %ear three is _________. A. A'0.00 B. A''.00 C. A'#.-0 . A'0.50

#1. The bonds of ;lbo& Crease ish&ashin! Compan% have received a ratin! of DCD b% ?ood%@s. The DCD ratin! indicates the bonds are _________. A. hi!h !rade B. intermediate !rade C. investment !rade . /un" bonds

##. Bonds rated _____ or better b% $tandard and Poor@s are considered investment !rade. A. AA B. BBB C. BB . CCC

#'. Consider the liquidit% preference theor% of the term structure of interest rates. =n avera!e7 one &ould e2pect investors to require _________. A. a hi!her %ield on short term bonds than lon! term bonds B. a hi!her %ield on lon! term bonds than short term bonds C. the same %ield on both short term bonds and lon! term bonds . the liquidit% preference theor% cannot be used to ma"e an% of the other statements.

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Chapter 10 - Bond Prices and Yields

#(. Consider t&o bonds7 A and B. Both bonds presentl% are sellin! at their par value of A17000. ;ach pa% interest of A1#0 annuall%. Bond A &ill mature in ) %ears &hile bond B &ill mature in * %ears. 1f the %ields to maturit% on the t&o bonds chan!e from 1#B to 1(B7 _________. A. both bonds &ill increase in value but bond A &ill increase more than bond B B. both bonds &ill increase in value but bond B &ill increase more than bond A C. both bonds &ill decrease in value but bond A &ill decrease more than bond B . both bonds &ill decrease in value but bond B &ill decrease more than bond A

#). ;ver%thin! else equal _________ bonds &ill require a hi!her promised YT? than ________ bonds. A. catastrophe, standard B. non-callable, callable C. mort!a!e, debenture . AAA rated, BAA rated

#*. Bonds &ith coupon rates that fall &hen the !eneral level of interest rates rise are called _____________. A. asset-bac"ed bonds B. convertible bonds C. inverse floaters . inde2 bonds

#-. _______ bonds represent a novel &a% of obtainin! insurance from capital mar"ets a!ainst specified disasters. A. Asset bac"ed bonds B. T1P$ C. Catastrophe . Pa% in 3ind

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Chapter 10 - Bond Prices and Yields

#0. The issuer of aEan ________ bond ma% choose to pa% interest either in cash or in additional bonds. A. asset bac"ed bonds B. T1P$ C. catastrophe . pa% in "ind

#5. ;ver%thin! else equal the __________ the maturit% of a bond and the __________ the coupon the !reater the sensitivit% of the bond@s price to interest rate chan!es. A. lon!er, hi!her B. lon!er, lo&er C. shorter, hi!her . shorter, lo&er

'0. 6hich one of the follo&in! statements is correct: A. 1nvoice price F .lat price - Accrued 1nterest B. 1nvoice price F .lat price G Accrued 1nterest C. .lat price F 1nvoice price G Accrued 1nterest . 1nvoice price F $ettlement price - Accrued 1nterest

'1. A __________ bond is a bond &here the issuer has an option to retire the bond before maturit% at a specific price after a specific date. A. callable B. coupon C. puttable . treasur%

'#. 6hich of the follo&in! possible provisions of a bond indenture is desi!ned to ease the burden of principal repa%ment b% spreadin! it out over several %ears: A. Callable feature B. Convertible feature C. $ubordination clause . $in"in! fund

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Chapter 10 - Bond Prices and Yields

''. $erial bonds are associated &ith _________. A. sta!!ered maturit% dates B. collateral C. coupon pa%ment dates . conversion features

'(. 1n an era of particularl% lo& interest rates7 &hich of the follo&in! bonds is most li"el% to be called: A. Hero coupon bonds B. Coupon bonds sellin! at a discount C. Coupon bonds sellin! at a premium . .loatin! rate bonds

'). Consider the e2pectations theor% of the term structure of interest rates. 1f the %ield curve is do&n&ard slopin!7 this indicates that investors e2pect short-term interest rates to __________ in the future. A. increase B. decrease C. not chan!e . chan!e in an unpredictable manner

'*. A convertible bond has a par value of A17000 but its current mar"et price is A5-). The current price of the issuin! compan%@s stoc" is A#* and the conversion ratio is '( shares. The bond@s mar"et conversion value is _________. A. A17000 B. A00( C. A5'' . A500

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Chapter 10 - Bond Prices and Yields

'-. A convertible bond has a par value of A17000 but its current mar"et price is A5)0. The current price of the issuin! compan%@s stoc" is A15 and the conversion ratio is (0 shares. The bond@s conversion premium is _________. A. A)0.00 B. A150.00 C. A#00.00 . A#(0.00

'0. A coupon bond &hich pa%s interest of (B annuall%7 has a par value of A170007 matures in ) %ears7 and is sellin! toda% at A-0). The actual %ield to maturit% on this bond is _________. A. -.#B B. 0.0B C. 5.1B . 5.*B

'5. A coupon bond &hich pa%s interest of A*0 annuall%7 has a par value of A170007 matures in ) %ears7 and is sellin! toda% at a A0(.)# discount from par value. The appro2imate %ield to maturit% on this bond is _________. A. *B B. -B C. 0B . 5B

(0. A coupon bond &hich pa%s interest of A*0 annuall%7 has a par value of A170007 matures in ) %ears7 and is sellin! toda% at a A-).#) discount from par value. The current %ield on this bond is _________. A. *.00B B. *.(5B C. *.-'B . -.00B

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Chapter 10 - Bond Prices and Yields

(1. A callable bond pa%s annual interest of A*07 has a par value of A170007 matures in #0 %ears but is callable in 10 %ears at a price of A171007 and has a value toda% of A10)).0(. The %ield to call on this bond is _________. A. *.00B B. *.)0B C. -.#0B . 0.00B

(#. A coupon bond &hich pa%s interest semi-annuall% has a par value of A170007 matures in 0 %ears7 and has a %ield to maturit% of *B. 1f the coupon rate is -B7 the intrinsic value of the bond toda% &ill be __________ Ito the nearest dollarJ. A. A17000 B. A170*' C. A17001 . A17100

('. A coupon bond &hich pa%s interest annuall%7 has a par value of A170007 matures in ) %ears and has a %ield to maturit% of 1#B. 1f the coupon rate is 5B7 the intrinsic value of the bond toda% &ill be appro2imatel% _________. A. A0)* B. A05# C. A5#* . A17000

((. A coupon bond pa%s semi-annual interest is reported as havin! an as" price of 11-B of its A17000 par value in the 6all $treet 9ournal. 1f the last interest pa%ment &as made # months a!o and the coupon rate is *B7 the invoice price of the bond &ill be _________. A. A171(0 B. A171-0 C. A17100 . A17#00

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Chapter 10 - Bond Prices and Yields

(). A treasur% bond due in one %ear has a %ield of *.'B &hile a treasur% bond due in ) %ears has a %ield of 0.0B. A bond due in ) %ears issued b% Ki!h Countr% ?ar"etin! Corporation has a %ield of 5.*B &hile a bond due in one %ear issued b% Ki!h Countr% ?ar"etin! Corporation has a %ield of *.0B. The default ris" premiums on the one-%ear and )-%ear bonds issued b% Ki!h Countr% ?ar"etin! Corp. are respectivel% __________ and _________. A. 0.(B7 0.'B B. 0.(B7 0.)B C. 0.)B7 0.)B . 0.)B7 0.0B

(*. A 8ero-coupon bond has a %ield to maturit% of )B and a par value of A17000. 1f the bond matures in 1* %ears7 it should sell for a price of __________ toda%. A. A()0.00 B. A*(1.00 C. A-05.00 . A17100.00

(-. Yields on municipal bonds are t%picall% ___________ %ields on corporate bonds of similar ris" and time to maturit%. A. lo&er than B. sli!htl% hi!her than C. identical to . t&ice as hi!h as

(0. You purchased a )-%ear annual interest coupon bond one %ear a!o. 1ts coupon interest rate &as *B and its par value &as A17000. At the time %ou purchased the bond7 the %ield to maturit% &as (B. 1f %ou sold the bond after receivin! the first interest pa%ment and the bond@s %ield to maturit% had chan!ed to 'B7 %our annual total rate of return on holdin! the bond for that %ear &ould have been appro2imatel% _________. A. ).0B B. ).)B C. -.*B . 0.5B

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Chapter 10 - Bond Prices and Yields

(5. Anal%sis of bond returns over a multi%ear hori8on based on forecasts of the bond@s %ield to maturit% and reinvestment rate of coupons is called ______. A. multi%ear anal%sis B. hori8on anal%sis C. maturit% anal%sis . reinvestment anal%sis

A17000 par value 8ero coupon bonds7 i!nore liquidit% premiums

)0. The e2pected one-%ear interest rate one %ear from no& should be about _________. A. *.00B B. -.)0 B C. 5.00B . 10.00B

)1. =ne %ear from no& Bond C should sell for ________ Ito the nearest dollarJ. A. A0)B. A0(# C. A0') . A0#1

)#. The e2pected t&o %ear interest rate three %ears from no& should be _________. A. 5.))B B. 11.-(B C. 1(.05B . 1'.-'B

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Chapter 10 - Bond Prices and Yields

)'. The __________ of a bond is computed as the ratio of coupon pa%ments to mar"et price. A. nominal %ield B. current %ield C. %ield to maturit% . %ield to call

)(. A bond has a par value of A170007 a time to maturit% of 10 %ears7 and a coupon rate of 0B &ith interest paid annuall%. 1f the current mar"et price is A-)07 &hat is the appro2imate capital !ain %ield of this bond over the ne2t %ear: A. 0.-B B. 1.0B C. #.)B . '.(B

)). Consider the follo&in! A17000 par value 8ero-coupon bondsL

The e2pected one-%ear interest rate t&o %ears from no& should be _________. A. -.00B B. 0.00B C. 5.00B . 10.00B

)*. 6hich of the follo&in! bonds &ould most li"el% sell at the lo&est %ield: A. A callable debenture B. A putable mort!a!e bond C. A callable mort!a!e bond . A putable debenture

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Chapter 10 - Bond Prices and Yields

)-. A 1B decline in %ield &ill have the least effect on the price of the bond &ith a _________. A. 10-%ear maturit%7 sellin! at 00 B. 10-%ear maturit%7 sellin! at 100 C. #0-%ear maturit%7 sellin! at 00 . #0-%ear maturit%7 sellin! at 100

)0. Consider the follo&in! A17000 par value 8ero-coupon bondsL

The e2pected one-%ear interest rate three %ears from no& should be _________. A. -.00B B. 0.00B C. 5.00B . 10.00B

)5. Consider the follo&in! A17000 par value 8ero-coupon bondsL

The e2pected one-%ear interest rate four %ears from no& should be _________. A. 1*.00B B. 10.00B C. #0.00B . ##.00B

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Chapter 10 - Bond Prices and Yields

*0. You can be sure that a bond &ill sell at a premium to par &hen _________. A. its coupon rate is !reater than its %ield to maturit% B. its coupon rate is less than its %ield to maturit% C. its coupon rate equal to its %ield to maturit% . its coupon rate is less than its conversion value

*1. A corporate bond has a 10 %ear maturit% and pa%s interest semiannuall%. The quoted coupon rate is *B and the bond is priced at par. The bond is callable in ' %ears at 110B of par. 6hat is the bond@s %ield to call: A. *.-#B B. 5.1-B C. (.(5B . 0.50B

*#. Consider a --%ear bond &ith a 5B coupon and a %ield to maturit% of 1#B. 1f interest rates remain constant7 one %ear from no& the price of this bond &ill be _________. A. hi!her B. lo&er C. the same . indeterminate

*'. +nder the pure e2pectations h%pothesis and constant real interest rates for different maturities7 an up&ard slopin! %ield curve &ould indicate __________________. A. e2pected increases in inflation over time B. e2pected decreases in inflation over time C. the presence of a liquidit% premium . that the equilibrium interest rate in the short term part of the mar"et is lo&er than the equilibrium interest rate in the lon!-term part of the mar"et

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Chapter 10 - Bond Prices and Yields

*(. The %ield to maturit% on a bond is ________. 1. above the coupon rate &hen the bond sells at a discount7 and belo& the coupon rate &hen the bond sells at a premium 11. the discount rate that &ill set the present value of the pa%ments equal to the bond price 111. equal to the true compound return on investment onl% if all interest pa%ments received are reinvested at the %ield to maturit% A. 1 onl% B. 11 onl% C. 1 and 11 onl% . 17 11 and 111

*). Yields on municipal bonds are !enerall% lo&er than %ields on similar corporate bonds because of differences in _________. A. mar"etabilit% B. ris" C. ta2ation . call protection

**. Assumin! semiannual compoundin!7 a #0-%ear 8ero coupon bond &ith a par value of A17000 and a required return of 1#B &ould be priced at _________. A. A5B. A10( C. A'*( . A-'#

*-. A discount bond that pa%s interest semiannuall% &ill ______. 1. have a lo&er price than an equivalent annual pa%ment bond 11. have a hi!her ;A4 than an equivalent annual pa%ment bond 111. sell for less than its conversion value A. 1 and 11 onl% B. 1 and 111 onl% C. 11 and 111 onl% . 17 11 and 111

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Chapter 10 - Bond Prices and Yields

*0. A *B coupon +.$. treasur% note pa%s interest on ?a% '1 and <ovember '0 and is traded for settlement on Au!ust 10. The accrued interest on A1007000 face amount of this note is _________. A. A)01.5B. A171*'.5' C. A#7'#-.0. A'7000.00

*5. The %ield to maturit% of an 10-%ear 8ero coupon bond7 &ith a par value of A17000 and a mar"et price of A*#)7 is _____. A. (.0B B. *.1B C. -.-B . 10.(B

Consider a ne&l% issued T1P$ bond &ith a three %ear maturit%7 par value of A10007 and a coupon rate of )B. Assume annual coupon pa%ments.

-0. 6hat is the nominal rate of return on the T1P$ bond in the first %ear: A. ).00B B. ).1)B C. 0.1)B . 5.00B

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Chapter 10 - Bond Prices and Yields

-1. 6hat is the real rate of return on the T1P$ bond in the first %ear: A. ).00B B. 0.1)B C. -.1)B . (.00B

=n ?a% 17 #00-7 9oe Kill is considerin! one of the follo&in! ne&l%-issued 10 %ear AAA corporate bonds.

-#. $uppose mar"et interest rates decline b% 100 basis points Ii.e.7 1BJ. The effect of this decline &ould beL A. The price of 6ild&ood bond &ould decline b% more than the Asbur% bond. B. The price of 6ild&ood bond &ould decline b% less than the Asbur% bond. C. The price of 6ild&ood bond &ould increase b% more than the Asbur% bond. . The price of 6ild&ood bond &ould increase b% less than the Asbur% bond.

-'. 1f interest rates are e2pected to rise7 then 9oe Kill should ____. A. prefer the 6ild&ood bond to the Asbur% bond B. prefer the Asbur% bond to the 6ild&ood bond C. be indifferent bet&een the 6ild&ood bond and the Asbur% bond . there is not enou!h information !iven to tell

-(. 1f the volatilit% of interest rates is e2pected to increase7 the 9oe Kill should __. A. prefer the 6ild&ood bond to the Asbur% bond B. prefer the Asbur% bond to the 6ild&ood bond C. be indifferent bet&een the 6ild&ood bond and the Asbur% bond . there is not enou!h information !iven to tell

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Chapter 10 - Bond Prices and Yields

-). =ne7 t&o and three %ear maturit%7 default-free7 8ero-coupon bonds have %ields-to-maturit% of -B7 0B and 5B respectivel%. 6hat is the implied one-%ear for&ard rate7 one %ear from toda%: A. #.0B B. 0.0B C. 5.0B . 11.1B

-*. 1f the quote for a Treasur% bond is listed in the ne&spaper as 50L05 bid7 50L1' as"7 the actual price for %ou to purchase this bond !iven a A107000 par value is _____________. A. A570#0.1# B. A57005.'0 C. A570(0.*# . A5701'.(#

--. 1f the price of a A107000 par Treasur% bond is A107#'-.)0 the quote &ould be listed in the ne&spaper as ________. A. 10#L10 B. 10#L11 C. 10#L1# . 10#L1'

-0. A bond pa%s a semi-annual coupon and the last coupon &as paid *1 da%s a!o. 1f the annual coupon pa%ment is A-)7 &hat is the accrued interest: A. A1'.#1 B. A1#.)C. A1).(( . A1*.'#

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Chapter 10 - Bond Prices and Yields

-5. A bond has a flat price of A50) and it pa%s an annual coupon. The last coupon pa%ment &as made 50 da%s a!o. 6hat is the invoice price if the annual coupon is A*5: A. A555.)) B. A1700#.01 C. A1700-.() . A1701#.1'

00. 1f the quote for a Treasur% bond is listed in the ne&spaper as 55L00 bid7 55L11 as"7 the actual price %ou can sell this bond !iven a A107000 par value is _____________. A. A570#0.1# B. A575#).00 C. A575'(.'. A575)).('

01. A bond has a )B coupon rate. The coupon is paid semi-annuall% and the last coupon &as paid ') da%s a!o. 1f the bond has a par value of A170007 &hat is the accrued interest: A. A(.01 B. A1(.#( C. A#).00 . A)0.00

0#. The price on a treasur% bond is 10(L#1 &ith a %ield to maturit% of '.()B. The price on a comparable maturit% corporate bond is 10'L11 &ith a %ield to maturit% of (.)5B. 6hat is the appro2imate percenta!e value of the credit ris" of the corporate bond: A. 1.1(B B. '.()B C. (.)5B . 0.0(B

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Chapter 10 - Bond Prices and Yields

0'. You bu% a bond &ith a A17000 par toda% for a price of A0-). The bond has * %ears to maturit% and ma"es annual coupon pa%ments of A-) per %ear. You hold the bond to maturit% but %ou do not reinvest an% of %our coupons. 6hat &as %our effective ;A4 over the holdin! period: A. 10.(0B B. 5.)-B C. -.()B . 0.-0B

0(. You bu% an 0 %ear A1000 par value bond toda% that has a *B %ield and a *B annual pa%ment coupon. 1n one %ear promised %ields have risen to -B. Your one %ear holdin! period return &as ___. A. 0.*1B B. -).'5B C. 1.#0B . -'.#)B

0). You bu% a 10 %ear A17000 par 8ero coupon bond priced to %ield *B. You do not sell the bond. 1f %ou are in a #0B ta2 brac"et %ou &ill o&e ta2es on this investment after the first %ear equal to _______. A. A0 B. A(.#C. A5.'0 . A''.)1

0*. You bu% a 10 %ear A17000 par (B annual pa%ment coupon bond priced to %ield *B. You do not sell the bond at %ear end. 1f %ou are in a 1)B ta2 brac"et at %ear end %ou &ill o&e ta2es on this investment equal to _______. A. A5.10 B. A(.#) C. A-.*0 . A).#0

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Chapter 10 - Bond Prices and Yields

0-. An investor pa%s A505.(0 for a bond. The bond has an annual coupon rate of (.0B. 6hat is the current %ield on this bond: A. (.00B B. (.0)B C. 5.*0B . 5.-0B

00. 1f the coupon rate on a bond is (.)0B and the bond is sellin! at a premium7 &hich of the follo&in! is the most li"el% %ield to maturit% on the bond: A. (.'0B B. (.)0B C. ).#0B . ).)0B

05. The price of a bond at the be!innin! of a period is A500.00 and A5-).00 at the end of the period. 6hat is the holdin! period return if the annual coupon rate is (.)B: A. (.00B B. (.)0B C. ).10B . ).*B

50. A bond &as purchased at a premium and is no& sellin! at a discount because of a chan!e in mar"et interest rates. 1f the bond pa%s a (B annual coupon7 &hat is the li"el% impact on the holdin! period return in an investor decides to sell no&: A. 1ncreased B. ecreased C. $ta%ed the same . Can not be determined

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Chapter 10 - Bond Prices and Yields

51. The ___________ is the document definin! the contract bet&een the bond issuer and the bondholder. A. indenture B. covenant a!reement C. trustee a!reement . collateral statement

5#. You hold a subordinated debenture in a firm. 1n the event of ban"ruptc% %ou &ill be paid off before &hich one of the follo&in!: A. ?ort!a!e bonds B. $enior debentures C. Preferred stoc" . ;quipment obli!ation bonds

5'. 1f %ou are holdin! a premium bond %ou must e2pect a _______ each %ear until maturit%. 1f %ou are holdin! a discount bond %ou must e2pect a _______ each %ear until maturit%. A. capital !ain, capital loss B. capital !ain, capital !ain C. capital loss, capital !ain . capital loss, capital loss

Chapter 10 Bond Prices and Yields Ans&er 3e%

Multiple Choice Questions

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Chapter 10 - Bond Prices and Yields

1. The invoice price of a bond is the ______. A. stated or flat price in a quote sheet plus accrued interest B. stated or flat price in a quote sheet minus accrued interest C. bid price . avera!e of the bid and as" price

Difficulty: Medium

#. $in"in! funds are commonl% vie&ed as protectin! the _______ of the bond. A. issuer B. under&riter C. holder . dealer

Difficulty: Easy

'. A collateral trust bond is _______. A. secured b% other securities held b% the firm B. secured b% equipment o&ned b% the firm C. secured b% propert% o&ned b% the firm . unsecured

Difficulty: Easy

(. A mort!a!e bond is _______. A. secured b% other securities held b% the firm B. secured b% equipment o&ned b% the firm C. secured b% propert% o&ned b% the firm . unsecured

Difficulty: Easy

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Chapter 10 - Bond Prices and Yields

). A debenture is _________. A. secured b% other securities held b% the firm B. secured b% equipment o&ned b% the firm C. secured b% propert% o&ned b% the firm D. unsecured

Difficulty: Easy

*. Bonds issued in the +.$. are __________ and most bonds issued overseas are ___________. A. bearer bonds, re!istered bonds B. re!istered bonds, bearer bonds C. strai!ht bonds, convertible bonds . puttable bonds, callable

Difficulty: Easy

-. .loatin! rate bonds have a __________ that is ad/usted &ith current mar"et interest rates. A. maturit% date B. coupon pa%ment date C. coupon rate . dividend %ield

Difficulty: Easy

0. 1nflation-inde2ed Treasur% securities are commonl% called ____. A. P13s B. CA4s C. T1P$ . $T41P$

Difficulty: Easy

10-#)

Chapter 10 - Bond Prices and Yields

5. 6hen discussin! bonds7 conve2it% relates to the _______. A. shape of the bond price curve &ith respect to interest rates B. shape of the %ield curve &ith respect to maturit% C. slope of the %ield curve &ith respect to liquidit% premiums . si8e of the bid-as" spread

Difficulty: Medium

10. A 9apanese firm issued and sold a pound denominated bond in the +nited 3in!dom. A +.$. firm issued bonds denominated in dollars but sold the bonds in 9apan. 6hich one of the follo&in! statements is correct: A. Both bonds are e2amples of ;urobonds. B. The 9apanese bond is a ;urobond and the +.$. bond is termed a forei!n bond. C. The +.$. bond is a ;urobond and the 9apanese bond is termed a forei!n bond. . <either bond is a ;urobond.

Difficulty: Hard

11. The primar% difference bet&een Treasur% notes and bonds is ________. A. maturit% at issue B. default ris" C. coupon rate . ta2 status

Difficulty: Easy

1#. T1P$ offer investors inflation protection b% ______________ b% the inflation rate each %ear. A. increasin! onl% the coupon rate B. increasin! onl% the par value C. increasin! both the par value and the coupon pa%ment . increasin! the promised %ield to maturit%

Difficulty: Easy

10-#*

Chapter 10 - Bond Prices and Yields

1'. You &ould t%picall% find all but &hich one of the follo&in! in a bond contract: A. A dividend restriction clause B. A sin"in! fund clause C. A requirement to subordinate an% ne& debt issued D. A price-earnin!s ratio

Difficulty: Easy

1(. To earn a hi!h ratin! from the bond ratin! a!encies7 a compan% &ould &ant to have _________. 1. a lo& times interest earned ratio 11. a lo& debt to equit% ratio 111. a hi!h quic" ratio A. 1 onl% B. 11 and 111 onl% C. 1 and 111 onl% . 17 11 and 111

Difficulty: Easy

1). Accordin! to the liquidit% preference theor% of the term structure of interest rates an increase in the %ield on lon! term corporate bonds versus short term bonds could be due to _______. A. declinin! liquidit% premiums B. e2pectation of an upcomin! recession C. a decline in future inflation e2pectations D. increase in e2pected interest rate volatilit%

Difficulty: Hard

10-#-

Chapter 10 - Bond Prices and Yields

1*. __________ are e2amples of s%ntheticall% created 8ero coupon bonds. A. C=>T$ B. =P=$$?$ C. $T41P$ . A4?s

Difficulty: Easy

1-. A __________ bond is a bond &here the bondholder has the ri!ht to cash in the bond before maturit% at a specific price after a specific date. A. callable B. coupon C. puttable . treasur%

Difficulty: Easy

10. T1P$ are an e2ample of _______________. A. ;urobonds B. convertible bonds C. inde2ed bonds . catastrophe bonds

Difficulty: Easy

15. Bonds issued in the currenc% of the issuer@s countr% but sold in other national mar"ets are called _____________. A. ;urobonds B. Yan"ee bonds C. $amurai bonds . forei!n bonds

Difficulty: Easy

10-#0

Chapter 10 - Bond Prices and Yields

#0. You bu% a T1P$ at issue at par for A17000. The bond has a 'B coupon. 1nflation turns out to be #B7 'B and (B over the ne2t three %ears. The total annual coupon income %ou &ill receive in %ear three is _________. A. A'0.00 B. A''.00 C. A'#.-0 . A'0.50 IA'0JI1.0#JI1.0'JI1.0(J F A'#.-0

Difficulty: Medium

#1. The bonds of ;lbo& Crease ish&ashin! Compan% have received a ratin! of DCD b% ?ood%@s. The DCD ratin! indicates the bonds are _________. A. hi!h !rade B. intermediate !rade C. investment !rade D. /un" bonds

Difficulty: Easy

##. Bonds rated _____ or better b% $tandard and Poor@s are considered investment !rade. A. AA B. BBB C. BB . CCC

Difficulty: Easy

10-#5

Chapter 10 - Bond Prices and Yields

#'. Consider the liquidit% preference theor% of the term structure of interest rates. =n avera!e7 one &ould e2pect investors to require _________. A. a hi!her %ield on short term bonds than lon! term bonds B. a hi!her %ield on lon! term bonds than short term bonds C. the same %ield on both short term bonds and lon! term bonds . the liquidit% preference theor% cannot be used to ma"e an% of the other statements.

Difficulty: Easy

#(. Consider t&o bonds7 A and B. Both bonds presentl% are sellin! at their par value of A17000. ;ach pa% interest of A1#0 annuall%. Bond A &ill mature in ) %ears &hile bond B &ill mature in * %ears. 1f the %ields to maturit% on the t&o bonds chan!e from 1#B to 1(B7 _________. A. both bonds &ill increase in value but bond A &ill increase more than bond B B. both bonds &ill increase in value but bond B &ill increase more than bond A C. both bonds &ill decrease in value but bond A &ill decrease more than bond B D. both bonds &ill decrease in value but bond B &ill decrease more than bond A

Difficulty: Medium

#). ;ver%thin! else equal _________ bonds &ill require a hi!her promised YT? than ________ bonds. A. catastrophe, standard B. non-callable, callable C. mort!a!e, debenture . AAA rated, BAA rated

Difficulty: Medium

10-'0

Chapter 10 - Bond Prices and Yields

#*. Bonds &ith coupon rates that fall &hen the !eneral level of interest rates rise are called _____________. A. asset-bac"ed bonds B. convertible bonds C. inverse floaters . inde2 bonds

Difficulty: Easy

#-. _______ bonds represent a novel &a% of obtainin! insurance from capital mar"ets a!ainst specified disasters. A. Asset bac"ed bonds B. T1P$ C. Catastrophe . Pa% in 3ind

Difficulty: Easy

#0. The issuer of aEan ________ bond ma% choose to pa% interest either in cash or in additional bonds. A. asset bac"ed bonds B. T1P$ C. catastrophe D. pa% in "ind

Difficulty: Easy

#5. ;ver%thin! else equal the __________ the maturit% of a bond and the __________ the coupon the !reater the sensitivit% of the bond@s price to interest rate chan!es. A. lon!er, hi!her B. lon!er, lo&er C. shorter, hi!her . shorter, lo&er

Difficulty: Medium

10-'1

Chapter 10 - Bond Prices and Yields

'0. 6hich one of the follo&in! statements is correct: A. 1nvoice price F .lat price - Accrued 1nterest B. 1nvoice price F .lat price G Accrued 1nterest C. .lat price F 1nvoice price G Accrued 1nterest . 1nvoice price F $ettlement price - Accrued 1nterest

Difficulty: Easy

'1. A __________ bond is a bond &here the issuer has an option to retire the bond before maturit% at a specific price after a specific date. A. callable B. coupon C. puttable . treasur%

Difficulty: Easy

'#. 6hich of the follo&in! possible provisions of a bond indenture is desi!ned to ease the burden of principal repa%ment b% spreadin! it out over several %ears: A. Callable feature B. Convertible feature C. $ubordination clause D. $in"in! fund

Difficulty: Easy

''. $erial bonds are associated &ith _________. A. sta!!ered maturit% dates B. collateral C. coupon pa%ment dates . conversion features

Difficulty: Medium

10-'#

Chapter 10 - Bond Prices and Yields

'(. 1n an era of particularl% lo& interest rates7 &hich of the follo&in! bonds is most li"el% to be called: A. Hero coupon bonds B. Coupon bonds sellin! at a discount C. Coupon bonds sellin! at a premium . .loatin! rate bonds

Difficulty: Medium

'). Consider the e2pectations theor% of the term structure of interest rates. 1f the %ield curve is do&n&ard slopin!7 this indicates that investors e2pect short-term interest rates to __________ in the future. A. increase B. decrease C. not chan!e . chan!e in an unpredictable manner

Difficulty: Medium

'*. A convertible bond has a par value of A17000 but its current mar"et price is A5-). The current price of the issuin! compan%@s stoc" is A#* and the conversion ratio is '( shares. The bond@s mar"et conversion value is _________. A. A17000 B. A00( C. A5'' . A500 IA#*JI'(J F A00(

Difficulty: Medium

10-''

Chapter 10 - Bond Prices and Yields

'-. A convertible bond has a par value of A17000 but its current mar"et price is A5)0. The current price of the issuin! compan%@s stoc" is A15 and the conversion ratio is (0 shares. The bond@s conversion premium is _________. A. A)0.00 B. A150.00 C. A#00.00 . A#(0.00 Conversion Premium F 5)0 - (0I15J F 150.00

Difficulty: Medium

'0. A coupon bond &hich pa%s interest of (B annuall%7 has a par value of A170007 matures in ) %ears7 and is sellin! toda% at A-0). The actual %ield to maturit% on this bond is _________. A. -.#B B. 0.0B C. 5.1B D. 5.*B

A-0) F A(0

Difficulty: Hard

10-'(

Chapter 10 - Bond Prices and Yields

'5. A coupon bond &hich pa%s interest of A*0 annuall%7 has a par value of A170007 matures in ) %ears7 and is sellin! toda% at a A0(.)# discount from par value. The appro2imate %ield to maturit% on this bond is _________. A. *B B. -B C. 0B . 5B

Difficulty: Medium

(0. A coupon bond &hich pa%s interest of A*0 annuall%7 has a par value of A170007 matures in ) %ears7 and is sellin! toda% at a A-).#) discount from par value. The current %ield on this bond is _________. A. *.00B B. *.(5B C. *.-'B . -.00B

Difficulty: Medium

10-')

Chapter 10 - Bond Prices and Yields

(1. A callable bond pa%s annual interest of A*07 has a par value of A170007 matures in #0 %ears but is callable in 10 %ears at a price of A171007 and has a value toda% of A10)).0(. The %ield to call on this bond is _________. A. *.00B B. *.)0B C. -.#0B . 0.00B

10)).0( F *0

Difficulty: Medium

(#. A coupon bond &hich pa%s interest semi-annuall% has a par value of A170007 matures in 0 %ears7 and has a %ield to maturit% of *B. 1f the coupon rate is -B7 the intrinsic value of the bond toda% &ill be __________ Ito the nearest dollarJ. A. A17000 B. A170*' C. A17001 . A17100

F 170*'

Difficulty: Medium

10-'*

Chapter 10 - Bond Prices and Yields

('. A coupon bond &hich pa%s interest annuall%7 has a par value of A170007 matures in ) %ears and has a %ield to maturit% of 1#B. 1f the coupon rate is 5B7 the intrinsic value of the bond toda% &ill be appro2imatel% _________. A. A0)* B. A05# C. A5#* . A17000

PM0 F A50

Difficulty: Medium

((. A coupon bond pa%s semi-annual interest is reported as havin! an as" price of 11-B of its A17000 par value in the 6all $treet 9ournal. 1f the last interest pa%ment &as made # months a!o and the coupon rate is *B7 the invoice price of the bond &ill be _________. A. A171(0 B. A171-0 C. A17100 . A17#00 1nvoice Price F

Difficulty: Medium

10-'-

Chapter 10 - Bond Prices and Yields

(). A treasur% bond due in one %ear has a %ield of *.'B &hile a treasur% bond due in ) %ears has a %ield of 0.0B. A bond due in ) %ears issued b% Ki!h Countr% ?ar"etin! Corporation has a %ield of 5.*B &hile a bond due in one %ear issued b% Ki!h Countr% ?ar"etin! Corporation has a %ield of *.0B. The default ris" premiums on the one-%ear and )-%ear bonds issued b% Ki!h Countr% ?ar"etin! Corp. are respectivel% __________ and _________. A. 0.(B7 0.'B B. 0.(B7 0.)B C. 0.)B7 0.)B D. 0.)B7 0.0B efault premium for 1-Year Bond F .0*0 - .0*' F .00) efault premium for )-Year Bond F .05* - .000 F .000

Difficulty: Medium

(*. A 8ero-coupon bond has a %ield to maturit% of )B and a par value of A17000. 1f the bond matures in 1* %ears7 it should sell for a price of __________ toda%. A. A()0.00 B. A*(1.00 C. A-05.00 . A17100.00

PM0 F

Difficulty: Medium

(-. Yields on municipal bonds are t%picall% ___________ %ields on corporate bonds of similar ris" and time to maturit%. A. lo&er than B. sli!htl% hi!her than C. identical to . t&ice as hi!h as

Difficulty: Easy

10-'0

Chapter 10 - Bond Prices and Yields

(0. You purchased a )-%ear annual interest coupon bond one %ear a!o. 1ts coupon interest rate &as *B and its par value &as A17000. At the time %ou purchased the bond7 the %ield to maturit% &as (B. 1f %ou sold the bond after receivin! the first interest pa%ment and the bond@s %ield to maturit% had chan!ed to 'B7 %our annual total rate of return on holdin! the bond for that %ear &ould have been appro2imatel% _________. A. ).0B B. ).)B C. -.*B . 0.5B

PM0 F *0

PM1 F *0

Difficulty: Hard

(5. Anal%sis of bond returns over a multi%ear hori8on based on forecasts of the bond@s %ield to maturit% and reinvestment rate of coupons is called ______. A. multi%ear anal%sis B. hori8on anal%sis C. maturit% anal%sis . reinvestment anal%sis

Difficulty: Easy

A17000 par value 8ero coupon bonds7 i!nore liquidit% premiums

10-'5

Chapter 10 - Bond Prices and Yields

)0. The e2pected one-%ear interest rate one %ear from no& should be about _________. A. *.00B B. -.)0 B C. 5.00B . 10.00B

Difficulty: Hard

)1. =ne %ear from no& Bond C should sell for ________ Ito the nearest dollarJ. A. A0)B. A0(# C. A0') . A0#1 1.0-55' F I1.0*JI1 G 1.'J#, I1 G 1.'J# F 1.100 P1 F F A0(1.*5

Difficulty: Hard

)#. The e2pected t&o %ear interest rate three %ears from no& should be _________. A. 5.))B B. 11.-(B C. 1(.05B . 1'.-'B I1 G 04)J) F I1 G 04'J'I1 G '.)J# 1.10-0) F I1.0-55'JI1 G '.)J#, '.) F 1(.05B

Difficulty: Hard

10-(0

Chapter 10 - Bond Prices and Yields

)'. The __________ of a bond is computed as the ratio of coupon pa%ments to mar"et price. A. nominal %ield B. current %ield C. %ield to maturit% . %ield to call

Difficulty: Easy

)(. A bond has a par value of A170007 a time to maturit% of 10 %ears7 and a coupon rate of 0B &ith interest paid annuall%. 1f the current mar"et price is A-)07 &hat is the appro2imate capital !ain %ield of this bond over the ne2t %ear: A. 0.-B B. 1.0B C. #.)B . '.(B

Difficulty: Hard

10-(1

Chapter 10 - Bond Prices and Yields

)). Consider the follo&in! A17000 par value 8ero-coupon bondsL

The e2pected one-%ear interest rate t&o %ears from no& should be _________. A. -.00B B. 0.00B C. 5.00B . 10.00B

Difficulty: Hard

)*. 6hich of the follo&in! bonds &ould most li"el% sell at the lo&est %ield: A. A callable debenture B. A putable mort!a!e bond C. A callable mort!a!e bond . A putable debenture

Difficulty: Medium

)-. A 1B decline in %ield &ill have the least effect on the price of the bond &ith a _________. A. 10-%ear maturit%7 sellin! at 00 B. 10-%ear maturit%7 sellin! at 100 C. #0-%ear maturit%7 sellin! at 00 . #0-%ear maturit%7 sellin! at 100

Difficulty: Medium

10-(#

Chapter 10 - Bond Prices and Yields

)0. Consider the follo&in! A17000 par value 8ero-coupon bondsL

The e2pected one-%ear interest rate three %ears from no& should be _________. A. -.00B B. 0.00B C. 5.00B . 10.00B

Difficulty: Hard

)5. Consider the follo&in! A17000 par value 8ero-coupon bondsL

The e2pected one-%ear interest rate four %ears from no& should be _________. A. 1*.00B B. 10.00B C. #0.00B . ##.00B

Difficulty: Hard

10-('

Chapter 10 - Bond Prices and Yields

*0. You can be sure that a bond &ill sell at a premium to par &hen _________. A. its coupon rate is !reater than its %ield to maturit% B. its coupon rate is less than its %ield to maturit% C. its coupon rate equal to its %ield to maturit% . its coupon rate is less than its conversion value

Difficulty: Medium

*1. A corporate bond has a 10 %ear maturit% and pa%s interest semiannuall%. The quoted coupon rate is *B and the bond is priced at par. The bond is callable in ' %ears at 110B of par. 6hat is the bond@s %ield to call: A. *.-#B B. 5.1-B C. (.(5B D. 0.50B

1000 F

r F YTC F 0.50B

Difficulty: Hard

*#. Consider a --%ear bond &ith a 5B coupon and a %ield to maturit% of 1#B. 1f interest rates remain constant7 one %ear from no& the price of this bond &ill be _________. A. hi!her B. lo&er C. the same . indeterminate

Difficulty: Medium

10-((

Chapter 10 - Bond Prices and Yields

*'. +nder the pure e2pectations h%pothesis and constant real interest rates for different maturities7 an up&ard slopin! %ield curve &ould indicate __________________. A. e2pected increases in inflation over time B. e2pected decreases in inflation over time C. the presence of a liquidit% premium . that the equilibrium interest rate in the short term part of the mar"et is lo&er than the equilibrium interest rate in the lon!-term part of the mar"et

Difficulty: Medium

*(. The %ield to maturit% on a bond is ________. 1. above the coupon rate &hen the bond sells at a discount7 and belo& the coupon rate &hen the bond sells at a premium 11. the discount rate that &ill set the present value of the pa%ments equal to the bond price 111. equal to the true compound return on investment onl% if all interest pa%ments received are reinvested at the %ield to maturit% A. 1 onl% B. 11 onl% C. 1 and 11 onl% D. 17 11 and 111

Difficulty: Medium

*). Yields on municipal bonds are !enerall% lo&er than %ields on similar corporate bonds because of differences in _________. A. mar"etabilit% B. ris" C. ta2ation . call protection

Difficulty: Medium

10-()

Chapter 10 - Bond Prices and Yields

**. Assumin! semiannual compoundin!7 a #0-%ear 8ero coupon bond &ith a par value of A17000 and a required return of 1#B &ould be priced at _________. A. A5B. A10( C. A'*( . A-'#

Difficulty: Medium

*-. A discount bond that pa%s interest semiannuall% &ill ______. 1. have a lo&er price than an equivalent annual pa%ment bond 11. have a hi!her ;A4 than an equivalent annual pa%ment bond 111. sell for less than its conversion value A. 1 and 11 onl% B. 1 and 111 onl% C. 11 and 111 onl% . 17 11 and 111

Difficulty: Hard

*0. A *B coupon +.$. treasur% note pa%s interest on ?a% '1 and <ovember '0 and is traded for settlement on Au!ust 10. The accrued interest on A1007000 face amount of this note is _________. A. A)01.5B. A171*'.5' C. A#7'#-.0. A'7000.00

Difficulty: Medium

10-(*

Chapter 10 - Bond Prices and Yields

*5. The %ield to maturit% of an 10-%ear 8ero coupon bond7 &ith a par value of A17000 and a mar"et price of A*#)7 is _____. A. (.0B B. *.1B C. -.-B . 10.(B

Difficulty: Medium

Consider a ne&l% issued T1P$ bond &ith a three %ear maturit%7 par value of A10007 and a coupon rate of )B. Assume annual coupon pa%ments.

-0. 6hat is the nominal rate of return on the T1P$ bond in the first %ear: A. ).00B B. ).1)B C. 0.1)B . 5.00B

KP4<om F

Difficulty: Medium

10-(-

Chapter 10 - Bond Prices and Yields

-1. 6hat is the real rate of return on the T1P$ bond in the first %ear: A. ).00B B. 0.1)B C. -.1)B . (.00B

KP4<om F

KP4real F

Difficulty: Medium

=n ?a% 17 #00-7 9oe Kill is considerin! one of the follo&in! ne&l%-issued 10 %ear AAA corporate bonds.

-#. $uppose mar"et interest rates decline b% 100 basis points Ii.e.7 1BJ. The effect of this decline &ould beL A. The price of 6ild&ood bond &ould decline b% more than the Asbur% bond. B. The price of 6ild&ood bond &ould decline b% less than the Asbur% bond. C. The price of 6ild&ood bond &ould increase b% more than the Asbur% bond. . The price of 6ild&ood bond &ould increase b% less than the Asbur% bond.

Difficulty: Medium

-'. 1f interest rates are e2pected to rise7 then 9oe Kill should ____. A. prefer the 6ild&ood bond to the Asbur% bond B. prefer the Asbur% bond to the 6ild&ood bond C. be indifferent bet&een the 6ild&ood bond and the Asbur% bond . there is not enou!h information !iven to tell

Difficulty: Medium

10-(0

Chapter 10 - Bond Prices and Yields

-(. 1f the volatilit% of interest rates is e2pected to increase7 the 9oe Kill should __. A. prefer the 6ild&ood bond to the Asbur% bond B. prefer the Asbur% bond to the 6ild&ood bond C. be indifferent bet&een the 6ild&ood bond and the Asbur% bond . there is not enou!h information !iven to tell

Difficulty: Medium

-). =ne7 t&o and three %ear maturit%7 default-free7 8ero-coupon bonds have %ields-to-maturit% of -B7 0B and 5B respectivel%. 6hat is the implied one-%ear for&ard rate7 one %ear from toda%: A. #.0B B. 0.0B C. 5.0B . 11.1B 1mplied for&ard rate F 1 I1.0-J I1 G 1J F I1.00J#

Difficulty: Medium

-*. 1f the quote for a Treasur% bond is listed in the ne&spaper as 50L05 bid7 50L1' as"7 the actual price for %ou to purchase this bond !iven a A107000 par value is _____________. A. A570#0.1# B. A57005.'0 C. A570(0.*# . A5701'.(#

Difficulty: Medium

10-(5

Chapter 10 - Bond Prices and Yields

--. 1f the price of a A107000 par Treasur% bond is A107#'-.)0 the quote &ould be listed in the ne&spaper as ________. A. 10#L10 B. 10#L11 C. 10#L1# . 10#L1'

Difficulty: Medium

-0. A bond pa%s a semi-annual coupon and the last coupon &as paid *1 da%s a!o. 1f the annual coupon pa%ment is A-)7 &hat is the accrued interest: A. A1'.#1 B. A1#.)C. A1).(( . A1*.'#

F A1#.)-

Difficulty: Medium

10-)0

Chapter 10 - Bond Prices and Yields

-5. A bond has a flat price of A50) and it pa%s an annual coupon. The last coupon pa%ment &as made 50 da%s a!o. 6hat is the invoice price if the annual coupon is A*5: A. A555.)) B. A1700#.01 C. A1700-.() . A1701#.1'

1nvoice F 50) G I*5J

F A1700#.01

Difficulty: Medium

00. 1f the quote for a Treasur% bond is listed in the ne&spaper as 55L00 bid7 55L11 as"7 the actual price %ou can sell this bond !iven a A107000 par value is _____________. A. A570#0.1# B. A575#).00 C. A575'(.'. A575)).('

Difficulty: Medium

01. A bond has a )B coupon rate. The coupon is paid semi-annuall% and the last coupon &as paid ') da%s a!o. 1f the bond has a par value of A170007 &hat is the accrued interest: A. A(.01 B. A1(.#( C. A#).00 . A)0.00 Accrued interest F I)0E#J 2 I')E10#J F (.01

Difficulty: Medium

10-)1

Chapter 10 - Bond Prices and Yields

0#. The price on a treasur% bond is 10(L#1 &ith a %ield to maturit% of '.()B. The price on a comparable maturit% corporate bond is 10'L11 &ith a %ield to maturit% of (.)5B. 6hat is the appro2imate percenta!e value of the credit ris" of the corporate bond: A. 1.1(B B. '.()B C. (.)5B . 0.0(B Credit ris" premium F (.)5 - '.() F 1.1(B

Difficulty: Medium

0'. You bu% a bond &ith a A17000 par toda% for a price of A0-). The bond has * %ears to maturit% and ma"es annual coupon pa%ments of A-) per %ear. You hold the bond to maturit% but %ou do not reinvest an% of %our coupons. 6hat &as %our effective ;A4 over the holdin! period: A. 10.(0B B. 5.)-B C. -.()B D. 0.-0B I0-)JI1 G ;A4J* F 1000 G I-)JI*J, ;A4 F 0.-0B

Difficulty: Hard

10-)#

Chapter 10 - Bond Prices and Yields

0(. You bu% an 0 %ear A1000 par value bond toda% that has a *B %ield and a *B annual pa%ment coupon. 1n one %ear promised %ields have risen to -B. Your one %ear holdin! period return &as ___. A. 0.*1B B. -).'5B C. 1.#0B . -'.#)B

P1 F I*0J KP4 F F 0.*1B

Difficulty: Hard

0). You bu% a 10 %ear A17000 par 8ero coupon bond priced to %ield *B. You do not sell the bond. 1f %ou are in a #0B ta2 brac"et %ou &ill o&e ta2es on this investment after the first %ear equal to _______. A. A0 B. A(.#C. A5.'0 . A''.)1

Ta2es o&ed IA)51.50 - A))0.'5JI0.#0J F A5.'0

Difficulty: Hard

10-)'

Chapter 10 - Bond Prices and Yields

0*. You bu% a 10 %ear A17000 par (B annual pa%ment coupon bond priced to %ield *B. You do not sell the bond at %ear end. 1f %ou are in a 1)B ta2 brac"et at %ear end %ou &ill o&e ta2es on this investment equal to _______. A. A5.10 B. A(.#) C. A-.*0 . A).#0

Ta2es o&ed IA0*'.5- - A0)#.00 G A(0JI0.1)J F A-.*0

Difficulty: Hard

0-. An investor pa%s A505.(0 for a bond. The bond has an annual coupon rate of (.0B. 6hat is the current %ield on this bond: A. (.00B B. (.0)B C. 5.*0B . 5.-0B Current %ield F (0E505.( F .0(0)

Difficulty: Medium

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Chapter 10 - Bond Prices and Yields

00. 1f the coupon rate on a bond is (.)0B and the bond is sellin! at a premium7 &hich of the follo&in! is the most li"el% %ield to maturit% on the bond: A. (.'0B B. (.)0B C. ).#0B . ).)0B A bond sells at premium &hen coupon rate N YT?.

Difficulty: Medium

05. The price of a bond at the be!innin! of a period is A500.00 and A5-).00 at the end of the period. 6hat is the holdin! period return if the annual coupon rate is (.)B: A. (.00B B. (.)0B C. ).10B . ).*B KP4 F I5-) - 500 G ()JE500 F (.00B

Difficulty: Medium

50. A bond &as purchased at a premium and is no& sellin! at a discount because of a chan!e in mar"et interest rates. 1f the bond pa%s a (B annual coupon7 &hat is the li"el% impact on the holdin! period return in an investor decides to sell no&: A. 1ncreased B. ecreased C. $ta%ed the same . Can not be determined

Difficulty: Easy

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Chapter 10 - Bond Prices and Yields

51. The ___________ is the document definin! the contract bet&een the bond issuer and the bondholder. A. indenture B. covenant a!reement C. trustee a!reement . collateral statement

Difficulty: Easy

5#. You hold a subordinated debenture in a firm. 1n the event of ban"ruptc% %ou &ill be paid off before &hich one of the follo&in!: A. ?ort!a!e bonds B. $enior debentures C. Preferred stoc" . ;quipment obli!ation bonds

Difficulty: Easy

5'. 1f %ou are holdin! a premium bond %ou must e2pect a _______ each %ear until maturit%. 1f %ou are holdin! a discount bond %ou must e2pect a _______ each %ear until maturit%. A. capital !ain, capital loss B. capital !ain, capital !ain C. capital loss, capital !ain . capital loss, capital loss

Difficulty: Easy

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