Republic of the Philippines

Department of Education
Region II Division of Cagayan

Malia Rosario College

College of Business Administration
Third Year 1st Sem

Finals in Investment and Portfolio Management

I. MULTIPLE CHOICE (20 ITEMS)

Direction: Encircle the correct answer.

1. The process that links risk and return to determine the worth of an asset.
a. Valuation
b. Standardization
c. Rate of return
d. Management

2. Long-term debt instruments used by business and government to raise large sums of
money, typically from a diverse group of lenders.
a. Stocks
b. Bonds
c. Income properties
d. Investments

3. It is the compound annual rate of return earned on a debt security purchased on a given
day and held to maturity.
a. Yield to Maturity
b. Sales receivables
c. Non-trade receivables
d. Non-sales receivables

4. There are three key inputs to the valuation process except.

a. Yield to maturity
b. Cash flows
c. Timing
d. Risk and Required Return

5. The value of any asset is the _____ of all future cash flows it is expected to provide over
the relevant time period.
a. Market value
b. Book value
c. Present value
d. Liquidation value

6. The combination of the cash flow and its _____ fully defines the return expected from the
asset.
a. Yield to maturity
b. Cash flows
c. Timing
d. Risk and Required Return
7. The value of any asset depends on the _______ it is expected to provide over the
ownership period.
 a. Yield to maturity
b. Cash flows
c. Timing
d. Risk and Required Return

8. It refers that the greater the risk of a cash flow, the lower its value.
a. Yield to maturity
b. Cash flows
c. Timing
d. Risk and Required Return

9. The amount by which a bond sells below its par value.

a. premium
b. discount
c. market value
d. book value

10. The amount by which a bond sells above its par value.
a. premium
b. discount
c. market value
d. book value

11. The chance that interests rates will change and thereby change the required return and
bond value.
a. Yield to maturity
b. Interest rate risk
c. Fixed cost
d. Variable cost

12. Most corporate bonds pay interest semiannually.

a. 3 months
b. 4 months
c. 5 months
d. 6 months

13. The rise in interest rates and in the required return causes ____ in bond value.
a. increase
b. decrease
c. constant
d. no effect

14. Short maturities have ____ interest rate risk than long maturities when all other features
are the same.
a. more
b. less
c. no effect
d. none of the above

15. When the bond value differs from par, the yield to maturity will differ from the _______.
a. coupon interest rate
b. annual interest rate
c. required return
d. interest payment

16. When the bond sells at a discount , the value with semiannual interest will be ______ than
with annual interest. .
 a. greater
b. lower
c. neutral
d. the same

17. When the bond sells at a premium, the value with semiannual interest will be ______
than with annual interest.
a. greater
b. lower
c. neutral
d. the same

18. To find the present value of bonds paying interest semiannually, we need to convert
____, I, to semiannual interest by dividing I by 2.
a. coupon interest
b. annual interest
c. yield to maturity
d. required return

19. When all are known, the required return is the bond’s _____.
a. coupon interest
b. annual interest
c. yield to maturity
d. required return

20. Yield to maturity can be known through ____.

a. trial and error
b. prediction
c. statistics
d. none of the above

II. True of False (10 items): Write T if the statement is true and F if it’s not.

1. The value of any asset depends on the timing it is expected to provide over
the ownership period.
2. In making cash flow estimates, we must know the timing of the cash flows.
3. The level of risk associated with a given cash flow can significantly affect its
value.
4. The greater the risk of a cash flow, the greater its value.
5. Most corporate bonds have a par value, or face value, of $1,000 that must
be repaid at maturity.
6. The value of a bond is the market value of the payments its issuer is
contractually obligated to make from the current time until it matures.
7. Economic conditions does not affect the required return and coupon
interest rate.
8. The changed in firm’s risk does affect the required return and coupon
interest rate.
9. When the bond sells at a discount, the value with semiannual interest will
be greater than with annual interest.
10. When the bond sells at a premium, the value with semiannual interest will
be lower than with annual interest.
III. MATCHING TYPE (10 Items): Match the columns by putting the letter of the correct
answer on the space provided before each number.

1. value of any asset at time zero

A.

2. basic model for the value of a bond B. M - B0

3. yield to maturity on a bond C.

4. value bonds paying interest D.

semiannually

5. bond sell at a discount

E.

6. bond sell at a premium F. 2n

7. bond with a current price equal to its G.

par value

8. interest semiannually H. B0 - M

9. number of years to maturity

semiannually
I.

10. required annual return to semiannual J. B0 = M

rate

IV. Straight Problems (20 points : 5 points each): Answer the following items. Use separate
sheets of paper to support your answers.

A. Find the price of the original bond (coupon rate = 5%, $1,000 face value, discount rate of
6%) if the term to maturity changes to:
1. 2 years
2. 10 years
3. 30 years

B. Mills Company’s bond has a 10% coupon interest rate and $1,000 par value and has 10
years to maturity. Assuming that the Mills Company bond pays interest semiannually and that
the required stated annual return, rd , is 15% for similar-risk bonds that also pay semiannual
interest. 4.) Find the value of the bond paying interest semiannually.

PREPARED BY: CHECKED BY:

ELEINE T. ALVAREZ
BA Instructor BSBA Coordinator

APPROVED BY:

ROMEO M. PASCUA, Ph.D.

Vice President of Academic Affairs