Question 1

If the nominal rate of return on a bond is 8.59 percent and the real rate is 3.87 percent,what is the rate of inflation?

Accepted Answer

A)  4.54%
B)  5.39%
C)  6.87%
D)  12.46%
E)  13.82%F) C) and D)
G) B) and C)

Question 2

All else constant,a bond will sell at _____ when the yield to maturity is _____ the coupon rate.

Accepted Answer

A)  at par;less than
B)  a premium;equal to
C)  at par;higher than
D)  a discount;higher than
E)  a premium;higher thanF) A) and D)
G) A) and C)

Question 3

Which bond has interest that is taxed only at the federal level?

Accepted Answer

A)  Municipal bond
B)  Corporate,unsecured bond
C)  Treasury bond
D)  Corporate,secured bond
E)  Corporate,zero coupon bondF) B) and E)
G) B) and C)

Question 4

Assume a bond yields a real rate of return of 3.6 percent during a time when inflation is 1.87 percent.What would the actual nominal rate of return be?

Accepted Answer

A)  5.61%
B)  5.46%
C)  5.49%
D)  5.54%
E)  5.57%F) A) and B)
G) A) and C)

Question 5

Atlas bonds have a face value of $1,000,mature in 6 years,pay interest semiannually,and have a coupon rate of 4.5 percent.The next interest payment will be paid two months from today.What is the clean price of this bond if the market rate of return is 5.1 percent?

Accepted Answer

A)  $954.32
B)  $969.32
C)  $971.08
D)  $984.32
E)  $986.08 F) B) and D)
G) None of the above

Question 6

Antonio's offers a 10-year bond that has a coupon rate of 5 percent and semiannual payments.The face value is $1,000 and the yield to maturity is 12.6 percent.What is the current value of this bond?

Accepted Answer

A)  $273.09
B)  $580.92
C)  $574.56
D)  $605.92
E)  $854.46 F) B) and C)
G) C) and D)

Question 7

A bond with a 5 percent coupon that pays interest semiannually and is priced at par will have a market price of _____ and interest payments in the amount of _____ each.

Accepted Answer

A)  $1,005;$50
B)  $1,050;$25
C)  $1,050;$50
D)  $1,000;$50
E)  $1,000;$25F) A) and C)
G) D) and E)

Question 8

A $1,000 face value Treasury bond matures in 16 years,pays interest semiannually,and has a market quote of 101.0210.The coupon rate is 3.5 percent,the current yield is ___ percent,and the yield to maturity is ____ percent.

Accepted Answer

A)  3.46;3.42
B)  3.46;3.39
C)  3.50;3.58
D)  3.54;3.62
E)  3.54;3.59 F) A) and B)
G) C) and D)

Question 9

A $5,000 face value zero coupon bond is quoted at a price of 46.874.What is the amount you would pay to purchase this bond today?

Accepted Answer

A)  $4,687.40
B)  $46.87
C)  $2,343.70
D)  $234.37
E)  $468.74F) B) and D)
G) All of the above

Question 10

A discount bond has a coupon rate that:

Accepted Answer

A)  exceeds its current yield.
B)  is less than the bond's yield to maturity.
C)  exceeds both its current yield and its yield to maturity.
D)  equals its current yield.
E)  equals its current yield provided the bond pays interest annually.F) A) and D)
G) C) and E)

Question 11

Interest rate risk _____ as the time to maturity increases.

Accepted Answer

A)  increases at an increasing rate
B)  increases at a decreasing rate
C)  increases at a constant rate
D)  decreases at an increasing rate
E)  decreases at a decreasing rateF) B) and E)
G) A) and C)

Question 12

A bond with both a face value and a market value of $1,000 is called a _____ bond.

Accepted Answer

A)  par value
B)  premium
C)  discount
D)  zero coupon
E)  floating rateF) A) and B)
G) A) and C)

Question 13

The Rose Shoppe offers 10-year,8 percent coupon bonds with semiannual payments and a yield to maturity of 8.24 percent.What is the market price of a $1,000 face value bond?

Accepted Answer

A)  $990.32
B)  $983.86
C)  $1,108.16
D)  $1,521.75
E)  $591.04 F) A) and E)
G) A) and D) B

Question 14

Your firm offers a 20-year,semiannual coupon bond with a yield to maturity of 8.35 percent,a face value of $1,000,and a market price of $1,054.What is the coupon rate?

Accepted Answer

A)  8.91%
B)  4.46%
C)  17.64%
D)  8.82%
E)  17.82% F) A) and E)
G) C) and D) A

Question 15

You own a fixed-rate bond that has a coupon rate of 6.5 percent and matures in 12 years.You purchased this bond at par value when it was originally issued.If the current market rate for this type and quality of bond is 6.8 percent,then you would expect:

Accepted Answer

A)  the bond issuer to increase the amount of each interest payment.
B)  the yield to maturity to remain constant due to the fixed coupon rate.
C)  the current yield today to be less than 6.5 percent.
D)  today's market price to exceed the face value of the bond.
E)  to realize a capital loss if you sold the bond at the market price today.F) B) and E)
G) A) and B)

Question 16

Assume a discount bond has a few years until maturity and a positive yield.All else constant,the bonds' yield to maturity is:

Accepted Answer

A)  directly related to the time to maturity.
B)  equal to the coupon rate.
C)  inversely related to the bond's market price.
D)  unrelated to the time to maturity.
E)  less than its coupon rate.F) A) and E)
G) A) and B)

Question 17

Deep Hollow Welding's bond pays a coupon rate of 6.5 percent,has a yield to maturity of 6.98 percent,and a face value of $1,000.The current rate of inflation is 2.68 percent.What is the real rate of return on these bonds?

Accepted Answer

A)  4.31%
B)  4.19%
C)  3.82%
D)  .48%
E)  1.48%F) All of the above
G) A) and B)

Question 18

The written,legally binding agreement between a corporate borrower and its lenders detailing all of the terms of a bond issue is called the:

Accepted Answer

A)  indenture.
B)  covenant.
C)  terms of trade.
D)  put provision.
E)  call provision.F) B) and D)
G) B) and C)

Question 19

The term structure of interest rates reflects the:

Accepted Answer

A)  pure time value of money for various lengths of time.
B)  actual risk premium being paid for corporate bonds of varying maturities.
C)  pure inflation adjustment applied to bonds of various maturities.
D)  interest rate risk premium applicable to bonds of varying maturities.
E)  nominal interest rates applicable to coupon bonds of varying maturities.F) None of the above
G) A) and B) A

Question 20

Interest rates or rates of return on investments that have been adjusted for the effects of inflation are called _____ rates.

Accepted Answer

A)  real
B)  nominal
C)  effective
D)  stripped
E)  couponF) B) and D)
G) C) and D)

Exam 5: Interest Rates and Bond Valuation

If the nominal rate of return on a bond is 8.59 percent and the real rate is 3.87 percent,what is the rate of inflation?

Correct AnswerverifiedShow Answer

All else constant,a bond will sell at _____ when the yield to maturity is _____ the coupon rate.

Correct AnswerverifiedShow Answer

Which bond has interest that is taxed only at the federal level?

Correct AnswerverifiedShow Answer

Assume a bond yields a real rate of return of 3.6 percent during a time when inflation is 1.87 percent.What would the actual nominal rate of return be?

Correct AnswerverifiedShow Answer

Atlas bonds have a face value of $1,000,mature in 6 years,pay interest semiannually,and have a coupon rate of 4.5 percent.The next interest payment will be paid two months from today.What is the clean price of this bond if the market rate of return is 5.1 percent?

Correct AnswerverifiedShow Answer

Antonio's offers a 10-year bond that has a coupon rate of 5 percent and semiannual payments.The face value is $1,000 and the yield to maturity is 12.6 percent.What is the current value of this bond?

Correct AnswerverifiedShow Answer

A bond with a 5 percent coupon that pays interest semiannually and is priced at par will have a market price of _____ and interest payments in the amount of _____ each.

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A $1,000 face value Treasury bond matures in 16 years,pays interest semiannually,and has a market quote of 101.0210.The coupon rate is 3.5 percent,the current yield is ___ percent,and the yield to maturity is ____ percent.

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A $5,000 face value zero coupon bond is quoted at a price of 46.874.What is the amount you would pay to purchase this bond today?

Correct AnswerverifiedShow Answer

A discount bond has a coupon rate that:

Correct AnswerverifiedShow Answer

Interest rate risk _____ as the time to maturity increases.

Correct AnswerverifiedShow Answer

A bond with both a face value and a market value of $1,000 is called a _____ bond.

Correct AnswerverifiedShow Answer

The Rose Shoppe offers 10-year,8 percent coupon bonds with semiannual payments and a yield to maturity of 8.24 percent.What is the market price of a $1,000 face value bond?

Correct AnswerverifiedB

Your firm offers a 20-year,semiannual coupon bond with a yield to maturity of 8.35 percent,a face value of $1,000,and a market price of $1,054.What is the coupon rate?

Correct AnswerverifiedA

You own a fixed-rate bond that has a coupon rate of 6.5 percent and matures in 12 years.You purchased this bond at par value when it was originally issued.If the current market rate for this type and quality of bond is 6.8 percent,then you would expect:

Correct AnswerverifiedShow Answer

Assume a discount bond has a few years until maturity and a positive yield.All else constant,the bonds' yield to maturity is:

Correct AnswerverifiedShow Answer

Deep Hollow Welding's bond pays a coupon rate of 6.5 percent,has a yield to maturity of 6.98 percent,and a face value of $1,000.The current rate of inflation is 2.68 percent.What is the real rate of return on these bonds?

Correct AnswerverifiedShow Answer

The written,legally binding agreement between a corporate borrower and its lenders detailing all of the terms of a bond issue is called the:

Correct AnswerverifiedShow Answer

The term structure of interest rates reflects the:

Correct AnswerverifiedA

Interest rates or rates of return on investments that have been adjusted for the effects of inflation are called _____ rates.

Correct AnswerverifiedShow Answer

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All else constant,a bond will sell at _ when the yield to maturity is _ the coupon rate.

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A bond with a 5 percent coupon that pays interest semiannually and is priced at par will have a market price of _ and interest payments in the amount of _ each.

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A $1,000 face value Treasury bond matures in 16 years,pays interest semiannually,and has a market quote of 101.0210.The coupon rate is 3.5 percent,the current yield is _ percent,and the yield to maturity is __ percent.

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A

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A

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