Question 1

Interest rates that include an inflation premium are referred to as:

Accepted Answer

A)  annual percentage rates.
B)  stripped rates.
C)  effective annual rates.
D)  real rates.
E)  nominal rates.F) A) and B)
G) A) and C)

Question 2

The Fisher effect is defined as the relationship between which of the following variables?

Accepted Answer

A)  default risk premium, inflation risk premium, and real rates
B)  nominal rates, real rates, and interest rate risk premium
C)  interest rate risk premium, real rates, and default risk premium
D)  real rates, inflation rates, and nominal rates
E)  real rates, interest rate risk premium, and nominal ratesF) B) and C)
G) None of the above

Question 3

The semiannual, 8-year bonds of Alto Music are selling at par and have an effective annual yield of 8.6285 percent. What is the amount of each interest payment if the face value of the bonds is $1,000?

Accepted Answer

A)  $41.50
B)  $42.25
C)  $43.15
D)  $85.00
E)  $86.29F) All of the above
G) A) and B)

Question 4

Which one of the following statements concerning bond ratings is correct?

Accepted Answer

A)  Investment grade bonds are rated BB or higher by Standard & Poor's.
B)  Bond ratings assess both interest rate risk and default risk.
C)  Split rated bonds are called crossover bonds.
D)  The highest rating issued by Moody's is AAA.
E)  A "fallen angel" is a term applied to all "junk" bonds.F) A) and C)
G) B) and D)

Question 5

Texas Foods has a 6 percent bond issue outstanding that pays $30 in interest every March and September. The bonds are investment grade and sell at par. The bonds are callable at a price equal to the present value of all future interest and principal payments discounted at a rate equal to the comparable Treasury rate plus 0.50 percent. Which of the following correctly describe the features of this bond?
I. bond rating of B
II. "make whole" call price
III. $1,000 face value
IV. offer price of $1,000

Accepted Answer

A)  I and III only
B)  III and IV only
C)  I, III, and IV only
D)  II, III, and IV only
E)  I, II, III, and IVF) B) and E)
G) C) and E)

Question 6

You own a bond that has a 6 percent annual coupon and matures 5 years from now. You purchased this 10-year bond at par value when it was originally issued. Which one of the following statements applies to this bond if the relevant market interest rate is now 5.8 percent?

Accepted Answer

A)  The current yield-to-maturity is greater than 6 percent.
B)  The current yield is 6 percent.
C)  The next interest payment will be $30.
D)  The bond is currently valued at one-half of its issue price.
E)  You will realize a capital gain on the bond if you sell it today.F) B) and E)
G) A) and E)

Question 7

A bond's coupon rate is equal to the annual interest divided by which one of the following?

Accepted Answer

A)  call price
B)  current price
C)  face value
D)  clean price
E)  dirty priceF) A) and B)
G) A) and C)

Question 8

Recently, you discovered a putable income bond that is convertible. If you purchase this bond, you will have the right to do which of the following?
I. force the issuer to repurchase the bond prior to maturity
II. choose when you wish to receive interest payments
III. convert the bond into a TIPS
IV. convert the bond into equity shares

Accepted Answer

A)  I and III only
B)  I and IV only
C)  II and III only
D)  III and IV only
E)  I, II, and IV onlyF) B) and D)
G) B) and C)

Question 9

Northern Warehouses wants to raise $11.4 million to expand its business. To accomplish this, it plans to sell 40-year, $1,000 face value, zero-coupon bonds. The bonds will be priced to yield 8.75 percent. What is the minimum number of bonds it must sell to raise the $11.4 million it needs?

Accepted Answer

A)  210,411
B)  239,800
C)  254,907
D)  326,029
E)  350,448F) A) and C)
G) D) and E)

Question 10

A 6 percent, annual coupon bond is currently selling at a premium and matures in 7 years. The bond was originally issued 3 years ago at par. Which one of the following statements is accurate in respect to this bond today?

Accepted Answer

A)  The face value of the bond today is greater than it was when the bond was issued.
B)  The bond is worth less today than when it was issued.
C)  The yield-to-maturity is less than the coupon rate.
D)  The coupon rate is greater than the current yield.
E)  The yield-to-maturity equals the current yield.F) B) and D)
G) C) and D)

Question 11

You purchase a bond with an invoice price of $1,460. The bond has a coupon rate of 9.4 percent, and there are 3 months to the next semiannual coupon date. What is the clean price of this bond?

Accepted Answer

A)  $1,436.50
B)  $1,452.17
C)  $1,460.00
D)  $1,467.83
E)  $1,483.50F) A) and E)
G) B) and E)

Question 12

Treasury bonds are:

Accepted Answer

A)  issued by any governmental agency in the U.S.
B)  issued only on the first day of each fiscal year by the U.S.Department of Treasury.
C)  bonds that offer the best tax benefits of any bonds currently available.
D)  generally issued as semi-annual coupon bonds.
E)  totally risk-free.F) B) and D)
G) B) and C)

Question 13

Bonds issued by the U.S. government:

Accepted Answer

A)  are considered to be free of interest rate risk.
B)  generally have higher coupons than those issued by an individual state.
C)  are considered to be free of default risk.
D)  pay interest that is exempt from federal income taxes.
E)  are called "munis".F) A) and E)
G) B) and C)

Question 14

Which of the following are characteristics of a premium bond?
I. coupon rate  yield-to-maturity
III. coupon rate  current yield

Accepted Answer

A)  I only
B)  I and III only
C)  I and IV only
D)  II and III only
E)  II and IV onlyF) All of the above
G) A) and D)

Question 15

The outstanding bonds of Winter Time Products provide a real rate of return of 3.03 percent. The current rate of inflation is 4.68 percent. What is the actual nominal rate of return on these bonds?

Accepted Answer

A)  7.58 percent
B)  7.33 percent
C)  7.71 percent
D)  7.76 percent
E)  7.85 percentF) D) and E)
G) C) and E)

Question 16

The Leeward Company just issued 15-year, 8 percent, unsecured bonds at par. These bonds fit the definition of which one of the following terms?

Accepted Answer

A)  note
B)  discounted
C)  zero-coupon
D)  callable
E)  debentureF) B) and C)
G) B) and D)

Question 17

Bryceton, Inc. has bonds on the market with 13 years to maturity, a yield-to-maturity of 9.2 percent, and a current price of $895.09. The bonds make semiannual payments. What is the coupon rate?

Accepted Answer

A)  7.80 percent
B)  8.00 percent
C)  8.25 percent
D)  8.40 percent
E)  8.65 percentF) B) and C)
G) C) and D)

Question 18

The interest rate risk premium is the:

Accepted Answer

A)  additional compensation paid to investors to offset rising prices.
B)  compensation investors demand for accepting interest rate risk.
C)  difference between the yield to maturity and the current yield.
D)  difference between the market interest rate and the coupon rate.
E)  difference between the coupon rate and the current yield.F) A) and E)
G) B) and E)

Question 19

A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus any accrued interest. The additional $30 is called which one of the following?

Accepted Answer

A)  dirty price
B)  redemption value
C)  call premium
D)  original-issue discount
E)  redemption discountF) B) and C)
G) A) and E)

Question 20

Kaiser Industries has bonds on the market making annual payments, with 14 years to maturity, and selling for $1,382.01. At this price, the bonds yield 7.5 percent. What is the coupon rate?

Accepted Answer

A)  8.00 percent
B)  8.50 percent
C)  9.00 percent
D)  10.50 percent
E)  12.00 percentF) D) and E)
G) C) and E)

Exam 7: Interest Rates and Bond Valuation

Which of the following are characteristics of a premium bond? I. coupon rate < yield-to-maturity II. coupon rate > yield-to-maturity III. coupon rate < current yield IV. coupon rate > current yield

Correct Answer
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Correct Answer
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Which one of the following statements concerning bond ratings is correct?

Correct Answer
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Northern Warehouses wants to raise $11.4 million to expand its business. To accomplish this, it plans to sell 40-year, $1,000 face value, zero-coupon bonds. The bonds will be priced to yield 8.75 percent. What is the minimum number of bonds it must sell to raise the $11.4 million it needs?

Correct Answer
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A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus any accrued interest. The additional $30 is called which one of the following?

Correct Answer
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Treasury bonds are:

Correct Answer
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The outstanding bonds of Winter Time Products provide a real rate of return of 3.03 percent. The current rate of inflation is 4.68 percent. What is the actual nominal rate of return on these bonds?

Correct Answer
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Interest rates that include an inflation premium are referred to as:

Correct Answer
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You purchase a bond with an invoice price of $1,460. The bond has a coupon rate of 9.4 percent, and there are 3 months to the next semiannual coupon date. What is the clean price of this bond?

Correct Answer
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The interest rate risk premium is the:

Correct Answer
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A 6 percent, annual coupon bond is currently selling at a premium and matures in 7 years. The bond was originally issued 3 years ago at par. Which one of the following statements is accurate in respect to this bond today?

Correct Answer
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The Fisher effect is defined as the relationship between which of the following variables?

Correct Answer
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Kaiser Industries has bonds on the market making annual payments, with 14 years to maturity, and selling for $1,382.01. At this price, the bonds yield 7.5 percent. What is the coupon rate?

Correct Answer
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A bond's coupon rate is equal to the annual interest divided by which one of the following?

Correct Answer
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You own a bond that has a 6 percent annual coupon and matures 5 years from now. You purchased this 10-year bond at par value when it was originally issued. Which one of the following statements applies to this bond if the relevant market interest rate is now 5.8 percent?

Correct Answer
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The semiannual, 8-year bonds of Alto Music are selling at par and have an effective annual yield of 8.6285 percent. What is the amount of each interest payment if the face value of the bonds is $1,000?

Correct Answer
verified

Bryceton, Inc. has bonds on the market with 13 years to maturity, a yield-to-maturity of 9.2 percent, and a current price of $895.09. The bonds make semiannual payments. What is the coupon rate?

Correct Answer
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Bonds issued by the U.S. government:

Correct Answer
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The Leeward Company just issued 15-year, 8 percent, unsecured bonds at par. These bonds fit the definition of which one of the following terms?

Correct Answer
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Correct Answer
verified

Exam 7: Interest Rates and Bond Valuation

Which of the following are characteristics of a premium bond? I. coupon rate < yield-to-maturity II. coupon rate > yield-to-maturity III. coupon rate < current yield IV. coupon rate > current yield

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following statements concerning bond ratings is correct?

Correct AnswerverifiedShow Answer

Northern Warehouses wants to raise $11.4 million to expand its business. To accomplish this, it plans to sell 40-year, $1,000 face value, zero-coupon bonds. The bonds will be priced to yield 8.75 percent. What is the minimum number of bonds it must sell to raise the $11.4 million it needs?

Correct AnswerverifiedShow Answer

A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus any accrued interest. The additional $30 is called which one of the following?

Correct AnswerverifiedShow Answer

Treasury bonds are:

Correct AnswerverifiedShow Answer

The outstanding bonds of Winter Time Products provide a real rate of return of 3.03 percent. The current rate of inflation is 4.68 percent. What is the actual nominal rate of return on these bonds?

Correct AnswerverifiedShow Answer

Interest rates that include an inflation premium are referred to as:

Correct AnswerverifiedShow Answer

You purchase a bond with an invoice price of $1,460. The bond has a coupon rate of 9.4 percent, and there are 3 months to the next semiannual coupon date. What is the clean price of this bond?

Correct AnswerverifiedShow Answer

The interest rate risk premium is the:

Correct AnswerverifiedShow Answer

A 6 percent, annual coupon bond is currently selling at a premium and matures in 7 years. The bond was originally issued 3 years ago at par. Which one of the following statements is accurate in respect to this bond today?

Correct AnswerverifiedShow Answer

The Fisher effect is defined as the relationship between which of the following variables?

Correct AnswerverifiedShow Answer

Kaiser Industries has bonds on the market making annual payments, with 14 years to maturity, and selling for $1,382.01. At this price, the bonds yield 7.5 percent. What is the coupon rate?

Correct AnswerverifiedShow Answer

A bond's coupon rate is equal to the annual interest divided by which one of the following?

Correct AnswerverifiedShow Answer

You own a bond that has a 6 percent annual coupon and matures 5 years from now. You purchased this 10-year bond at par value when it was originally issued. Which one of the following statements applies to this bond if the relevant market interest rate is now 5.8 percent?

Correct AnswerverifiedShow Answer

The semiannual, 8-year bonds of Alto Music are selling at par and have an effective annual yield of 8.6285 percent. What is the amount of each interest payment if the face value of the bonds is $1,000?

Correct AnswerverifiedShow Answer

Bryceton, Inc. has bonds on the market with 13 years to maturity, a yield-to-maturity of 9.2 percent, and a current price of $895.09. The bonds make semiannual payments. What is the coupon rate?

Correct AnswerverifiedShow Answer

Bonds issued by the U.S. government:

Correct AnswerverifiedShow Answer

The Leeward Company just issued 15-year, 8 percent, unsecured bonds at par. These bonds fit the definition of which one of the following terms?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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