Question 1

Which of the following characteristics are most commonly associated with corporate bonds issued in the U.S.? I. registered form
II)  bearer form
III)  quarterly coupon payments
IV)  semiannual coupon payments

Accepted Answer

A)   I and III only
B)   I and IV only
C)   II and III only
D)   II and IV only
E)   III onlyF) B) and E)
G) None of the above

Question 2

The $1,000 face value bonds of Jasper International have a 7.5 percent coupon and pay interest annually. Currently, the bonds are quoted at 98.27 and mature in 3.5 years. What is the yield to maturity?

Accepted Answer

A)   6.97 percent
B)   7.10 percent
C)   7.24 percent
D)   7.78 percent
E)   8.09 percentF) A) and B)
G) A) and C)

Question 3

LKM, Inc. wants to issue new 20-year bonds for some much-needed expansion projects. The company currently has 6.5 percent coupon bonds on the market that sell for $972.78, make semiannual payments, and mature in 20 years. What coupon rate should the company set on its new bonds if it wants them to sell at par?

Accepted Answer

A)   6.25 percent
B)   6.37 percent
C)   6.50 percent
D)   6.67 percent
E)   6.75 percentF) C) and E)
G) A) and B)

Question 4

A $1,000 face value bond currently has a yield to maturity of 6.69 percent. The bond matures in 3 years and pays interest annually. The coupon rate is 7 percent. What is the current price of this bond?

Accepted Answer

A)   $948.01
B)   $949.60
C)   $1,005.26
D)   $1,008.18
E)   $1,010.13F) A) and C)
G) C) and E)

Question 5

The Outlet needs to raise $3.2 million for an expansion project. The firm wants to raise this money by selling zero coupon bonds with a par value of $1,000 that mature in 20 years. The market yield on similar bonds is 7.8 percent. How many bonds must The Outlet sell to raise the money it needs? (Assume semi-annual compounding.)

Accepted Answer

A)   3,200 bond
B)   3,450 bond
C)   11,508 bond
D)   13,797 bond
E)   14,783 bondsF) A) and D)
G) A) and C)

Question 6

What is the principal amount of a bond that is repaid at the end of the loan term called?

Accepted Answer

A)   Coupon
B)   Market price
C)   Accrued price
D)   Dirty price
E)   Face valueF) A) and B)
G) A) and C)

Question 7

Manning, Inc. originally issued bonds that were rated investment grade. These bonds have now been downgraded to junk status. Which one of the following terms applies to this situation?

Accepted Answer

A)   Called bond
B)   Converted bond
C)   Protected covenant
D)   Fallen angel
E)   Floating bondF) A) and C)
G) A) and D)

Question 8

A 6-year, semiannual coupon bond is selling for $991.38. The bond has a face value of $1,000 and a yield to maturity of 9.19 percent. What is the coupon rate?

Accepted Answer

A)   4.50 percent
B)   4.60 percent
C)   6.00 percent
D)   9.00 percent
E)   9.19 percentF) C) and D)
G) All of the above

Question 9

Red Mountain, Inc. bonds have a face value of $1,000. The bonds carry a 7 percent coupon, pay interest semiannually, and mature in 13.5 years. What is the current price of these bonds if the yield to maturity is 6.82 percent?

Accepted Answer

A)   $989.50
B)   $994.56
C)   $1,015.72
D)   $1,018.27
E)   $1,020.00F) C) and E)
G) B) and E)

Question 10

The annual interest divided by the face value of a bond is referred to as the:

Accepted Answer

A)   market rate.
B)   call rate.
C)   coupon rate.
D)   current yield.
E)   yield-to-maturity.F) B) and D)
G) C) and D)

Question 11

The 8 percent, $1,000 face value bonds of Glenmore Foods are currently selling at $1,027. These bonds have 16 years left until maturity. What is the current yield?

Accepted Answer

A)   7.71 percent
B)   7.79 percent
C)   8.00 percent
D)   8.23 percent
E)   8.28 percentF) C) and D)
G) A) and D)

Question 12

Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value?

Accepted Answer

A)   Interest rate risk premium
B)   Inflation premium
C)   Liquidity premium
D)   Taxability premium
E)   Default risk premiumF) B) and C)
G) A) and E)

Question 13

Kurt's Forest Products is currently issuing both 5-year and 10-year bonds at par. The bonds each pay 6.5 percent annual interest and have face values of $1,000. You decide to purchase one of each of these bonds. Assume the yield to maturity on each of these bonds is 7.4 percent one year from now. Given this, you will realize _____ percent price depreciation on the 5-year bond and _____ percent price depreciation on the 10-year bond.

Accepted Answer

A)   3.02; 3.39
B)   3.02; 4.08
C)   3.02; 5.77
D)   3.39; 4.08
E)   3.39; 5.77F) B) and E)
G) A) and D)

Question 14

Which one of the following might be included in a bond's list of negative covenants?

Accepted Answer

A)   Maintaining a current ratio of 1.2 or more
B)   Maintaining a minimum cash balance of $1.2 million
C)   Limiting cash dividends to $1 per share or less
D)   Maintaining a times interest earned ratio of 2 or more
E)   Providing audited financial statements in a timely mannerF) None of the above
G) B) and D) C

Question 15

Arts and Crafts Warehouse wants to issue 15-year, zero coupon bonds that yield 7.5 percent. What price should it charge for these bonds if the face value is $1,000? (Assume semi-annual compounding.)

Accepted Answer

A)   $308.15
B)   $331.40
C)   $356.08
D)   $362.14
E)   $369.94F) C) and E)
G) A) and D) B

Question 16

A registered form bond is defined as a bond that:

Accepted Answer

A)   is a bearer bond.
B)   is held in street name.
C)   pays coupon payments directly to the owner of record.
D)   is listed with the Securities Exchange Commission (SE
C)  .
E)   is unsecured.F) B) and D)
G) B) and C)

Question 17

Which one of the following individuals is most apt to purchase a municipal bond?

Accepted Answer

A)   Minimum-wage employee
B)   Retired individual with minimal current income
C)   Recent college graduate
D)   Tax-exempt organization
E)   Highly-compensated business ownerF) B) and E)
G) All of the above

Question 18

If your nominal rate of return is 14.38 percent and your real rate of return is 3.97 percent, what is the inflation rate?

Accepted Answer

A)   8.47 percent
B)   10.01 percent
C)   10.54 percent
D)   18.35 percent
E)   18.92 percentF) A) and D)
G) A) and B)

Question 19

The Road House would like to issue some semiannual coupon bonds at par. Comparable bonds have a current yield of 8.16 percent, an effective annual yield of 8.68 percent, and a yield to maturity of 8.50 percent. What coupon rate should The Road House set on its bonds?

Accepted Answer

A)   8.00 percent
B)   8.16 percent
C)   8.50 percent
D)   8.68 percent
E)   9.00 percentF) A) and B)
G) A) and C)

Question 20

A bond has a 7 percent coupon rate, a face value of $1,000, semiannual payments, and sells at par. The current yield is _____ percent and the effective annual yield is _____ percent.

Accepted Answer

A)   6.76; 6.87
B)   6.76; 6.96
C)   7.00; 7.00
D)   7.00; 7.12
E)   7.23; 7.23F) All of the above
G) A) and C) D

Exam 6: Interest Rates and Bond Valuation

Which of the following characteristics are most commonly associated with corporate bonds issued in the U.S.? I. registered form II) bearer form III) quarterly coupon payments IV) semiannual coupon payments

Correct Answer
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The $1,000 face value bonds of Jasper International have a 7.5 percent coupon and pay interest annually. Currently, the bonds are quoted at 98.27 and mature in 3.5 years. What is the yield to maturity?

Correct Answer
verified

Correct Answer
verified

A $1,000 face value bond currently has a yield to maturity of 6.69 percent. The bond matures in 3 years and pays interest annually. The coupon rate is 7 percent. What is the current price of this bond?

Correct Answer
verified

Correct Answer
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What is the principal amount of a bond that is repaid at the end of the loan term called?

Correct Answer
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Manning, Inc. originally issued bonds that were rated investment grade. These bonds have now been downgraded to junk status. Which one of the following terms applies to this situation?

Correct Answer
verified

A 6-year, semiannual coupon bond is selling for $991.38. The bond has a face value of $1,000 and a yield to maturity of 9.19 percent. What is the coupon rate?

Correct Answer
verified

Red Mountain, Inc. bonds have a face value of $1,000. The bonds carry a 7 percent coupon, pay interest semiannually, and mature in 13.5 years. What is the current price of these bonds if the yield to maturity is 6.82 percent?

Correct Answer
verified

The annual interest divided by the face value of a bond is referred to as the:

Correct Answer
verified

The 8 percent, $1,000 face value bonds of Glenmore Foods are currently selling at $1,027. These bonds have 16 years left until maturity. What is the current yield?

Correct Answer
verified

Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value?

Correct Answer
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Correct Answer
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Which one of the following might be included in a bond's list of negative covenants?

Correct Answer
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C

Arts and Crafts Warehouse wants to issue 15-year, zero coupon bonds that yield 7.5 percent. What price should it charge for these bonds if the face value is $1,000? (Assume semi-annual compounding.)

Correct Answer
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B

A registered form bond is defined as a bond that:

Correct Answer
verified

Which one of the following individuals is most apt to purchase a municipal bond?

Correct Answer
verified

If your nominal rate of return is 14.38 percent and your real rate of return is 3.97 percent, what is the inflation rate?

Correct Answer
verified

The Road House would like to issue some semiannual coupon bonds at par. Comparable bonds have a current yield of 8.16 percent, an effective annual yield of 8.68 percent, and a yield to maturity of 8.50 percent. What coupon rate should The Road House set on its bonds?

Correct Answer
verified

A bond has a 7 percent coupon rate, a face value of $1,000, semiannual payments, and sells at par. The current yield is _ percent and the effective annual yield is _ percent.

Correct Answer
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D

Exam 6: Interest Rates and Bond Valuation

Which of the following characteristics are most commonly associated with corporate bonds issued in the U.S.? I. registered form II) bearer form III) quarterly coupon payments IV) semiannual coupon payments

Correct AnswerverifiedShow Answer

The $1,000 face value bonds of Jasper International have a 7.5 percent coupon and pay interest annually. Currently, the bonds are quoted at 98.27 and mature in 3.5 years. What is the yield to maturity?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A $1,000 face value bond currently has a yield to maturity of 6.69 percent. The bond matures in 3 years and pays interest annually. The coupon rate is 7 percent. What is the current price of this bond?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the principal amount of a bond that is repaid at the end of the loan term called?

Correct AnswerverifiedShow Answer

Manning, Inc. originally issued bonds that were rated investment grade. These bonds have now been downgraded to junk status. Which one of the following terms applies to this situation?

Correct AnswerverifiedShow Answer

A 6-year, semiannual coupon bond is selling for $991.38. The bond has a face value of $1,000 and a yield to maturity of 9.19 percent. What is the coupon rate?

Correct AnswerverifiedShow Answer

Red Mountain, Inc. bonds have a face value of $1,000. The bonds carry a 7 percent coupon, pay interest semiannually, and mature in 13.5 years. What is the current price of these bonds if the yield to maturity is 6.82 percent?

Correct AnswerverifiedShow Answer

The annual interest divided by the face value of a bond is referred to as the:

Correct AnswerverifiedShow Answer

The 8 percent, $1,000 face value bonds of Glenmore Foods are currently selling at $1,027. These bonds have 16 years left until maturity. What is the current yield?

Correct AnswerverifiedShow Answer

Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following might be included in a bond's list of negative covenants?

Correct AnswerverifiedC

Arts and Crafts Warehouse wants to issue 15-year, zero coupon bonds that yield 7.5 percent. What price should it charge for these bonds if the face value is $1,000? (Assume semi-annual compounding.)

Correct AnswerverifiedB

A registered form bond is defined as a bond that:

Correct AnswerverifiedShow Answer

Which one of the following individuals is most apt to purchase a municipal bond?

Correct AnswerverifiedShow Answer

If your nominal rate of return is 14.38 percent and your real rate of return is 3.97 percent, what is the inflation rate?

Correct AnswerverifiedShow Answer

The Road House would like to issue some semiannual coupon bonds at par. Comparable bonds have a current yield of 8.16 percent, an effective annual yield of 8.68 percent, and a yield to maturity of 8.50 percent. What coupon rate should The Road House set on its bonds?

Correct AnswerverifiedShow Answer

A bond has a 7 percent coupon rate, a face value of $1,000, semiannual payments, and sells at par. The current yield is _____ percent and the effective annual yield is _____ percent.

Correct AnswerverifiedD

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C

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B

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A bond has a 7 percent coupon rate, a face value of $1,000, semiannual payments, and sells at par. The current yield is _ percent and the effective annual yield is _ percent.

Correct Answer
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D