Question 1

You expect interest rates to decline in the near future even though the bond market is not indicating any sign of this change.Which one of the following bonds should you purchase now to maximize your gains if the rate decline does occur?

Accepted Answer

A)  short-term; low coupon
B)  short-term; high coupon
C)  long-term; zero coupon
D)  long-term; low coupon
E)  long-term; high couponF) All of the above
G) A) and B)

Question 2

The yield to maturity on a bond is currently 8.46 percent.The real rate of return is 3.22 percent.What is the rate of inflation?

Accepted Answer

A)  5.08 percent
B)  5.64 percent
C)  6.24 percent
D)  6.53 percent
E)  6.71 percentF) A) and B)
G) A) and E)

Question 3

The pure time value of money is known as the:

Accepted Answer

A)  liquidity effect.
B)  Fisher effect.
C)  term structure of interest rates.
D)  inflation factor.
E)  interest rate factor.F) C) and D)
G) B) and D)

Question 4

Real rates are defined as nominal rates that have been adjusted for which of the following?

Accepted Answer

A)  inflation
B)  default risk
C)  accrued interest
D)  interest rate risk
E)  both inflation and interest rate riskF) None of the above
G) A) and D)

Question 5

Redesigned Computers has 6.5 percent coupon bonds outstanding with a current market price of $832.The yield to maturity is 16.28 percent and the face value is $1,000.Interest is paid semiannually.How many years is it until these bonds mature?

Accepted Answer

A)  2.10 years
B)  4.19 years
C)  7.41 years
D)  9.16 years
E)  18.32 yearsF) B) and D)
G) C) and E)

Question 6

Grand Adventure Properties offers a 9.5 percent coupon bond with annual payments.The yield to maturity is 11.2 percent and the maturity date is 11 years from today.What is the market price of this bond if the face value is $1,000?

Accepted Answer

A)  $895.43
B)  $896.67
C)  $941.20
D)  $946.18
E)  $953.30F) B) and E)
G) B) and D)

Question 7

Which one of the following premiums is compensation for expected future inflation?

Accepted Answer

A)  default risk
B)  taxability
C)  liquidity
D)  inflation
E)  interest rate riskF) C) and D)
G) A) and D)

Question 8

Greenbrier Industrial Products' bonds have a 7.60 percent coupon and pay interest annually.The face value is $1,000 and the current market price is $1,062.50 per bond.The bonds mature in 16 years.What is the yield to maturity?

Accepted Answer

A)  6.94 percent
B)  7.22 percent
C)  7.46 percent
D)  7.71 percent
E)  7.80 percentF) B) and E)
G) C) and E)

Question 9

Phil has researched TLM Technologies and believes the firm is poised to vastly increase in value.He wants to invest in this company.Phil has decided to purchase TLM Technologies bonds so that he can have a steady stream of interest income.However, he still wishes that he could share in the firm's success along with TLM's shareholders.Which one of the following bond features will help Phil fulfill his wish?

Accepted Answer

A)  put provision
B)  positive covenant
C)  warrant
D)  crossover rating
E)  call provisionF) D) and E)
G) A) and E)

Question 10

You want to buy a bond from a dealer.Which one of the following prices will you pay?

Accepted Answer

A)  call price
B)  auction price
C)  bid price
D)  asked price
E)  bid-ask spreadF) A) and B)
G) B) and D)

Question 11

You are purchasing a 20-year, zero-coupon bond.The yield to maturity is 8.68 percent and the face value is $1,000.What is the current market price?

Accepted Answer

A)  $106.67
B)  $108.18
C)  $182.80
D)  $221.50
E)  $228.47F) D) and E)
G) B) and E)

Question 12

You purchase a bond with an invoice price of $1,460.The bond has a coupon rate of 7.5 percent, and there are 3 months to the next semiannual coupon date.What is the clean price of this bond?

Accepted Answer

A)  $1,441.25
B)  $1,452.17
C)  $1,460.00
D)  $1,467.83
E)  $1,483.50F) B) and C)
G) C) and D)

Question 13

Pete paid $1,032 as his total cost of purchasing a bond.This price is referred to as the:

Accepted Answer

A)  quoted price.
B)  spread price.
C)  clean price.
D)  dirty price.
E)  call price.F) C) and D)
G) D) and E)

Question 14

Which one of the following relationships is stated correctly?

Accepted Answer

A)  The coupon rate exceeds the current yield when a bond sells at a discount.
B)  The call price must equal the par value.
C)  An increase in market rates increases the market price of a bond.
D)  Decreasing the time to maturity increases the price of a discount bond, all else constant.
E)  Increasing the coupon rate decreases the current yield, all else constant.F) A) and B)
G) A) and C)

Question 15

An indenture is:

Accepted Answer

A)  another name for a bond's coupon.
B)  the written record of all the holders of a bond issue.
C)  a bond that is past its maturity date but has yet to be repaid.
D)  a bond that is secured by the inventory held by the bond's issuer.
E)  the legal agreement between the bond issuer and the bondholders.F) A) and D)
G) A) and C)

Question 16

Technical Sales, Inc.has 6.6 percent coupon bonds on the market with 9 years left to maturity.The bonds make semiannual payments and currently sell for 92.5 percent of par.What is the effective annual yield?

Accepted Answer

A)  7.34 percent
B)  7.40 percent
C)  7.52 percent
D)  7.93 percent
E)  8.60 percentF) A) and D)
G) A) and E)

Question 17

Which one of the following bonds is the least sensitive to interest rate risk?

Accepted Answer

A)  3-year; 4 percent coupon
B)  3-year; 6 percent coupon
C)  5-year; 6 percent coupon
D)  7-year; 6 percent coupon
E)  7-year; 4 percent couponF) A) and B)
G) D) and E)

Question 18

The break-even tax rate between a taxable corporate bond yielding 7 percent and a comparable nontaxable municipal bond yielding 5 percent can be expressed as:

Accepted Answer

A)  0.05/(1 - t*)  = 0.07.
B)  0.05 - (1 - t*)  = 0.07.
C)  0.07 + (1 - t*)  = 0.05.
D)  0.05 × (1 - t*)  = 0.07.
E)  0.05 × (1 + t*)  = 0.07.F) None of the above
G) All of the above

Question 19

The outstanding bonds of The River Front Ferry carry a 6.5 percent coupon.The bonds have a face value of $1,000 and are currently quoted at 102.9.What is the current yield on these bonds?

Accepted Answer

A)  1.60 percent
B)  2.37 percent
C)  6.32 percent
D)  6.49 percent
E)  6.88 percentF) None of the above
G) A) and D)

Question 20

You want to have $1.04 million in real dollars in an account when you retire in 38 years.The nominal return on your investment is 8 percent and the inflation rate is 3.5 percent.What is the real amount you must deposit each year to achieve your goal?

Accepted Answer

A)  $10,667.67
B)  $10,878.49
C)  $11,194.39
D)  $11,515.09
E)  $11,744.12F) B) and D)
G) C) and D)

Exam 7: Equity Valuation

Which one of the following bonds is the least sensitive to interest rate risk?

Correct Answer
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Which one of the following premiums is compensation for expected future inflation?

Correct Answer
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The break-even tax rate between a taxable corporate bond yielding 7 percent and a comparable nontaxable municipal bond yielding 5 percent can be expressed as:

Correct Answer
verified

The yield to maturity on a bond is currently 8.46 percent.The real rate of return is 3.22 percent.What is the rate of inflation?

Correct Answer
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Which one of the following relationships is stated correctly?

Correct Answer
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Technical Sales, Inc.has 6.6 percent coupon bonds on the market with 9 years left to maturity.The bonds make semiannual payments and currently sell for 92.5 percent of par.What is the effective annual yield?

Correct Answer
verified

You are purchasing a 20-year, zero-coupon bond.The yield to maturity is 8.68 percent and the face value is $1,000.What is the current market price?

Correct Answer
verified

Real rates are defined as nominal rates that have been adjusted for which of the following?

Correct Answer
verified

Pete paid $1,032 as his total cost of purchasing a bond.This price is referred to as the:

Correct Answer
verified

Correct Answer
verified

Greenbrier Industrial Products' bonds have a 7.60 percent coupon and pay interest annually.The face value is $1,000 and the current market price is $1,062.50 per bond.The bonds mature in 16 years.What is the yield to maturity?

Correct Answer
verified

The pure time value of money is known as the:

Correct Answer
verified

The outstanding bonds of The River Front Ferry carry a 6.5 percent coupon.The bonds have a face value of $1,000 and are currently quoted at 102.9.What is the current yield on these bonds?

Correct Answer
verified

You expect interest rates to decline in the near future even though the bond market is not indicating any sign of this change.Which one of the following bonds should you purchase now to maximize your gains if the rate decline does occur?

Correct Answer
verified

You want to have $1.04 million in real dollars in an account when you retire in 38 years.The nominal return on your investment is 8 percent and the inflation rate is 3.5 percent.What is the real amount you must deposit each year to achieve your goal?

Correct Answer
verified

An indenture is:

Correct Answer
verified

Redesigned Computers has 6.5 percent coupon bonds outstanding with a current market price of $832.The yield to maturity is 16.28 percent and the face value is $1,000.Interest is paid semiannually.How many years is it until these bonds mature?

Correct Answer
verified

You want to buy a bond from a dealer.Which one of the following prices will you pay?

Correct Answer
verified

Grand Adventure Properties offers a 9.5 percent coupon bond with annual payments.The yield to maturity is 11.2 percent and the maturity date is 11 years from today.What is the market price of this bond if the face value is $1,000?

Correct Answer
verified

You purchase a bond with an invoice price of $1,460.The bond has a coupon rate of 7.5 percent, and there are 3 months to the next semiannual coupon date.What is the clean price of this bond?

Correct Answer
verified

Exam 7: Equity Valuation

Which one of the following bonds is the least sensitive to interest rate risk?

Correct AnswerverifiedShow Answer

Which one of the following premiums is compensation for expected future inflation?

Correct AnswerverifiedShow Answer

The break-even tax rate between a taxable corporate bond yielding 7 percent and a comparable nontaxable municipal bond yielding 5 percent can be expressed as:

Correct AnswerverifiedShow Answer

The yield to maturity on a bond is currently 8.46 percent.The real rate of return is 3.22 percent.What is the rate of inflation?

Correct AnswerverifiedShow Answer

Which one of the following relationships is stated correctly?

Correct AnswerverifiedShow Answer

Technical Sales, Inc.has 6.6 percent coupon bonds on the market with 9 years left to maturity.The bonds make semiannual payments and currently sell for 92.5 percent of par.What is the effective annual yield?

Correct AnswerverifiedShow Answer

You are purchasing a 20-year, zero-coupon bond.The yield to maturity is 8.68 percent and the face value is $1,000.What is the current market price?

Correct AnswerverifiedShow Answer

Real rates are defined as nominal rates that have been adjusted for which of the following?

Correct AnswerverifiedShow Answer

Pete paid $1,032 as his total cost of purchasing a bond.This price is referred to as the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Greenbrier Industrial Products' bonds have a 7.60 percent coupon and pay interest annually.The face value is $1,000 and the current market price is $1,062.50 per bond.The bonds mature in 16 years.What is the yield to maturity?

Correct AnswerverifiedShow Answer

The pure time value of money is known as the:

Correct AnswerverifiedShow Answer

The outstanding bonds of The River Front Ferry carry a 6.5 percent coupon.The bonds have a face value of $1,000 and are currently quoted at 102.9.What is the current yield on these bonds?

Correct AnswerverifiedShow Answer

You expect interest rates to decline in the near future even though the bond market is not indicating any sign of this change.Which one of the following bonds should you purchase now to maximize your gains if the rate decline does occur?

Correct AnswerverifiedShow Answer

You want to have $1.04 million in real dollars in an account when you retire in 38 years.The nominal return on your investment is 8 percent and the inflation rate is 3.5 percent.What is the real amount you must deposit each year to achieve your goal?

Correct AnswerverifiedShow Answer

An indenture is:

Correct AnswerverifiedShow Answer

Redesigned Computers has 6.5 percent coupon bonds outstanding with a current market price of $832.The yield to maturity is 16.28 percent and the face value is $1,000.Interest is paid semiannually.How many years is it until these bonds mature?

Correct AnswerverifiedShow Answer

You want to buy a bond from a dealer.Which one of the following prices will you pay?

Correct AnswerverifiedShow Answer

Grand Adventure Properties offers a 9.5 percent coupon bond with annual payments.The yield to maturity is 11.2 percent and the maturity date is 11 years from today.What is the market price of this bond if the face value is $1,000?

Correct AnswerverifiedShow Answer

You purchase a bond with an invoice price of $1,460.The bond has a coupon rate of 7.5 percent, and there are 3 months to the next semiannual coupon date.What is the clean price of this bond?

Correct AnswerverifiedShow Answer

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