Question 1

A newly issued bond has a 7 percent coupon with semiannual interest payments.The bonds are currently priced at par value.The effective annual rate provided by these bonds must be:

Accepted Answer

A)  3.5 percent.
B)  greater than 3.5 percent but less than 7 percent.
C)  7 percent.
D)  greater than 7 percent.
E)  Answer cannot be determined from the information provided.F) A) and E)
G) A) and B)

Question 2

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) C) and D)
G) B) and E)

Question 3

Global Communications has a 7 percent,semiannual coupon bond outstanding with a current market price of $1,023.46.The bond has a par value of $1,000 and a yield to maturity of 6.72 percent.How many years is it until this bond matures?

Accepted Answer

A)  12.26 years
B)  12.53 years
C)  18.49 years
D)  24.37 years
E)  25.05 yearsF) B) and C)
G) A) and B)

Question 4

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) B) and D)
G) D) and E)

Question 5

As a bond's time to maturity increases,the bond's sensitivity to interest rate risk:

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 rate.F) A) and D)
G) A) and E)

Question 6

Green Roof Inns is preparing a bond offering with a 6 percent,semiannual coupon and a face value of $1,000.The bonds will be repaid in 10 years and will be sold at par.Given this,which one of the following statements is correct?

Accepted Answer

A)  The bonds will become discount bonds if the market rate of interest declines.
B)  The bonds will pay 10 interest payments of $60 each.
C)  The bonds will sell at a premium if the market rate is 5.5 percent.
D)  The bonds will initially sell for $1,030 each.
E)  The final payment will be in the amount of $1,060.F) A) and B)
G) A) and C)

Question 7

A bond that is payable to whomever has physical possession of the bond is said to be in:

Accepted Answer

A)  new-issue condition.
B)  registered form.
C)  bearer form.
D)  debenture status.
E)  collateral status.F) C) and E)
G) A) and B)

Question 8

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) B) and C)
G) C) and D)

Question 9

The items included in an indenture that limit certain actions of the issuer in order to protect bondholder's interests are referred to as the:

Accepted Answer

A)  trustee relationships.
B)  bylaws.
C)  legal bounds.
D)  "plain vanilla" conditions.
E)  protective covenants.F) B) and E)
G) B) and C)

Exam 7: Interest Rates and Bond Valuation

Green Roof Inns is preparing a bond offering with a 6 percent,semiannual coupon and a face value of $1,000.The bonds will be repaid in 10 years and will be sold at par.Given this,which one of the following statements is correct?

Correct Answer
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A bond that is payable to whomever has physical possession of the bond is said to be in:

Correct Answer
verified

Which one of the following relationships is stated correctly?

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

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

Global Communications has a 7 percent,semiannual coupon bond outstanding with a current market price of $1,023.46.The bond has a par value of $1,000 and a yield to maturity of 6.72 percent.How many years is it until this bond matures?

Correct Answer
verified

A newly issued bond has a 7 percent coupon with semiannual interest payments.The bonds are currently priced at par value.The effective annual rate provided by these bonds must be:

Correct Answer
verified

As a bond's time to maturity increases,the bond's sensitivity to interest rate risk:

Correct Answer
verified

The items included in an indenture that limit certain actions of the issuer in order to protect bondholder's interests are referred to as the:

Correct Answer
verified

Exam 7: Interest Rates and Bond Valuation

Green Roof Inns is preparing a bond offering with a 6 percent,semiannual coupon and a face value of $1,000.The bonds will be repaid in 10 years and will be sold at par.Given this,which one of the following statements is correct?

Correct AnswerverifiedShow Answer

A bond that is payable to whomever has physical possession of the bond is said to be in:

Correct AnswerverifiedShow Answer

Which one of the following relationships is stated correctly?

Correct AnswerverifiedShow Answer

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

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

Global Communications has a 7 percent,semiannual coupon bond outstanding with a current market price of $1,023.46.The bond has a par value of $1,000 and a yield to maturity of 6.72 percent.How many years is it until this bond matures?

Correct AnswerverifiedShow Answer

A newly issued bond has a 7 percent coupon with semiannual interest payments.The bonds are currently priced at par value.The effective annual rate provided by these bonds must be:

Correct AnswerverifiedShow Answer

As a bond's time to maturity increases,the bond's sensitivity to interest rate risk:

Correct AnswerverifiedShow Answer

The items included in an indenture that limit certain actions of the issuer in order to protect bondholder's interests are referred to as the:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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