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The difference between the price that a dealer is willing to pay and the price at which he or she will sell is called the:


A) equilibrium.
B) premium.
C) discount.
D) call price.
E) spread.

F) C) and D)
G) A) and D)

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-The Corner Grocer has a 7-year,6 percent annual coupon bond outstanding with a $1,000 par value.The bond has a yield to maturity of 5.5 percent.Which one of the following statements is correct if the market yield suddenly increases to 7 percent? A) The bond price will increase by $57.14. B) The bond price will increase by 5.29 percent. C) The bond price will decrease by $53.62. D) The bond price will decrease by 8 percent. E) The bond price will decrease by 8.36 percent. -The Corner Grocer has a 7-year,6 percent annual coupon bond outstanding with a $1,000 par value.The bond has a yield to maturity of 5.5 percent.Which one of the following statements is correct if the market yield suddenly increases to 7 percent?


A) The bond price will increase by $57.14.
B) The bond price will increase by 5.29 percent.
C) The bond price will decrease by $53.62.
D) The bond price will decrease by 8 percent.
E) The bond price will decrease by 8.36 percent.

F) C) and D)
G) A) and B)

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The Fisher Effect primarily emphasizes the effects of _____ on an investor's rate of return.


A) default
B) market
C) interest rate
D) inflation
E) maturity

F) B) and E)
G) None of the above

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Which of the following statements concerning bonds are correct? I.Bonds provide tax benefits to issuers. II.The risk of a firm financially failing increases when the firm issues bonds. III.Most long-term bond issues are referred to as unfunded debt. IV.All bonds are treated equally in a bankruptcy proceeding.


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

F) B) and E)
G) A) and E)

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A U.S.Treasury bond that is quoted at 100:11 is selling:


A) for 11 percent more than par value.
B) at an 11 percent discount.
C) for 100.11 percent of face value.
D) at par and pays an 11 percent coupon.
E) for 100 and 11/32nds percent of face value.

F) A) and B)
G) B) and E)

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


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

F) C) and E)
G) A) and C)

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-Oil Well Supply offers 7.5 percent coupon bonds with semiannual payments and a yield to maturity of 7.68 percent.The bonds mature in 6 years.What is the market price per bond if the face value is $1,000? A) $989.70 B) $991.47 C) $996.48 D) $1,002.60 E) $1,013.48 -Oil Well Supply offers 7.5 percent coupon bonds with semiannual payments and a yield to maturity of 7.68 percent.The bonds mature in 6 years.What is the market price per bond if the face value is $1,000? A) $989.70 B) $991.47 C) $996.48 D) $1,002.60 E) $1,013.48 -Oil Well Supply offers 7.5 percent coupon bonds with semiannual payments and a yield to maturity of 7.68 percent.The bonds mature in 6 years.What is the market price per bond if the face value is $1,000?


A) $989.70
B) $991.47
C) $996.48
D) $1,002.60
E) $1,013.48

F) A) and B)
G) C) and D)

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-Dexter Mills issued 20-year bonds a year ago at a coupon rate of 10.2 percent.The bonds make semiannual payments.The yield-to-maturity on these bonds is 9.2 percent.What is the current bond price? A) $985.55 B) $991.90 C) $1,042.16 D) $1,089.02 E) $1,098.00 -Dexter Mills issued 20-year bonds a year ago at a coupon rate of 10.2 percent.The bonds make semiannual payments.The yield-to-maturity on these bonds is 9.2 percent.What is the current bond price?


A) $985.55
B) $991.90
C) $1,042.16
D) $1,089.02
E) $1,098.00

F) B) and E)
G) B) and C)

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The current yield is defined as the annual interest on a bond divided by which one of the following?


A) coupon
B) face value
C) market price
D) call price
E) dirty price

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

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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?


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

F) B) and D)
G) A) and D)

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Describe the relationships that exist between the coupon rate,the yield to maturity,and the current yield for both a discount bond and a premium bond.

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Discount bond:Yield to maturit...

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A corporate bond is quoted at a price of 103.16 and carries a 5.20 percent coupon.The bond pays interest semiannually.What is the current yield on one of these bonds?


A) 4.24 percent
B) 5.04 percent
C) 5.36 percent
D) 5.62 percent
E) 5.66 percent

F) A) and D)
G) C) and D)

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


A) inflation
B) default risk
C) accrued interest
D) interest rate risk
E) both inflation and interest rate risk

F) B) and E)
G) A) and C)

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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:


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) A) and B)
G) A) and C)

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Which of the following relationships apply to a par value bond? I.coupon rate < yield-to-maturity II.current yield = yield-to-maturity III.market price = call price IV.market price = face value


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

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

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-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? A) $895.43 B) $896.67 C) $941.20 D) $946.18 E) $953.30 -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? A) $895.43 B) $896.67 C) $941.20 D) $946.18 E) $953.30 -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?


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

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

Correct Answer

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An indenture is:


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

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-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? A) 6.94 percent B) 7.22 percent C) 7.46 percent D) 7.71 percent E) 7.80 percent -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? A) 6.94 percent B) 7.22 percent C) 7.46 percent D) 7.71 percent E) 7.80 percent -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?


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

F) None of the above
G) C) and D)

Correct Answer

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-The outstanding bonds of Winter Time Products provide a real rate of return of 5.6 percent.The current rate of inflation is 4.68 percent.What is the actual nominal rate of return on these bonds? A) 8.58 percent B) 9.33 percent C) 9.71 percent D) 9.76 percent E) 10.54 percent -The outstanding bonds of Winter Time Products provide a real rate of return of 5.6 percent.The current rate of inflation is 4.68 percent.What is the actual nominal rate of return on these bonds?


A) 8.58 percent
B) 9.33 percent
C) 9.71 percent
D) 9.76 percent
E) 10.54 percent

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

Correct Answer

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-Bonner Metals wants to issue new 18-year bonds for some much-needed expansion projects.The company currently has 11 percent bonds on the market that sell for $1,459.51,make semiannual payments,and mature in 18 years.What should the coupon rate be on the new bonds if the firm wants to sell them at par? A) 5.75 percent B) 6.23 percent C) 6.41 percent D) 6.60 percent E) 6.79 percent -Bonner Metals wants to issue new 18-year bonds for some much-needed expansion projects.The company currently has 11 percent bonds on the market that sell for $1,459.51,make semiannual payments,and mature in 18 years.What should the coupon rate be on the new bonds if the firm wants to sell them at par? A) 5.75 percent B) 6.23 percent C) 6.41 percent D) 6.60 percent E) 6.79 percent -Bonner Metals wants to issue new 18-year bonds for some much-needed expansion projects.The company currently has 11 percent bonds on the market that sell for $1,459.51,make semiannual payments,and mature in 18 years.What should the coupon rate be on the new bonds if the firm wants to sell them at par?


A) 5.75 percent
B) 6.23 percent
C) 6.41 percent
D) 6.60 percent
E) 6.79 percent

F) A) and E)
G) A) and B)

Correct Answer

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