Question 1

A Treasury bill with a par value of $100,000 due two months from now is selling today for $98,039 with an effective annual yield of

Accepted Answer

A)  12.40%. 
B)  12.55%. 
C)  12.62%. 
D)  12.68%. 
E)  None of the options are correct. 
A)  12.40%. 
B)  12.55%. 
C)  12.62%. 
D)  12.68%. 
E)  None of the options are correct. C

Question 2

If an 8% coupon bond is trading for $1,025.00, it has a current yield of

Accepted Answer

A)  7.8%. 
B)  8.7%. 
C)  7.6%. 
D)  7.9%. 
E)  8.1%. 
A)  7.8%. 
B)  8.7%. 
C)  7.6%. 
D)  7.9%. 
E)  8.1%. A

Question 3

If a 7% coupon bond is trading for $975.00, it has a current yield of

Accepted Answer

A)  7.00%. 
B)  6.53%. 
C)  7.24%. 
D)  8.53%. 
E)  7.18%. 
A)  7.00%. 
B)  6.53%. 
C)  7.24%. 
D)  8.53%. 
E)  7.18%. E

Question 4

The yield to maturity of a 20-year zero-coupon bond that is selling for $372.50 with a value at maturity of $1,000 is

Accepted Answer

A)  5.1%. 
B)  8.8%. 
C)  10.8%. 
D)  13.4%. 
E)  None of the options are correct. 
A)  5.1%. 
B)  8.8%. 
C)  10.8%. 
D)  13.4%. 
E)  None of the options are correct.

Question 5

Altman's Z scores are assigned based on a firm's financial characteristics and are used to predict

Accepted Answer

A)  required coupon rates for new bond issues. 
B)  bankruptcy risk. 
C)  the likelihood of a firm becoming a takeover target. 
D)  the probability of a bond issue being called. 
E)  None of the options are correct. 
A)  required coupon rates for new bond issues. 
B)  bankruptcy risk. 
C)  the likelihood of a firm becoming a takeover target. 
D)  the probability of a bond issue being called. 
E)  None of the options are correct.

Question 6

Consider the following $1,000-par-value zero-coupon bonds: $\begin{array}{ccc}
\text { Bond } & \text { Years of } & \text { Price }\
&\text { Maturity }\
\text { A } & 1 & \$ 909.09 \
\text { B } & 2 & 811.62 \
\text { C } & 3 & 711.78 \
\text { D}& 4 & 635.52
\end{array}$

The yield to maturity on bond D is

Accepted Answer

A)  10%. 
B)  11%. 
C)  12%. 
D)  14%. 
E)  None of the options are correct. 
A)  10%. 
B)  11%. 
C)  12%. 
D)  14%. 
E)  None of the options are correct.

Question 7

Consider the following $1,000-par-value zero-coupon bonds: $\begin{array}{ccc}
\text { Bond } & \text { Years of } & \text { Price }\
&\text { Maturity }\
\text { A } & 1 & \$ 909.09 \
\text { B } & 2 & 811.62 \
\text { C } & 3 & 711.78 \
\text { D}& 4 & 635.52
\end{array}$

The yield to maturity on bond C is

Accepted Answer

A)  10%. 
B)  11%. 
C)  12%. 
D)  14%. 
E)  None of the options are correct. 
A)  10%. 
B)  11%. 
C)  12%. 
D)  14%. 
E)  None of the options are correct.

Question 8

A zero-coupon bond has a yield to maturity of 12% and a par value of $1,000. If the bond matures in 18 years, the bond should sell for a price of _______ today.

Accepted Answer

A)  $422.41 
B)  $501.87 
C)  $513.16 
D)  $122.74 
A)  $422.41 
B)  $501.87 
C)  $513.16 
D)  $122.74

Question 9

Mortgage-backed CDOs were a disaster in 2007 because

Accepted Answer

A)  they were formed by pooling high quality fixed-rate loans with low interest rates. 
B)  they were formed by pooling subprime mortgages. 
C)  home prices stalled. 
D)  the mortgages were variable rate loans, and interest rates increased. 
E)  they were formed by pooling subprime mortgages, home prices stalled, the mortgages were variable rate loans, and interest rates increased. 
A)  they were formed by pooling high quality fixed-rate loans with low interest rates. 
B)  they were formed by pooling subprime mortgages. 
C)  home prices stalled. 
D)  the mortgages were variable rate loans, and interest rates increased. 
E)  they were formed by pooling subprime mortgages, home prices stalled, the mortgages were variable rate loans, and interest rates increased.

Question 10

A semi-annual coupon bond is reported as having an ask price of 113% of the $1,000 par value in the Wall Street Journal. If the last interest payment was made 60 days ago and the coupon rate is 12%, the invoice price of the bond will be

Accepted Answer

A)  $1,100. 
B)  $1,110. 
C)  $1,150. 
D)  $1,160. 
E)  None of the options are correct. 
A)  $1,100. 
B)  $1,110. 
C)  $1,150. 
D)  $1,160. 
E)  None of the options are correct.

Question 11

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in seven years, and has a yield to maturity of 11%. The intrinsic value of the bond today will be __________ if the coupon rate is 8.8%.

Accepted Answer

A)  $922.78 
B)  $894.51 
C)  $1,075.80 
D)  $1,077.20 
E)  None of the options are correct. 
A)  $922.78 
B)  $894.51 
C)  $1,075.80 
D)  $1,077.20 
E)  None of the options are correct.

Question 12

If a 9% coupon bond that pays interest every 182 days paid interest 112 days ago, the accrued interest would be

Accepted Answer

A)  $27.69. 
B)  $27.35. 
C)  $26.77. 
D)  $27.98. 
E)  $28.15. 
A)  $27.69. 
B)  $27.35. 
C)  $26.77. 
D)  $27.98. 
E)  $28.15.

Question 13

Three years ago, you purchased a bond for $974.69. The bond had three years to maturity, a coupon rate of 8%, paid annually, and a face value of $1,000. Each year, you reinvested all coupon interest at the prevailing reinvestment rate shown in the table below. Today is the bond's maturity date. What is your realized compound yield on the bond? $\begin{array}{lc}
\text { Time } & \text { Prevalling Reinvestment Rate } \
0 \text { (purchase date) } & 6.0 \% \
1  & 7.2\% \
2&9.4\% \
3 \text { (maturity date) }&8.2\% \

\end{array}$

Accepted Answer

A)  6.43% 
B)  7.96% 
C)  8.23% 
D)  8.97% 
E)  9.13% 
A)  6.43% 
B)  7.96% 
C)  8.23% 
D)  8.97% 
E)  9.13%

Question 14

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in five years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be ________ if the coupon rate is 12%.

Accepted Answer

A)  $922.77 
B)  $924.16 
C)  $1,075.80 
D)  $1,077.22 
E)  None of the options are correct. 
A)  $922.77 
B)  $924.16 
C)  $1,075.80 
D)  $1,077.22 
E)  None of the options are correct.

Question 15

The asset behind a Mortgage-backed CDOs is a _______________.

Accepted Answer

A)  home. 
B)  mortgage. 
C)  credit rating. 
D)  personal income. 
E)  No assets exist being a mortgage CDO. 
A)  home. 
B)  mortgage. 
C)  credit rating. 
D)  personal income. 
E)  No assets exist being a mortgage CDO.

Question 16

Subordination clauses in bond indentures

Accepted Answer

A)  may restrict the amount of additional borrowing the firm can undertake. 
B)  are always bad for investors. 
C)  provide higher priority to senior creditors in the event of bankruptcy. 
D)  may restrict the amount of additional borrowing the firm can undertake and provide higher priority to senior creditors in the event of bankruptcy. 
E)  All of the options are true. 
A)  may restrict the amount of additional borrowing the firm can undertake. 
B)  are always bad for investors. 
C)  provide higher priority to senior creditors in the event of bankruptcy. 
D)  may restrict the amount of additional borrowing the firm can undertake and provide higher priority to senior creditors in the event of bankruptcy. 
E)  All of the options are true.

Question 17

Consider a $1,000-par-value 20-year zero-coupon bond issued at a yield to maturity of 10%. If you buy that bond when it is issued and continue to hold the bond as yields decline to 9%, the imputed interest income for the first year of that bond is

Accepted Answer

A)  zero. 
B)  $14.87. 
C)  $45.85. 
D)  $7.44. 
E)  None of the options are correct. 
A)  zero. 
B)  $14.87. 
C)  $45.85. 
D)  $7.44. 
E)  None of the options are correct.

Question 18

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in six years, and has a yield to maturity of 9%. The intrinsic value of the bond today will be __________ if the coupon rate is 9%.

Accepted Answer

A)  $922.78 
B)  $924.16 
C)  $1,075.80 
D)  $1,000.00 
E)  None of the options are correct. 
A)  $922.78 
B)  $924.16 
C)  $1,075.80 
D)  $1,000.00 
E)  None of the options are correct.

Question 19

A Treasury bond due in one year has a yield of 2.5%; a Treasury bond due in ten years has a yield of 4.1%. A bond issued by Amazon due in ten years has a yield of 9.5%; a bond issued by Google due in one year has a yield of 7.3%. The default risk premiums on the bonds issued by Amazon and Google, respectively, are

Accepted Answer

A)  3.7% and 3.1%. 
B)  4.3% and 5.4%. 
C)  5.4% and 4.8%. 
D)  6.6% and 7.9%. 
E)  None of the options are correct. 
A)  3.7% and 3.1%. 
B)  4.3% and 5.4%. 
C)  5.4% and 4.8%. 
D)  6.6% and 7.9%. 
E)  None of the options are correct.

Question 20

One year ago, you purchased a newly-issued TIPS bond that has a 4% coupon rate, five years to maturity, and a par value of $1,000. The average inflation rate over the year was 3.6%. What is the amount of the coupon payment you will receive, and what is the current face value of the bond?

Accepted Answer

A)  $40.00, $1,000 
B)  $41.44, $1,036 
C)  $40.00, $1,036 
D)  $36.00, $1,040 
E)  $76.00, $1,000 
A)  $40.00, $1,000 
B)  $41.44, $1,036 
C)  $40.00, $1,036 
D)  $36.00, $1,040 
E)  $76.00, $1,000

Exam 14: Bond Prices and Yields

A Treasury bill with a par value of $100,000 due two months from now is selling today for $98,039 with an effective annual yield of

If an 8% coupon bond is trading for $1,025.00, it has a current yield of

If a 7% coupon bond is trading for $975.00, it has a current yield of

The yield to maturity of a 20-year zero-coupon bond that is selling for $372.50 with a value at maturity of $1,000 is

Altman's Z scores are assigned based on a firm's financial characteristics and are used to predict

Consider the following $1,000-par-value zero-coupon bonds: Bond Years of Price Maturity A 1 \ 909.09 B 2 811.62 C 3 711.78 D 4 635.52 The yield to maturity on bond D is

Consider the following $1,000-par-value zero-coupon bonds: Bond Years of Price Maturity A 1 \ 909.09 B 2 811.62 C 3 711.78 D 4 635.52 The yield to maturity on bond C is

A zero-coupon bond has a yield to maturity of 12% and a par value of $1,000. If the bond matures in 18 years, the bond should sell for a price of _______ today.

Mortgage-backed CDOs were a disaster in 2007 because

A semi-annual coupon bond is reported as having an ask price of 113% of the $1,000 par value in the Wall Street Journal. If the last interest payment was made 60 days ago and the coupon rate is 12%, the invoice price of the bond will be

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in seven years, and has a yield to maturity of 11%. The intrinsic value of the bond today will be __________ if the coupon rate is 8.8%.

If a 9% coupon bond that pays interest every 182 days paid interest 112 days ago, the accrued interest would be

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in five years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be ________ if the coupon rate is 12%.

The asset behind a Mortgage-backed CDOs is a _______________.

Subordination clauses in bond indentures

Consider a $1,000-par-value 20-year zero-coupon bond issued at a yield to maturity of 10%. If you buy that bond when it is issued and continue to hold the bond as yields decline to 9%, the imputed interest income for the first year of that bond is

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in six years, and has a yield to maturity of 9%. The intrinsic value of the bond today will be __________ if the coupon rate is 9%.

One year ago, you purchased a newly-issued TIPS bond that has a 4% coupon rate, five years to maturity, and a par value of $1,000. The average inflation rate over the year was 3.6%. What is the amount of the coupon payment you will receive, and what is the current face value of the bond?

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

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