Exam 3: Valuing Bonds

What forward rate is embedded in a two year zero coupon bonds with a yield to maturity Of 6% and a three year zero coupon bond and a yield to maturity of 6.5%? Assume both bonds are currently priced at par.

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(Multiple Choice)

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Question 1

Correct Answer:

Verified

Consider a bond with a face value of $1,000, a coupon rate of 6%, a yield to maturity of 8%, and ten years to maturity. This bond's duration is:

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Question 2

Correct Answer:

Verified

Define the term, "real interest rate."

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(Essay)

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Question 3

Correct Answer:

Verified

Real interest rate is the inflation adjusted nominal interest rate. We do not observe it directly. The relationship between the two is given by: 1 + rnominal = (1 + rreal rate)(1 + inflation rate). (An approximate formula that works for low values is: rnominal = rreal rate + Inflation rate)

Generally, a bond can be valued as a package of: I. Annuity II. Perpetuity III. Single payment

(Multiple Choice)

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Question 4

Generally, bonds issued in the following countries pay interest semi-annually. I) USA II. UK III. Canada IV. Germany V. Japan

(Multiple Choice)

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Question 5

Short-term and long-term interest rates always move in parallel.

(True/False)

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Question 6

Short-term and long-term interest rates always move in parallel.

(True/False)

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Question 7

Indexed bonds were completely unknown in the U.S. before 1997.

(True/False)

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Question 8

Which bond is more sensitive to an interest rate change of 0.75%? Bond A: YTM = 4.00%, Maturity = 8 years, Coupon = 6% or $60, Par Value = $1,000 Bond B: YTM = 3.50%, Maturity = 5 years, Coupon = 7% or $70, Par Value = $1,000

(Multiple Choice)

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Question 9

A 5-year bond with 10% coupon rate and $1000 face value is selling for $1123. Calculate the yield to maturity on the bond assuming annual interest payments.

(Multiple Choice)

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Question 10

The U.S. Treasury issues inflation-indexed bonds known as TIPs.

(True/False)

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Question 11

Mr. X invests $1000 at 10% nominal rate for one year. If the inflation rate is 4%, what is the real value of the investment at the end of one year?

(Multiple Choice)

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Question 12

A 3-year bond with 10% coupon rate and $1000 face value yields 8% APR. Assuming annual coupon payment, calculate the price of the bond.

(Multiple Choice)

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Question 13

A bond with a face value of $1,000 has coupon rate of 7%, yield to maturity of 10%, and twenty years to maturity. The bond's duration is:

(Multiple Choice)

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Question 14

The following entities issue bonds to raise long-term loans except:

(Multiple Choice)

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Question 15

The term structure of interest rate is the relationship between yield to maturity and maturity.

(True/False)

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Question 16

The expectations theory implies that the only reason for a declining term structure is that investors expect spot interest rates to fall.

(True/False)

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Question 17

A bond with duration of 5.7 years has yield to maturity of 9%. The bond's volatility is:

(Multiple Choice)

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Question 18

If the 3-year spot rate is 10.5% and the 2-year spot rate is 10%, what is the one-year forward rate of interest two years from now?

(Multiple Choice)

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Question 19

Briefly explain what is meant by "the term structure of interest rates."

(Essay)

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Question 20

Showing 1 - 20 of 57

What forward rate is embedded in a two year zero coupon bonds with a yield to maturity Of 6% and a three year zero coupon bond and a yield to maturity of 6.5%? Assume both bonds are currently priced at par.

Consider a bond with a face value of $1,000, a coupon rate of 6%, a yield to maturity of 8%, and ten years to maturity. This bond's duration is:

Define the term, "real interest rate."

Generally, a bond can be valued as a package of: I. Annuity II. Perpetuity III. Single payment

Generally, bonds issued in the following countries pay interest semi-annually. I) USA II. UK III. Canada IV. Germany V. Japan

Short-term and long-term interest rates always move in parallel.

Short-term and long-term interest rates always move in parallel.

Indexed bonds were completely unknown in the U.S. before 1997.

Which bond is more sensitive to an interest rate change of 0.75%? Bond A: YTM = 4.00%, Maturity = 8 years, Coupon = 6% or $60, Par Value = $1,000 Bond B: YTM = 3.50%, Maturity = 5 years, Coupon = 7% or $70, Par Value = $1,000

A 5-year bond with 10% coupon rate and $1000 face value is selling for $1123. Calculate the yield to maturity on the bond assuming annual interest payments.

The U.S. Treasury issues inflation-indexed bonds known as TIPs.

Mr. X invests $1000 at 10% nominal rate for one year. If the inflation rate is 4%, what is the real value of the investment at the end of one year?

A 3-year bond with 10% coupon rate and $1000 face value yields 8% APR. Assuming annual coupon payment, calculate the price of the bond.

A bond with a face value of $1,000 has coupon rate of 7%, yield to maturity of 10%, and twenty years to maturity. The bond's duration is:

The following entities issue bonds to raise long-term loans except:

The term structure of interest rate is the relationship between yield to maturity and maturity.

The expectations theory implies that the only reason for a declining term structure is that investors expect spot interest rates to fall.

A bond with duration of 5.7 years has yield to maturity of 9%. The bond's volatility is:

If the 3-year spot rate is 10.5% and the 2-year spot rate is 10%, what is the one-year forward rate of interest two years from now?

Briefly explain what is meant by "the term structure of interest rates."

Goals and Governance of the Firm

How to Calculate Present Values

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

Efficient Markets and Behavioral Finance

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Financial Analysis

Financial Planning

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