Question 1

The current yield on a bond is equal to

Accepted Answer

A)  annual interest payment divided by the current market price. 
B)  the yield to maturity. 
C)  annual interest divided by the par value. 
D)  the internal rate of return. 
E)  None of the options are correct. 
A)  annual interest payment divided by the current market price. 
B)  the yield to maturity. 
C)  annual interest divided by the par value. 
D)  the internal rate of return. 
E)  None of the options are correct. A

Question 2

The ________ is used to calculate the present value of a bond.

Accepted Answer

A)  nominal yield 
B)  current yield 
C)  yield to maturity 
D)  yield to call 
E)  None of the options are correct. 
A)  nominal yield 
B)  current yield 
C)  yield to maturity 
D)  yield to call 
E)  None of the options are correct. C

Question 3

A convertible bond has a par value of $1,000 and a current market price of $975. The current price of the issuing firm's stock is $42, and the conversion ratio is 22 shares. The bond's market conversion value is

Accepted Answer

A)  $729. 
B)  $924. 
C)  $870. 
D)  $1,000. 
A)  $729. 
B)  $924. 
C)  $870. 
D)  $1,000. B

Question 4

The yield to maturity on a bond is

Accepted Answer

A)  below the coupon rate when the bond sells at a discount and equal to the coupon rate when the bond sells at a premium. 
B)  the discount rate that will set the present value of the payments equal to the bond price. 
C)  based on the assumption that any payments received are reinvested at the coupon rate. 
D)  None of the options are correct. 
A)  below the coupon rate when the bond sells at a discount and equal to the coupon rate when the bond sells at a premium. 
B)  the discount rate that will set the present value of the payments equal to the bond price. 
C)  based on the assumption that any payments received are reinvested at the coupon rate. 
D)  None of the options are correct.

Question 5

A convertible bond has a par value of $1,000 and a current market price of $850. The current price of the issuing firm's stock is $29, and the conversion ratio is 30 shares. The bond's market conversion value is

Accepted Answer

A)  $729. 
B)  $810. 
C)  $870. 
D)  $1,000. 
E)  None of the options are correct. 
A)  $729. 
B)  $810. 
C)  $870. 
D)  $1,000. 
E)  None of the options are correct.

Question 6

At issue, coupon bonds typically sell

Accepted Answer

A)  above par value. 
B)  below par value. 
C)  at or near par value. 
D)  at a value unrelated to par. 
E)  None of the options are correct. 
A)  above par value. 
B)  below par value. 
C)  at or near par value. 
D)  at a value unrelated to par. 
E)  None of the options are correct.

Question 7

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.

Question 8

You purchased an annual interest coupon bond one year ago that had six years remaining to maturity at that time. The coupon interest rate was 10%, and the par value was $1,000. At the time you purchased the bond, the yield to maturity was 8%. If you sold the bond after receiving the first interest payment and the yield to maturity continued to be 8%, your annual total rate of return on holding the bond for that year would have been

Accepted Answer

A)  7.00%. 
B)  7.82%. 
C)  8.00%. 
D)  11.95%. 
E)  None of the options are correct. 
A)  7.00%. 
B)  7.82%. 
C)  8.00%. 
D)  11.95%. 
E)  None of the options are correct.

Question 9

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 10

If a 7.25% coupon bond is trading for $982.00, it has a current yield of

Accepted Answer

A)  7.38%. 
B)  6.53%. 
C)  7.25%. 
D)  8.53%. 
E)  7.18%. 
A)  7.38%. 
B)  6.53%. 
C)  7.25%. 
D)  8.53%. 
E)  7.18%.

Question 11

You purchased an annual interest coupon bond one year ago that now has six years remaining until maturity. The coupon rate of interest was 10%, and par value was $1,000. At the time you purchased the bond, the yield to maturity was 8%. The amount you paid for this bond one year ago was

Accepted Answer

A)  $1,057.50. 
B)  $1,075.50. 
C)  $1,088.50. 
D)  $1.092.46. 
E)  $1,104.13. 
A)  $1,057.50. 
B)  $1,075.50. 
C)  $1,088.50. 
D)  $1.092.46. 
E)  $1,104.13.

Question 12

Swingin'Soiree, Inc. is a firm that has its main office on the Right Bank in Paris. The firm just issued bonds with a final payment amount that depends on whether the Seine River floods. This type of bond is known as

Accepted Answer

A)  a contingency bond. 
B)  a catastrophe bond. 
C)  an emergency bond. 
D)  an incident bond. 
E)  an eventuality bond. 
A)  a contingency bond. 
B)  a catastrophe bond. 
C)  an emergency bond. 
D)  an incident bond. 
E)  an eventuality bond.

Question 13

The _________ gives the number of shares for which each convertible bond can be exchanged.

Accepted Answer

A)  conversion ratio 
B)  current ratio 
C)  P/E ratio 
D)  conversion premium 
E)  convertible floor 
A)  conversion ratio 
B)  current ratio 
C)  P/E ratio 
D)  conversion premium 
E)  convertible floor

Question 14

A Treasury bond due in one year has a yield of 5.7%; a Treasury bond due in 5 years has a yield of 6.2%. A bond issued by Ford Motor Company due in 5 years has a yield of 7.5%; a bond issued by Shell Oil due in one year has a yield of 6.5%. The default risk premiums on the bonds issued by Shell and Ford, respectively, are

Accepted Answer

A)  1.0% and 1.2%. 
B)  0.7% and 1.5%. 
C)  1.2% and 1.0%. 
D)  0.8% and 1.3%. 
E)  None of the options are correct. 
A)  1.0% and 1.2%. 
B)  0.7% and 1.5%. 
C)  1.2% and 1.0%. 
D)  0.8% and 1.3%. 
E)  None of the options are correct.

Question 15

A convertible bond has a par value of $1,000 and a current market value of $1,150. The current price of the issuing firm's stock is $65, and the conversion ratio is 15 shares. The bond's conversion premium is

Accepted Answer

A)  $40. 
B)  $150. 
C)  $175. 
D)  $200. 
A)  $40. 
B)  $150. 
C)  $175. 
D)  $200.

Question 16

A bond with a 12% coupon, 10 years to maturity, and selling at $88.00 has a yield to maturity of

Accepted Answer

A)  over 14%. 
B)  between 13% and 14%. 
C)  between 12% and 13%. 
D)  between 10% and 12%. 
E)  less than 12%. 
A)  over 14%. 
B)  between 13% and 14%. 
C)  between 12% and 13%. 
D)  between 10% and 12%. 
E)  less than 12%.

Question 17

A coupon bond that pays interest 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)  $1,075.82 
D)  $1,077.20 
E)  None of the options 
A)  $922.77 
B)  $924.16 
C)  $1,075.82 
D)  $1,077.20 
E)  None of the options

Question 18

CDOs are divided in tranches

Accepted Answer

A)  that provide investors with securities with varying degrees of credit risk. 
B)  and each tranch is given a different level of seniority in terms of its claims on the underlying pool. 
C)  and none of the tranches is risky. 
D)  and equity tranch is very low risk. 
E)  that provide investors with securities with varying degrees of credit risk, and each tranch is given a different level of seniority in terms of its claims on the underlying pool. 
A)  that provide investors with securities with varying degrees of credit risk. 
B)  and each tranch is given a different level of seniority in terms of its claims on the underlying pool. 
C)  and none of the tranches is risky. 
D)  and equity tranch is very low risk. 
E)  that provide investors with securities with varying degrees of credit risk, and each tranch is given a different level of seniority in terms of its claims on the underlying pool.

Question 19

A Treasury bond due in one year has a yield of 4.6%; a Treasury bond due in five years has a yield of 5.6%. A bond issued by Lucent Technologies due in five years has a yield of 8.9%; a bond issued by Exxon due in one year has a yield of 6.2%. The default risk premiums on the bonds issued by Exxon and Lucent Technologies, respectively, are

Accepted Answer

A)  1.6% and 3.3%. 
B)  0.5% and 0.7%. 
C)  3.3% and 1.6%. 
D)  0.7% and 0.5%. 
E)  None of the options are correct. 
A)  1.6% and 3.3%. 
B)  0.5% and 0.7%. 
C)  3.3% and 1.6%. 
D)  0.7% and 0.5%. 
E)  None of the options are correct.

Question 20

A convertible bond has a par value of $1,000 and a current market value of $850. The current price of the issuing firm's stock is $27, and the conversion ratio is 30 shares. The bond's conversion premium is

Accepted Answer

A)  $40. 
B)  $150. 
C)  $190. 
D)  $200. 
E)  None of the options are correct. 
A)  $40. 
B)  $150. 
C)  $190. 
D)  $200. 
E)  None of the options are correct.

Exam 14: Bond Prices and Yields

The current yield on a bond is equal to

The ________ is used to calculate the present value of a bond.

A convertible bond has a par value of $1,000 and a current market price of $975. The current price of the issuing firm's stock is $42, and the conversion ratio is 22 shares. The bond's market conversion value is

The yield to maturity on a bond is

A convertible bond has a par value of $1,000 and a current market price of $850. The current price of the issuing firm's stock is $29, and the conversion ratio is 30 shares. The bond's market conversion value is

At issue, coupon bonds typically sell

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

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%.

If a 7.25% coupon bond is trading for $982.00, it has a current yield of

You purchased an annual interest coupon bond one year ago that now has six years remaining until maturity. The coupon rate of interest was 10%, and par value was $1,000. At the time you purchased the bond, the yield to maturity was 8%. The amount you paid for this bond one year ago was

Swingin'Soiree, Inc. is a firm that has its main office on the Right Bank in Paris. The firm just issued bonds with a final payment amount that depends on whether the Seine River floods. This type of bond is known as

The _________ gives the number of shares for which each convertible bond can be exchanged.

A convertible bond has a par value of $1,000 and a current market value of $1,150. The current price of the issuing firm's stock is $65, and the conversion ratio is 15 shares. The bond's conversion premium is

A bond with a 12% coupon, 10 years to maturity, and selling at $88.00 has a yield to maturity of

A coupon bond that pays interest 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%.

CDOs are divided in tranches

A convertible bond has a par value of $1,000 and a current market value of $850. The current price of the issuing firm's stock is $27, and the conversion ratio is 30 shares. The bond's conversion premium is

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

Optimal Risky Portfolios

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

Filters