Question 1

The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments:

Accepted Answer

A)  exceed the price of the bond. 
B)  equal to zero. 
C)  equal to the price of the bond. 
D)  less than the price of the bond. 
A)  exceed the price of the bond. 
B)  equal to zero. 
C)  equal to the price of the bond. 
D)  less than the price of the bond. C

Question 2

Vanilla bonds have coupon payments that are fixed for the life of the bond, with the principal being repaid at maturity.

Accepted Answer

A) True 
 B)False  True

Question 3

Jane Almeda is interested in a 10-year bond issued by Roberts Corp. that pays a coupon of 10 percent annually. The current price of this bond is $1,174.45. What is the yield that Jane would earn by buying it at this price and holding it to maturity? (Round to the closest answer.)

Accepted Answer

A)  7.1% 
B)  7.5% 
C)  8.9% 
D)  8.5% 
A)  7.1% 
B)  7.5% 
C)  8.9% 
D)  8.5% B

Question 4

Shawna Carter wants to invest her recent bonus in a four-year bond that pays a coupon of 11 percent semiannually. The bonds are selling at $962.13 today. If she buys this bond and holds it to maturity, what would be her yield? (Round to the closest answer.)

Accepted Answer

A)  11.5% 
B)  11.8% 
C)  12.5% 
D)  12.2% 
A)  11.5% 
B)  11.8% 
C)  12.5% 
D)  12.2%

Question 5

Interest rate risk is the risk that bond prices will fluctuate as interest rate changes.

Accepted Answer

A) True 
 B)False

Question 6

It is easy for individuals to trade in the corporate bond market because:

Accepted Answer

A)  the corporate bond market is considered to be very transparent. 
B)  prices in the corporate bond market tend to be more stable. 
C)  centralized reporting of deals between buyers and sellers take place. 
D)  None of the above statements is true. 
A)  the corporate bond market is considered to be very transparent. 
B)  prices in the corporate bond market tend to be more stable. 
C)  centralized reporting of deals between buyers and sellers take place. 
D)  None of the above statements is true.

Question 7

The risk that the lender may not receive payments as promised is called default risk.

Accepted Answer

A) True 
 B)False

Question 8

Which one of the following statements is true of a bond's yield to maturity?

Accepted Answer

A)  The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond. 
B)  It is the annual yield that the investor earns if the bond is held to maturity, and all the coupon and principal payments are made as promised. 
C)  A bond's yield to maturity changes daily as interest rates increase or decrease. 
D)  All of the above are true. 
A)  The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond. 
B)  It is the annual yield that the investor earns if the bond is held to maturity, and all the coupon and principal payments are made as promised. 
C)  A bond's yield to maturity changes daily as interest rates increase or decrease. 
D)  All of the above are true.

Question 9

Triumph Corp. issued five-year bonds that pay a coupon of 6.375 percent annually. The current market rate for similar bonds is 8.5 percent. How much will you be willing to pay for Triumph's bond today? (Do not round intermediate computations. Round your final answer to the nearest dollar.)

Accepted Answer

A)  $1,023 
B)  $1,137 
C)  $916 
D)  $897 
A)  $1,023 
B)  $1,137 
C)  $916 
D)  $897

Question 10

The largest investors in corporate bonds are big institutional investors such as life insurance companies and pension funds.

Accepted Answer

A) True 
 B)False

Question 11

The largest investors in corporate bonds are state government agencies.

Accepted Answer

A) True 
 B)False

Question 12

Jarmine Corp., is planning to fund a project by issuing 10-year zero coupon bonds with a face value of $1,000. Assuming semiannual compounding of interest, what will be the price of these bonds if the appropriate discount rate is 14 percent? (Round your answer to the nearest dollar.)

Accepted Answer

A)  $852 
B)  $258 
C)  $419 
D)  $841 
A)  $852 
B)  $258 
C)  $419 
D)  $841

Question 13

Which of the following statements is true?

Accepted Answer

A)  The longer the maturity of a security, the greater its interest rate risk. 
B)  If investors believe inflation will be subsiding in the future, the prevailing yield will be upward sloping. 
C)  The real rate of interest varies with the business cycle, with the lowest rates seen at the end of a period of business expansion and the highest at the bottom of a recession. 
D)  The interest rate risk premium always adds a downward bias to the slope of the yield curve. 
A)  The longer the maturity of a security, the greater its interest rate risk. 
B)  If investors believe inflation will be subsiding in the future, the prevailing yield will be upward sloping. 
C)  The real rate of interest varies with the business cycle, with the lowest rates seen at the end of a period of business expansion and the highest at the bottom of a recession. 
D)  The interest rate risk premium always adds a downward bias to the slope of the yield curve.

Question 14

Which one of the following statements about bonds is NOT true?

Accepted Answer

A)  To compute a bond's price, one needs to calculate the present value of the bond's expected cash flows. 
B)  The value, or price, of any asset is the future value of its cash flows. 
C)  The required rate of return, or discount rate, for a bond is the market interest rate called the bond's yield to maturity 
D)  The expected future cash flows are estimated using the coupons that the bond will pay and the maturity value to be received. 
A)  To compute a bond's price, one needs to calculate the present value of the bond's expected cash flows. 
B)  The value, or price, of any asset is the future value of its cash flows. 
C)  The required rate of return, or discount rate, for a bond is the market interest rate called the bond's yield to maturity 
D)  The expected future cash flows are estimated using the coupons that the bond will pay and the maturity value to be received.

Question 15

Bonds sell at a discount when the market rate of interest is:

Accepted Answer

A)  less than the bond's coupon rate. 
B)  greater than the bond's coupon rate. 
C)  equal to the bond's coupon rate. 
D)  None of the above is true. 
A)  less than the bond's coupon rate. 
B)  greater than the bond's coupon rate. 
C)  equal to the bond's coupon rate. 
D)  None of the above is true.

Question 16

Five years ago, Shirley Harper bought a 10-year bond that pays 8 percent semiannually for $981.10. Today, she sold it for $1,067.22. What is the realized yield on her investment? (Round to the nearest percent.)

Accepted Answer

A)  7% 
B)  8% 
C)  11% 
D)  10% 
A)  7% 
B)  8% 
C)  11% 
D)  10%

Question 17

Robertsons, Inc., is planning to expand its specialty stores into five other states and finance the expansion by issuing 15-year zero coupon bonds with a face value of $1,000. If your opportunity cost is 8 percent and similar coupon-bearing bonds will pay semiannually, what will be the price at which you will be willing to purchase these bonds? (Round your answer to the nearest dollar.)

Accepted Answer

A)  $308 
B)  $383 
C)  $803 
D)  $866 
A)  $308 
B)  $383 
C)  $803 
D)  $866

Question 18

The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond.

Accepted Answer

A) True 
 B)False

Question 19

The real rate of interest varies with the business cycle, with the highest rates seen at the end of a period of business expansion and the lowest at the bottom of a recession.

Accepted Answer

A) True 
 B)False

Question 20

Marketability is the ability of an investor

Accepted Answer

A)  to sell a security quickly, at a low transaction cost, and at a price close to its fair market value. 
B)  to sell at a profit under all circumstances. 
C)  to sell the security above its par value. 
D)  None of the above 
A)  to sell a security quickly, at a low transaction cost, and at a price close to its fair market value. 
B)  to sell at a profit under all circumstances. 
C)  to sell the security above its par value. 
D)  None of the above

The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments:

Vanilla bonds have coupon payments that are fixed for the life of the bond, with the principal being repaid at maturity.

Jane Almeda is interested in a 10-year bond issued by Roberts Corp. that pays a coupon of 10 percent annually. The current price of this bond is $1,174.45. What is the yield that Jane would earn by buying it at this price and holding it to maturity? (Round to the closest answer.)

Shawna Carter wants to invest her recent bonus in a four-year bond that pays a coupon of 11 percent semiannually. The bonds are selling at $962.13 today. If she buys this bond and holds it to maturity, what would be her yield? (Round to the closest answer.)

Interest rate risk is the risk that bond prices will fluctuate as interest rate changes.

It is easy for individuals to trade in the corporate bond market because:

The risk that the lender may not receive payments as promised is called default risk.

Which one of the following statements is true of a bond's yield to maturity?

Triumph Corp. issued five-year bonds that pay a coupon of 6.375 percent annually. The current market rate for similar bonds is 8.5 percent. How much will you be willing to pay for Triumph's bond today? (Do not round intermediate computations. Round your final answer to the nearest dollar.)

The largest investors in corporate bonds are big institutional investors such as life insurance companies and pension funds.

The largest investors in corporate bonds are state government agencies.

Jarmine Corp., is planning to fund a project by issuing 10-year zero coupon bonds with a face value of $1,000. Assuming semiannual compounding of interest, what will be the price of these bonds if the appropriate discount rate is 14 percent? (Round your answer to the nearest dollar.)

Which of the following statements is true?

Which one of the following statements about bonds is NOT true?

Bonds sell at a discount when the market rate of interest is:

Five years ago, Shirley Harper bought a 10-year bond that pays 8 percent semiannually for $981.10. Today, she sold it for $1,067.22. What is the realized yield on her investment? (Round to the nearest percent.)

The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond.

The real rate of interest varies with the business cycle, with the highest rates seen at the end of a period of business expansion and the lowest at the bottom of a recession.

Marketability is the ability of an investor

The Financial Manager and the Firm

The Financial System and the Level of Interest Rates

The Financial System and the Level of Interest Rates

Analyzing Financial Statements

The Time Value of Money

Discounted Cash Flows and Valuation

Risk and Return

Stock Valuation

The Fundamentals of Capital Budgeting

Cash Flows and Capital Budgeting

Evaluating Project Economics

The Cost of Capital

Working Capital Management

How Firms Raise Capital

Capital Structure Policy

Dividends, Stock Repurchases, and Payout Policy

Business Formation, Growth, and Valuation

Financial Planning and Managing Growth

Options and Corporate Finance

International Financial Management

Filters

Exam 8: Bond Valuation and the Structure of Interest Rates

The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments:

Vanilla bonds have coupon payments that are fixed for the life of the bond, with the principal being repaid at maturity.

Jane Almeda is interested in a 10-year bond issued by Roberts Corp. that pays a coupon of 10 percent annually. The current price of this bond is $1,174.45. What is the yield that Jane would earn by buying it at this price and holding it to maturity? (Round to the closest answer.)

Shawna Carter wants to invest her recent bonus in a four-year bond that pays a coupon of 11 percent semiannually. The bonds are selling at $962.13 today. If she buys this bond and holds it to maturity, what would be her yield? (Round to the closest answer.)

Interest rate risk is the risk that bond prices will fluctuate as interest rate changes.

It is easy for individuals to trade in the corporate bond market because:

The risk that the lender may not receive payments as promised is called default risk.

Which one of the following statements is true of a bond's yield to maturity?

Triumph Corp. issued five-year bonds that pay a coupon of 6.375 percent annually. The current market rate for similar bonds is 8.5 percent. How much will you be willing to pay for Triumph's bond today? (Do not round intermediate computations. Round your final answer to the nearest dollar.)

The largest investors in corporate bonds are big institutional investors such as life insurance companies and pension funds.

The largest investors in corporate bonds are state government agencies.

Jarmine Corp., is planning to fund a project by issuing 10-year zero coupon bonds with a face value of $1,000. Assuming semiannual compounding of interest, what will be the price of these bonds if the appropriate discount rate is 14 percent? (Round your answer to the nearest dollar.)

Which of the following statements is true?

Which one of the following statements about bonds is NOT true?

Bonds sell at a discount when the market rate of interest is:

Five years ago, Shirley Harper bought a 10-year bond that pays 8 percent semiannually for $981.10. Today, she sold it for $1,067.22. What is the realized yield on her investment? (Round to the nearest percent.)

The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond.

The real rate of interest varies with the business cycle, with the highest rates seen at the end of a period of business expansion and the lowest at the bottom of a recession.

Marketability is the ability of an investor

The Financial Manager and the Firm

The Financial System and the Level of Interest Rates

The Financial System and the Level of Interest Rates

Analyzing Financial Statements

The Time Value of Money

Discounted Cash Flows and Valuation

Risk and Return

Stock Valuation

The Fundamentals of Capital Budgeting

Cash Flows and Capital Budgeting

Evaluating Project Economics

The Cost of Capital

Working Capital Management

How Firms Raise Capital

Capital Structure Policy

Dividends, Stock Repurchases, and Payout Policy

Business Formation, Growth, and Valuation

Financial Planning and Managing Growth

Options and Corporate Finance

International Financial Management

Filters