Deck 6: Bond Valuation

Question 1

A five-year bond with a $1000 face value has a yield to maturity of 5.5% and its coupon rate is 6.0% paid annually. The dirty price of this bond exactly 6 months after its second coupon payment is closest to:

A) $1043.49
B) $684.67
C) $1005.87
D) $983.93

Answer 1

$1043.49

Question 2

Which of the following bonds is trading at par?

A) a bond with a $2000 face value trading at $1987
B) a bond with a $2000 face value trading at $2012
C) a bond with a $1000 face value trading at $999
D) a bond with a $1000 face value trading at $1000

Answer 2

a bond with a $1000 face value trading at $1000

Question 3

Which of the following statements is true?

A) A rise in interest rates causes bond prices to fall.
B) Bond prices and interest rates are not connected.
C) A fall in bond prices causes interest rates to fall.
D) A fall in interest rates causes a fall in bond prices.

Answer 3

A rise in interest rates causes bond prices to fall.

Question 4

What is the coupon rate of a two-year, $10,000 bond with semiannual coupons and a price of $9543.45, if it has a yield to maturity of 6.8%?

A) 8.44%
B) 4.32%
C) 6.25%
D) 5.60%

Question 5

Use the table for the question(s) below.
The following table summarises prices of various default-free zero-coupon bonds (expressed as a percentage of face value):
$\begin{array} { l c c c c c } \hline \text { Maturity (years) } & \mathbf { 1 } & \mathbf { 2 } & \mathbf { 3 } & \mathbf { 4 } & \mathbf { 5 } \\\hline \text { Price (per \$100 face value) } & 94.52 & 89.68 & 85.40 & 81.65 & 78.35 \\\hline\end{array}$

-The yield to maturity for the two-year zero-coupon bond is closest to?

A) 5.5%
B) 5.6%
C) 5.8%
D) 6.0%

Question 6

What is the yield to maturity of a ten-year, $1000 bond with a 5.2% coupon rate and semiannual coupons if this bond is currently trading for a price of $884?

A) 6.23%
B) 6.82%
C) 5.02%
D) 12.46%

Question 7

Which of the following bonds will be most sensitive to a change in interest rates?

A) a 15-year bond with a $5000 face value whose yield to maturity is 7.4% and coupon rate is 6.2% APR paid annually
B) a ten-year bond with a $2000 face value whose yield to maturity is 5.8% and coupon rate is 5.8% APR paid semiannually
C) a 30-year bond with a $1000 face value whose yield to maturity is 5.5% and coupon rate is 6.4% APR paid annually
D) a 20-year bond with a $3000 face value whose yield to maturity is 6.0% and coupon rate is 5.4% APR paid semiannually

Question 8

A $1000 bond with a coupon rate of 5.4% paid semiannually has five years to maturity and a yield to maturity of 7.5%. If interest rates rise and the yield to maturity increases to 7.8%, what will happen to the price of the bond?

A) rise by $12.16
B) fall by $9.82
C) fall by $11.59
D) The price of the bond will not change.

Question 9

What must be the price of a $10,000 bond with a 6.5% coupon rate, semiannual coupons, and two years to maturity if it has a yield to maturity of 8% APR?

A) $10,754.44
B) $9727.75
C) $10,619.63
D) $9819.74

Question 10

A risk-free, zero-coupon bond has 15 years to maturity. Which of the following is closest to theprice per $100 of face value that the bond will trade at if the YTM is 7%?

A) $29.55
B) $32.68
C) $38.78
D) $36.24

Question 11

A corporate bond which receives a BBB rating from Standard and Poor's is considere?

A) an investment grade bond.
B) a high-yield bond.
C) a defaulted bond.
D) a junk bond.

Question 12

$\begin{array}{llllll}\text { Security: } & \text { AAA Corporate } & \text { AA Corporate } & \text { A Corporate } & \text { BBB Corporate } & \text { BB } \text { Corporate } \\\hline\text { Yield (\%): }&5.7&5.8&6.0&6.6&6.9\end{array}$ Lloyd Industries raised $28 million in order to upgrade its roller kiln furnace for the production of ceramic tile. The company funded this by issuing 15-year bonds with a face value of $1000 and a coupon rating of 6.2%, paid annually. The above table shows the yield to maturity for similar 15-year corporate bonds of different ratings issued at the same time. When Lloyd Industries issued their bonds, they received a price of $962.63. Which of the following is most likely to be the rating these bonds received?

A) A
B) BBB
C) BB
D) AA

Question 13

Which of the following statements is FALSE?

A) When we calculate a bond's yield to maturity by solving the formula,
$$\text { Price of an } n \text {-period bond } = \frac { \text { Coupon } } { ( 1 + Y T M ) ^ { 1 } } + \frac { \text { Coupon } } { ( 1 + Y T M ) ^ { 2 } } + \ldots + \frac { \text { Coupon } + \text { Face } } { ( 1 + Y T M ) ^ { n } } \text {, }$$ the yield we compute will be a rate per coupon interval.
B) The yield to maturity of a bond is the discount rate that sets the future value (FV) of the promised bond payments equal to the current market price of the bond.
C) The internal rate of return (IRR) of an investment in a zero-coupon bond is the rate of return that investors will earn on their money if they buy a default free bond at its current price and hold it to maturity.
D) Financial professionals also use the term "spot interest rates" to refer to the default-free zero-coupon yields.

Question 14

A company releases a five-year bond with a face value of $1000 and coupons paid semiannually. If market interest rates imply a YTM of 6%, which of the following coupon rates will cause the bond to be issued at a premium?

A) 8%
B) 6%
C) 3%
D) 4%

Question 15

Use the figure for the question(s) below

The current zero-coupon yield curve for risk-free bonds is shown above. What is the price per $100face value of a four-year, zero-coupon, risk-free bond?

A) $92.15
B) $87.99
C) $96.67
D) $85.64

Question 16

What must be the price of a $1000 bond with a 5.8% coupon rate, annual coupons, and 30 years to maturity if YTM is 7.5% APR?

A) $114.22
B) $799.22
C) $685.00
D) $1005.26

Question 17

Why is the yield to maturity of a zero-coupon, risk-free bond that matures at the end of a given period the risk-free interest rate for that period?

A) Since a bond's price will converge on its face value as the bond approaches the maturity date, the Law of One Price dictates that the risk-free interest rate will reflect this convergence.
B) Since such a bond provides a risk-free return over that period, the Law of One Price guarantees the risk-free interest rate be equal to this yield.
C) Since interest rates will rise and fall in response to the movement in bond prices.
D) Since there is, by definition, no risk in investing in such bonds, the return from such bonds is the best that can be expected from any investment over the period.

Question 18

Which of the following bonds is trading at a premium?

A) a ten-year bond with a $4000 face value whose yield to maturity is 6.0% and coupon rate is 5.9% APR paid semiannually
B) a 15-year bond with a $10,000 face value whose yield to maturity is 8.0% and coupon rate is 7.8% APR paid semiannually
C) a two-year bond with a $50,000 face value whose yield to maturity is 5.2% and coupon rate is 5.2% APR paid monthly
D) a five-year bond with a $2000 face value whose yield to maturity is 7.0% and coupon rate is 7.2% APR paid semiannually

Question 19

A firm issues 20-year bonds with a coupon rate of 4.8%, paid semiannually. The credit spread forthis firm's 20-year debt is 1.2%. New 20-year Treasury bonds are being issued at par with a coupon rate of 4.6%. What should the price of the firm's outstanding 20-year bonds be if their face value is $1000?

A) $977.48
B) $1000.86
C) $882.53
D) $975.98

Question 20

Why are the interest rates of Treasury bonds less than the interest rates of equivalent corporate bonds?

A) Treasury bonds are widely regarded to be risk-free.
B) The Australian government has a high credit spread.
C) Treasury bonds are generally used to determine interest rates.
D) There is significant risk that the Australian government will default.

Question 21

A company issues a ten-year bond at par with a coupon rate of 6% paid semiannually. The YTM at the beginning of the third year of the bond (8 years left to maturity) is 7.8%. What is the new price of the bond?

A) $894.35
B) $569.65
C) $1000.00
D) $722.06

Question 22

Use the table for the question(s) below.
Consider the following yields to maturity on various one-year zero-coupon securities:
$\begin{array} { l c } \hline \text { Security } & \text { Yield (\%) } \\\hline \text { Treasury } & 4.6 \\\hline \text { AAA corporate } & 4.8 \\\hline \text { BBB corporate } & 5.6 \\\hline \text { B Corporate } & 6.2 \\\hline\end{array}$

-The price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating is closest to:

A) 95.42
B) 94.70
C) 95.60
D) 94.16

Question 23

A risk-free, zero-coupon bond with a face value of $1000 has 15 years to maturity. If the YTM is 5.8%, which of the following would be closest to the price this bond will trade at?

A) $686
B) $429
C) $721
D) $525

Question 24

A 20-year bond with a $1000 face value was issued with a yield to maturity of 4.5% and pays coupons semiannually. After ten years, the yield to maturity is still 4.5% and the clean price of the bond is $960.09. After three more months go by, what would you expect the dirty price to be?

A) $970.09
B) $980.09
C) $960.09
D) Cannot be determined from information given.

Question 25

Use the figure for the question(s) below.

The current zero-coupon yield curve for risk-free bonds is shown above. What is the risk-free interest rate on a 3-year maturity?

A) 3.00%
B) 3.25%
C) 3.15%
D) 6.34%

Question 26

Consider a zero-coupon bond with a $1000 face value and ten years left until maturity. If the bond is currently trading for $459, then the yield to maturity on this bond is closest to:

A) 9.7%
B) 8.1%
C) 10.4%
D) 7.5%

Question 27

A corporate bond makes payments of $9.67 every month for ten years with a final payment of $2009.67. Which of the following best describes this bond?

A) a 10-year bond with a face value of $2009.67 and a coupon rate of 4.8% with monthly payments
B) a 10-year bond with a face value of $2009.67 and a coupon rate of 5.8% with monthly payments
C) a 10-year bond with a face value of $2000 and a coupon rate of 5.8% with monthly payments
D) a 10-year bond with a face value of $2000 and a coupon rate of 4.8% with monthly payments

Question 28

$$\begin{array} { l llllll } 0 & 1 & 2 & 3 && 59 & 60 \\+ \cdots &+ \ldots &+ \ldots &+ \cdots & \ldots & \ldots + \ldots &+\\&\$62.50&\$62.50&\$62.50&&\$62.50&\$62.50+\$5,000\end{array}$$ A corporation issues a bond that generates the above cash flows. If the periods shown are 3 months, which of the following best describes that bond?

A) a 30-year bond with a notional value of $5000 and a coupon rate of 3.75% paid semiannually
B) a 60- year bond with a notional value of $5000 and a coupon rate of 5% paid quarterly
C) a 15-year bond with a notional value of $5000 and a coupon rate of 5% paid quarterly
D) a 15-year bond with a notional value of $5000 and a coupon rate of 1.25% paid annually

Question 29

How are investors in zero-coupon bonds compensated for making such an investment?

A) Such bonds are purchased at a discount to their face value.
B) The bond makes regular interest payments.
C) The face value of these bonds is less than the value of the bond when the bond matures.
D) Such bonds are purchased at their face value and sold at a premium at a later date.

Question 30

A bond has three years to maturity, a $2000 face value, and a 6.3% coupon rate with annual coupons. What is its yield to maturity if it is currently trading at $1801?

A) 9.22%
B) 8.48%
C) 6.30%
D) 10.32%

Question 31

Use the table for the question(s) below.
Consider the following yields to maturity on various one-year zero-coupon securities:
$\begin{array} { l c } \hline \text { Security } & \text { Yield (\%) } \\\hline \text { Treasury } & 4.6 \\\hline \text { AAA corporate } & 4.8 \\\hline \text { BBB corporate } & 5.6 \\\hline \text { B Corporate } & 6.2 \\\hline\end{array}$

-The credit spread of the BBB corporate bond is closest to?

A) 5.6%
B) 1.6%
C) 0.8%
D) 1.0%

Question 32

Which of the following best illustrates why a bond is a type of loan?

A) When a company issues a bond, the buyer of that bond becomes a part owner of the issuing company.
B) Federal and state governments issue bonds to finance long-term projects.
C) When an investor buys a bond from an issuer, the investor is giving money to the issuer, with the assurance it will be repaid at a date in the future.
D) The issuers of bonds regularly pay interest on the face value of the bond to the buyers of those bonds.

Question 33

How much will each coupon payment be of a 20-year $500 bond with a 8% coupon rate and quarterly payments?

A) $20.00
B) $3.33
C) $40.00
D) $10.00

Question 34

Use the table for the question(s) below.
The following table summarises prices of various default-free zero-coupon bonds (expressed as a percentage of face value):
$\begin{array} { l c c c c c } \hline \text { Maturity (years) } & \mathbf { 1 } & \mathbf { 2 } & \mathbf { 3 } & \mathbf { 4 } & \mathbf { 5 } \\\hline \text { Price (per } \$ 100 \text { face value) } & 94.52 & 89.68 & 85.40 & 81.65 & 78.35 \\\hline\end{array}$

-The yield to maturity for the three-year zero-coupon bond is closest to?

A) 5.4%
B) 6.0%
C) 5.6%
D) 5.8%

Question 35

Which of the following best shows the timeline for cash flows from a five-year bond with a face
value of $2,000, a coupon rate of 4.2%, and semiannual payments?

A) $$\begin{array} { l llllll } 0 & 1 & 2 & 3 && 9 & 10 \\+ \cdots &+ \ldots &+ \ldots &+ \cdots & \ldots & \ldots + \ldots &+\\&\$42&\$42&\$42&&\$42&\$2,042\end{array}$$
B) $$\begin{array} { l llllll } 0 & 1 & 2 & 3 && 9 & 10 \\+ \cdots &+ \ldots &+ \ldots &+ \cdots & \ldots & \ldots + \ldots &+\\&\$17.50&\$17.50&\$17.50&&\$17.50&\$2,017.50\end{array}$$
C) $$\begin{array} { l llllll } 0 & 1 & 2 & 3 && 9 & 10 \\+ \cdots &+ \ldots &+ \ldots &+ \cdots & \ldots & \ldots + \ldots &+\\&\$48&\$48&\$48&&\$48&\$48\end{array}$$
D) $$\begin{array} { l lllll } 0 & 1 & 2 & 3 & 4 & 5 \\+----&+----&+----&+----&+----&+\\&\$84&\$84&\$84&\$84&\$2,084\end{array}$$

Question 36

Which of the following risk-free, zero-coupon bonds could be bought for the lowest price?

A) one with a face value of $1000, a YTM of 4.8%, and 5 years to maturity
B) one with a face value of $1000, a YTM of 6.8%, and 10 years to maturity
C) one with a face value of $1000, a YTM of 5.9%, and 20 years to maturity
D) one with a face value of $1000, a YTM of 3.2%, and 8 years to maturity

Question 37

Use the information for the question(s) below.
The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 15 years. The bond
certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made
semiannually.
Assuming the appropriate YTM on the Sisyphean bond is 7.5%, then this bond will trade a?

A) a discount.
B) par.
C) a premium.
D) none of the above

Question 38

Which of the following best describes a bond rated by Standard and Poor's and Moody as B?

A) judged to be high quality by all standards
B) neither highly protected nor poorly secured
C) possessing many favorable characteristics
D) generally lacks the characteristics of a desirable investment

Question 39

$\begin{array}{llllll}\text { Security: } & \text { AAA Corporate } & \text { AA Corporate } & \text { A Corporate } & \text { BBB Corporate } & \text { BB } \text { Corporate } \\\hline\text { Yield (\%): }&6.2&6.4&6.7&7.0&7.5\end{array}$ Consolidated Insurance wants to raise $35 million in order to build a new headquarters. The company will fund this by issuing 10-year bonds with a face value of $1000 and a coupon rating of 6.5%, paid semiannually. The above table shows the yield to maturity for similar 10-year corporate bonds of different ratings. Which of the following is closest to how many more bonds Consolidated Insurance would have to sell to raise this money if their bonds received an A rating rather than an AA rating?

A) 1156
B) 750
C) 765
D) 686

Question 40

If the yield to maturity of all of the following bonds is 6%, which trades at the greatest premium per $100 face value?

A) a bond with a $10,000 face value, four years to maturity and 6.2% semiannual coupon payments
B) a bond with a $1000 face value, five years to maturity and 6.3% annual coupon payments
C) a bond with a $500 face value, ten years to maturity and 5.2% annual coupon payments
D) a bond with a $5000 face value, several years to maturity and 5.5% annual coupon payments

Question 41

Which of the following statements is FALSE?

A) Unlike the case of bonds that pay coupons, for zero-coupon bonds, there is no simple formula to solve for the yield to maturity directly.
B) Because we can convert any bond price into a yield, and vice versa, bond prices and yields are often used interchangeably.
C) The internal rate of return (IRR) of an investment in a bond is given a special name, the yield to maturity (YTM).
D) One advantage of quoting the yield to maturity rather than the price is that the yield is independent of the face value of the bond.

Question 42

A ten-year, zero-coupon bond with a yield to maturity of 6% has a face value of $1000. An investor purchases the bond when it is initially traded, and then sells it four years later. What is the rate of return of this investment, assuming the yield to maturity does not change?

A) 3.07%
B) 0.26%
C) 7.65%
D) 6.00%

Question 43

A firm issues ten-year bonds with a coupon rate of 6.5%, paid semiannually. The credit spread for this firm's ten-year debt is 0.8%. New ten-year Treasury bonds are being issued at par with a coupon rate of 5%. What should the price of the firm's outstanding ten-year bonds be per $100 of face value?

A) $97.28
B) $98.27
C) $105.26
D) $100.86

Question 44

Which of the following statements is FALSE?

A) Bonds typically make two types of payments to their holders.
B) Bonds are a securities sold by governments and corporations to raise money from investors today in exchange for promised future payments.
C) By convention the coupon rate is expressed as an effective annual rate.
D) The time remaining until the repayment date is known as the term of the bond.

Question 45

How much will each coupon payment be of a 30-year $10,000 bond with a 4.5% coupon rate and semiannual payments?

A) $30
B) $450
C) $225
D) $350

Question 46

An investor holds a bond with a face value of $5000, a coupon rate of 4%, and semiannual payments that matures on 15/01/2012. How much will the investor receive on 15/01/2012?

A) $200
B) $5100
C) $5000
D) $5200

Question 47

What is the dirty price of a bond?

A) the bond's price less an adjustment for changes in interest rates
B) the bond's price based only on the bond's yield
C) the bond's actual cash price
D) the bond's price based only on coupon payments

Question 48

Use the table for the question(s) below.
The following table summarises prices of various default-free zero-coupon bonds (expressed as a percentage of face value):
$\begin{array} { l c c c c c } \hline \text { Maturity (years) } & \mathbf { 1 } & \mathbf { 2 } & \mathbf { 3 } & \mathbf { 4 } & \mathbf { 5 } \\\hline \text { Price (per } \$ 100 \text { face value) } & 94.52 & 89.68 & 85.40 & 81.65 & 78.35 \\\hline\end{array}$

-Based upon the information provided in the table above, you can conclud?

A) that the yield curve is downward sloping.
B) nothing about the shape of the yield curve.
C) that the yield curve is upward sloping.
D) that the yield curve is flat.

Question 49

Which of the following statements is FALSE?

A) Prior to its maturity date, the price of a zero-coupon bond is always greater than its face value.
B) The amount of each coupon payment is determined by the coupon rate of the bond.
C) Treasury bonds are Australian government bonds with a maturity greater than one year.
D) The simplest type of bond is a zero-coupon bond.

Question 50

Use the information for the question(s) below.
Luther Industries needs to raise $25 million to fund a new office complex. The company plans on issuing ten-year bonds
with a face value of $1000 and a coupon rate of 7.0% (annual payments). The following table summarises the YTM for similar
ten-year corporate bonds of various credit ratings:
$\begin{array} { l c c c c c } \hline \text { Rating } & \text { AAA } & \text { AA } & \text { A } & \text { BBB } & \text { BB } \\\hline \text { YTM } & 6.70 \% & 6.80 \% & 7.00 \% & 7.40 \% & 8.00 \% \\\hline\end{array}$

-Suppose that when these bonds were issued, Luther received a price of $972.42 for each bond. What is the likely rating that Luther's bonds received?

A) A
B) B
C) BBB
D) AA

Question 51

An investor purchases a 30-year, zero-coupon bond with a face value of $1000 and a yield to maturity of 6.5%. He sells this bond ten years later. What is the rate of return on his investment, assuming yield to maturity does not change?

A) 6.24%
B) 6.04%
C) 6.50%
D) 6.62%

Question 52

A company releases a five-year bond with a face value of $1000 and coupons paid semiannually. If market interest rates imply a YTM of 6%, what should be the coupon rate offered if the bond is to trade at par?

A) 3%
B) 8%
C) 6%
D) 4%

Question 53

A company issues a ten-year bond at par with a coupon rate of 6% paid semiannually. The YTM at the beginning of the third year of the bond (8 years left to maturity) is 7.8%. What was the percentage change in the price of the bond over the past two years?

A) -10.56%
B) 11.81%
C) -43.04%
D) 75.55%

Question 54

A bond is currently trading below par. Which of the following must be true about that bond?

A) The bond's yield to maturity is less than its coupon rate.
B) The bond is a zero-coupon bond.
C) The bond's yield to maturity is greater than its coupon rate.
D) B & C above

Question 55

Which of the following statements is FALSE?

A) The internal rate of return (IRR) of an investment opportunity is the discount rate at which the net present value (NPV) of the investment opportunity is equal to zero.
B) When prices are quoted in the bond market, they are conventionally quoted in increments of $1000.
C) The yield to maturity for a zero-coupon bond is the return you will earn as an investor from holding the bond to maturity and receiving the promised face value payment.
D) Zero-coupon bonds are also called pure discount bonds.

Question 56

Which of the following bonds will be least sensitive to a change in interest rates?

A) a ten-year bond with a $2000 face value whose yield to maturity is 5.8% and coupon rate is 5.8% APR paid semiannually
B) a 30-year bond with a $1000 face value whose yield to maturity is 5.5% and coupon rate is 6.4% APR paid annually
C) a 20-year bond with a $3000 face value whose yield to maturity is 6.0% and coupon rate is 5.4% APR paid semiannually
D) a 15-year bond with a $5000 face value whose yield to maturity is 7.4% and coupon rate is 6.2% APR paid annually

Question 57

Use the table for the question(s) below.
Consider the following yields to maturity on various one-year zero-coupon securities:
$\begin{array} { l c } \hline \text { Security } & \text { Yield (\%) } \\\hline \text { Treasury } & 4.6 \\\hline \text { AAA corporate } & 4.8 \\\hline \text { BBB corporate } & 5.6 \\\hline \text { B Corporate } & 6.2 \\\hline\end{array}$

-The price (expressed as a percentage of the face value) of a one-year, zero-coupon, corporate bond with a BBB rating is closest to:

A) 94.70
B) 95.42
C) 94.16
D) 95.60

Question 58

Consider a zero-coupon bond with $1000 face value and 20 years to maturity. The price this bond will trade if the YTM is 6% is closest to:

A) $335
B) $312
C) $306
D) $215

Question 59

A bond has a $1000 face value, ten years to maturity, and 7% semiannual coupon payments. What would be the expected difference in this bond's price immediately before and immediately after the next coupon payment?

A) $35
B) $84
C) $70
D) $18

Question 60

Use the table for the question(s) below.
Consider the following yields to maturity on various one-year zero-coupon securities:

The credit spread of the B corporate bond is closest to?

A) 1.6%
B) 1.0%
C) 0.8%
D) 1.4%

Question 61

Which of the following is true about the face value of a bond?

A) It is usually denominated in standard increments, such as $1000.
B) It is the notional amount we use to compute coupon payments.
C) It is the amount that is repaid at maturity.
D) All of the above are true.

Question 62

The coupon value of a bond is the face value of that bond?

Question 63

How are the cash flows of a coupon bond different from an amortising loan?

Question 64

What is the yield to maturity of a five-year, $5000 bond with a 4.5% coupon rate and semiannual coupons if this bond is currently trading for a price of $4876?

A) 8.60%
B) 5.07%
C) 4.30%
D) 6.30%

Question 65

Consider a zero-coupon bond with a $1000 face value and ten years left until maturity. If the YTM of this bond is 10.4%, then the price of this bond is closest to:

A) $1000
B) $1040
C) $372
D) $602

Question 66

A $5000 bond with a coupon rate of 6.4% paid semiannually has four years to maturity and a yield to maturity of 6.2%. If interest rates fall and the yield to maturity decreases by 0.8%, what will happen to the price of the bond?

A) fall by $98.64
B) fall by $40.49
C) rise by $142.78
D) rise by $84.46

Question 67

$\begin{array}{llllll}\text { Security: } & \text { AAA Corporate } & \text { AA Corporate } & \text { A Corporate } & \text { BBB Corporate } & \text { BB } \text { Corporate } \\\hline\text { Yield (\%): }&5.6&5.7&5.9&6.4&7.0\end{array}$ A mining company needs to raise $100 million in order to begin open pit mining of a coal seam. The company will fund this by issuing 30-year bonds with a face value of $1000 and a coupon rating of 6%, paid annually. The above table shows the yield to maturity for similar 30-year corporate bonds of different ratings. If the mining company's bonds receive a A rating, what will be their selling price?

A) $1013.91
B) $1016.41
C) $947.22
D) $967.64

Question 68

Bonds with a high risk of default generally offer high yields?

Question 69

Treasury bonds have original maturities less than one year?

Question 70

A corporation issues a bond with a face value of $10,000 and a coupon rate of 5.65% that matures on 15/07/2015. The holder of such a bond receives coupon payments of $282.50. How frequently are coupon payments made in this case?

A) quarterly
B) semiannually
C) annually
D) monthly

Question 71

What is the yield to maturity of a one-year, risk-free, zero-coupon bond with a $10,000 face value and a price of $9600 when released?

A) 4.000%
B) 3.212%
C) 4.167%
D) 9.600%

Question 72

Which of the following statements is FALSE?

A) The bond certificate typically specifies that the coupons will be paid periodically until the maturity date of the bond.
B) Usually the face value of a bond is repaid at maturity.
C) The bond certificate indicates the amounts and dates of all payments to be made.
D) The only cash payments the investor will receive from a zero-coupon bond are the interest payments that are paid up until the maturity date.

Question 73

A bond will trade at a discount if its coupon rate is less than its yield to maturity?

Question 74

A bond is said to mature on the date when the issuer repays its notional value?

Question 75

The credit spread of a bond shrinks if it is perceived that the probability of the issuer defaulting increases.

Question 76

A bond certificate indicate?

A) the yield to maturity of the bond.
B) the amounts and dates of all payments to be made.
C) the price of the bond.
D) the individual to whom payments will be made.

Question 77

Which of the following bonds will be most sensitive to a change in interest rates if all bonds have the same initial yield to maturity?

A) a ten-year bond with a $1000 face value whose coupon rate is 5.8% APR paid semiannually
B) a 20-year bond with a $1000 face value whose coupon rate is 7.4% APR paid semiannually
C) a 20-year bond with a $1000 face value whose coupon rate is 5.8% APR paid semiannually
D) a ten-year bond with a $1000 face value whose coupon rate is 7.4% APR paid semiannually

Question 78

Bond traders generally quote bond yields rather than bond prices, since yield to maturity depends on the face value of the bond.

Question 79

A risk-free, zero-coupon bond with a $5000 face value has ten years to maturity. The bond currently trades at $3650. What is the yield to maturity of this bond?

A) 3.197%
B) 3.284%
C) 3.699%
D) 3.465%

Question 80

Prior to its maturity date, the price of a zero-coupon bond is its face value?