Question 1

Consider a bond that pays annually an 8% coupon with 20 years to maturity.The percentage change in the price of the bond if its yield to maturity increases from 5% to 7% is closest to:

Accepted Answer

A)  22.5%.
B)  24.5%.
C)  -22.5%.
D)  -19.5%.

Question 2

Which of the following statements is FALSE?

Accepted Answer

A)  The principal or face value of a bond is the notional amount we use to compute the interest payments.
B)  Payments are made on bonds until a final repayment date,called the term date of the bond.
C)  The coupon rate of a bond is set by the issuer and stated on the bond certificate.
D)  The promised interest payments of a bond are called coupons.

Question 3

Which of the following statements is FALSE?

Accepted Answer

A)  Investors pay less for bonds with credit risk than they would for an otherwise identical default-free bond.
B)  The yield to maturity of a defaultable bond is equal to the expected return of investing in the bond.
C)  The risk of default,which is known as the credit risk of the bond,means that the bond's cash flows are not known with certainty.
D)  For corporate bonds,the issuer may default-that is,it might not pay back the full amount promised in the bond certificate.

Question 4

Explain why the expected return of a corporate bond does not equal its yield to maturity?

Accepted Answer

Because we calculate the yield to maturi...

Question 5

Which of the following statements is FALSE?

Accepted Answer

A)  Forward rates tend not to be good predictors of future spot rates.
B)  Given the risk associated with interest rate changes,corporate managers require tools to help manage this risk.
C)  One of the most important tools to manage the risk of interest rate changes are interest rate forward contracts.
D)  A spot rate is an interest rate that we can guarantee today for a loan or investment that will occur in the future.

Question 6

Consider a zero-coupon bond with 20 years to maturity.The price at which this bond will trade if the YTM is 6% is closest to:

Accepted Answer

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

Question 7

Use the following information to answer the question(s) below. 
-The credit spread on AAA-rated corporate bonds is:

Accepted Answer

A)  1.0%.
B)  1.5%.
C)  2.6%.
D)  4.1%.

Question 8

Use the table for the question(s) below.
Consider the following four bonds that pay annual coupons: 0) to 10% (Price1) is closest to: A) -17%. B) -6%. C) -4%. D) 4%." class="answers-bank-image d-inline" rel="preload" >
-The percentage change in the price of the bond "C" if its yield to maturity increases from 9% (Price0) to 10% (Price1) is closest to:

Accepted Answer

A)  -17%.
B)  -6%.
C)  -4%.
D)  4%.

Question 9

The YTM of a 3-year default-free security with a face value of $1000 and an annual coupon rate of 6% is closest to:

Accepted Answer

A)  5.5%.
B)  5.8%.
C)  5.7%.
D)  5.2%.

Question 10

Taggart Transcontinental has issued at par a zero-coupon bond with a ten-year maturity.Investors believe there is a 10% chance that Taggart Transcontinental will default on these bonds.If they do default,investors expect to receive only 50 cents per dollar they are owed.If investors require an 8% return on their investment in these bonds,then the yield to maturity on these bonds will be closest to (assume annual compounding) :

Accepted Answer

A)  6.0%.
B)  6.5%.
C)  7.0%.
D)  8.56%.

Question 11

Use the table for the question(s) below.
Consider the following zero-coupon yields on default-free securities: 
-The forward rate for year 5 (the forward rate quoted today for an investment that begins in four years and matures in five years) is closest to:

Accepted Answer

A)  4.0%.
B)  3.8%.
C)  4.8%.
D)  4.2%.

Question 12

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 at:

Accepted Answer

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

Question 13

Which of the following statements is FALSE?

Accepted Answer

A)  If a bond trades at a premium,its yield to maturity will exceed its coupon rate.
B)  A bond that trades at a premium is said to trade above par.
C)  When a coupon-paying bond is trading at a premium,an investor's return from the coupons is diminished by receiving a face value less than the price paid for the bond.
D)  Holding fixed the bond's yield to maturity,for a bond not trading at par,the present value of the bond's remaining cash flows changes as the time to maturity decreases.

Question 14

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 9%,then this bond will trade at

Accepted Answer

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

Question 15

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.
-How much are each of the semiannual coupon payments? Assuming the appropriate YTM on the Sisyphean bond is 8.8%,then at what price should this bond trade for?

Accepted Answer

Coupon = (coupon rate × face v...

Exam 6: Valuing Bonds

Use the table for the question(s) below. Consider the following four bonds that pay annual coupons: -The percentage change in the price of the bond "C" if its yield to maturity increases from 9% (Price₀) to 10% (Price₁) is closest to:

Correct Answer
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Correct Answer
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Explain why the expected return of a corporate bond does not equal its yield to maturity?

Correct Answer
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Because we calculate the yield to maturi...
View Answer

Which of the following statements is FALSE?

Correct Answer
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Correct Answer
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Correct Answer
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Consider a zero-coupon bond with 20 years to maturity.The price at which this bond will trade if the YTM is 6% is closest to:

Correct Answer
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The YTM of a 3-year default-free security with a face value of $1000 and an annual coupon rate of 6% is closest to:

Correct Answer
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Use the table for the question(s) below. Consider the following zero-coupon yields on default-free securities: -The forward rate for year 5 (the forward rate quoted today for an investment that begins in four years and matures in five years) is closest to:

Correct Answer
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Which of the following statements is FALSE?

Correct Answer
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Use the following information to answer the question(s) below. -The credit spread on AAA-rated corporate bonds is:

Correct Answer
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Which of the following statements is FALSE?

Correct Answer
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Which of the following statements is FALSE?

Correct Answer
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Correct Answer
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Coupon = (coupon rate × face v...
View Answer

Consider a bond that pays annually an 8% coupon with 20 years to maturity.The percentage change in the price of the bond if its yield to maturity increases from 5% to 7% is closest to:

Correct Answer
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Exam 6: Valuing Bonds

Use the table for the question(s) below. Consider the following four bonds that pay annual coupons: -The percentage change in the price of the bond "C" if its yield to maturity increases from 9% (Price0) to 10% (Price1) is closest to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Explain why the expected return of a corporate bond does not equal its yield to maturity?

Correct AnswerverifiedBecause we calculate the yield to maturi...View AnswerShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Consider a zero-coupon bond with 20 years to maturity.The price at which this bond will trade if the YTM is 6% is closest to:

Correct AnswerverifiedShow Answer

The YTM of a 3-year default-free security with a face value of $1000 and an annual coupon rate of 6% is closest to:

Correct AnswerverifiedShow Answer

Use the table for the question(s) below. Consider the following zero-coupon yields on default-free securities: -The forward rate for year 5 (the forward rate quoted today for an investment that begins in four years and matures in five years) is closest to:

Correct AnswerverifiedShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

Use the following information to answer the question(s) below. -The credit spread on AAA-rated corporate bonds is:

Correct AnswerverifiedShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedCoupon = (coupon rate × face v...View AnswerShow Answer

Consider a bond that pays annually an 8% coupon with 20 years to maturity.The percentage change in the price of the bond if its yield to maturity increases from 5% to 7% is closest to:

Correct AnswerverifiedShow Answer

Use the table for the question(s) below. Consider the following four bonds that pay annual coupons: -The percentage change in the price of the bond "C" if its yield to maturity increases from 9% (Price₀) to 10% (Price₁) is closest to:

Correct Answer
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Correct Answer
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Correct Answer
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Because we calculate the yield to maturi...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Coupon = (coupon rate × face v...
View Answer

Correct Answer
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