Question 1

Micalah's Crafts needs $225,000 today to purchase some new equipment. They are planning on issuing 10-year bonds with a 6% coupon rate and semi-annual interest payments. The current market rate of interest is 6.5%. How many bonds must Micalah's Crafts sell to raise the money they need?

Accepted Answer

A)   216
B)   225
C)   226
D)   231
E)   234

Question 2

Provide an appropriate definition of coupon.

Accepted Answer

The stated...

Question 3

The outstanding bonds of RTF, Inc., provide a real rate of return of 3.3%. The current rate of inflation is 2.85%. What is the nominal rate of return on these bonds?

Accepted Answer

A)   6.12%
B)   6.15%
C)   6.30%
D)   6.24%
E)   6.27%

Question 4

Milner's Tools has a 9-year, 7% annual coupon bond outstanding with a $1,000 par value. Carter's Tools has a 10-year, 6% annual coupon bond with a $1,000 par value. Both bonds currently have a yield to maturity of 6.5%. Which of the following statements is correct if the market yield increases to 6.75%?

Accepted Answer

A)   Both bonds would decrease in value by 2.50%.
B)   The Milner's bond will increase in value by $16.82.
C)   The Milner's bond will increase in value by 1.63%.
D)   The Carter's bond will decrease in value by 1.80%.
E)   The Carter's bond will decrease in value by $16.82.

Question 5

One basis point is equal to:

Accepted Answer

A)   .01%.
B)   .10%.
C)   1.0%.
D)   10%.
E)   100%.

Question 6

The relationship between nominal interest rates on default-free, pure discount securities and the time to maturity is called the:

Accepted Answer

A)   Liquidity effect.
B)   Fisher effect.
C)   Term structure of interest rates.
D)   Inflation premium.
E)   Interest rate risk premium.

Question 7

The discussion of asset pricing in the text suggests that an investor will be indifferent between two bonds which have equal yields to maturity as long as they are of equivalent default risk. Can you think of any real-world factors which might make a given investor prefer one of these bonds over the other?

Accepted Answer

Note that the question only implies the ...

Question 8

The Exley Company bonds are currently selling for $1,041.30. These bonds mature in seven years, pay semi-annual interest and have a yield to maturity of 6.75%. What is the coupon rate?

Accepted Answer

A)   6.50%
B)   6.75%
C)   7.00%
D)   7.25%
E)   7.50%

Question 9

Provide an appropriate definition of indenture.

Accepted Answer

The indenture is the...

Question 10

The amount by which the call price exceeds the bond's par value is the:

Accepted Answer

A)   Coupon rate.
B)   Redemption value.
C)   Call premium.
D)   Original-issue discount.
E)   Call rate.

Question 11

The zero-coupon bonds of Markco, Inc. have a market price of $394.47, a face value of $1,000, and a yield to maturity of 6.87%. How many years is it until this bond matures?

Accepted Answer

A)   7 years
B)   10 years
C)   14 years
D)   18 years
E)   21 years

Question 12

If you want to sell a bond issued by a smaller corporation, you:

Accepted Answer

A)   Can always do so quite easily by trading it on the Montreal Bond Market.
B)   May encounter difficulties in executing the trade.
C)   Can usually do so quite efficiently due to the high liquidity of the bond market.
D)   Can do so quite quickly due to the high volume of trading in the bond markets.
E)   Will most likely trade in an auction market, such as the Toronto Stock Exchange.

Question 13

A zero-coupon bond with a face value of $1,000 is issued with an initial price of $387.50. The bond matures in 30 years. What is the implicit interest, in dollars, for the first year of the bond's life?

Accepted Answer

A)   $10.38
B)   $12.44
C)   $14.42
D)   $18.79
E)   $22.50

Question 14

A Treasury bond is quoted at a price of 104:18 with a 4.75% coupon. The bond pays interest semiannually. What is the current yield on one of these bonds?

Accepted Answer

A)   4.49%
B)   4.54%
C)   4.61%
D)   4.64%
E)   4.72%

Question 15

Provide an appropriate definition of call premium.

Accepted Answer

Amount by which the ...

Question 16

Your broker offers you the opportunity to purchase a bond with coupon payments of $90 per year and a face value of $1,000. If the yield to maturity on similar bonds is 8%, this bond should:

Accepted Answer

A)   Sell for the same price as the similar bond regardless of their respective maturities.
B)   Sell at a premium.
C)   Sell at a discount.
D)   Sell for either a premium or a discount but it's impossible to tell which.
E)   Sell for par value.

Question 17

Assume the required return on a zero-coupon bond will remain constant over the remainder of its life. The market value of the bond will:

Accepted Answer

A)   Increase each year by an amount equal to the imputed coupon rate for the period.
B)   Increase each year by an amount equal to the imputed interest for the period.
C)   Increase each year by an amount equal to the bond's current yield.
D)   Decrease each year by an amount equal to the bond's yield to maturity.
E)   Remain unchanged.

Question 18

Today Katerina purchased a bond at a quoted price of 98.7. The bond matures in five years, pays semi-annual interest, and has a 6.5% coupon rate. If Katerina holds the bond to maturity, what real rate of return will she earn if inflation remains constant at 2%?

Accepted Answer

A)   4.72%
B)   4.81%
C)   6.52%
D)   6.72%
E)   6.81%

Question 19

A general claim on property that is not otherwise pledged is called a:

Accepted Answer

A)   Collateral bond.
B)   Debenture.
C)   Mortgage bond.
D)   Registered bond.
E)   Bearer bond.

Question 20

All of the following are bond rating services EXCEPT:

Accepted Answer

A)   Dominion Bond Rating Service.
B)   Ontario Securities Commission.
C)   Moody's.
D)   Standard and Poor's.
E)   Fitch's.

Exam 7: Interest Rates and Bond Valuation

Micalah's Crafts needs $225,000 today to purchase some new equipment. They are planning on issuing 10-year bonds with a 6% coupon rate and semi-annual interest payments. The current market rate of interest is 6.5%. How many bonds must Micalah's Crafts sell to raise the money they need?

Correct Answer
verified

The amount by which the call price exceeds the bond's par value is the:

Correct Answer
verified

The outstanding bonds of RTF, Inc., provide a real rate of return of 3.3%. The current rate of inflation is 2.85%. What is the nominal rate of return on these bonds?

Correct Answer
verified

Your broker offers you the opportunity to purchase a bond with coupon payments of $90 per year and a face value of $1,000. If the yield to maturity on similar bonds is 8%, this bond should:

Correct Answer
verified

Provide an appropriate definition of coupon.

Correct Answer
verified
The stated...
View Answer

The zero-coupon bonds of Markco, Inc. have a market price of $394.47, a face value of $1,000, and a yield to maturity of 6.87%. How many years is it until this bond matures?

Correct Answer
verified

Assume the required return on a zero-coupon bond will remain constant over the remainder of its life. The market value of the bond will:

Correct Answer
verified

All of the following are bond rating services EXCEPT:

Correct Answer
verified

Provide an appropriate definition of indenture.

Correct Answer
verified
The indenture is the...
View Answer

Correct Answer
verified

Today Katerina purchased a bond at a quoted price of 98.7. The bond matures in five years, pays semi-annual interest, and has a 6.5% coupon rate. If Katerina holds the bond to maturity, what real rate of return will she earn if inflation remains constant at 2%?

Correct Answer
verified

The relationship between nominal interest rates on default-free, pure discount securities and the time to maturity is called the:

Correct Answer
verified

Provide an appropriate definition of call premium.

Correct Answer
verified
Amount by which the ...
View Answer

A zero-coupon bond with a face value of $1,000 is issued with an initial price of $387.50. The bond matures in 30 years. What is the implicit interest, in dollars, for the first year of the bond's life?

Correct Answer
verified

One basis point is equal to:

Correct Answer
verified

Correct Answer
verified
Note that the question only implies the ...
View Answer

If you want to sell a bond issued by a smaller corporation, you:

Correct Answer
verified

A Treasury bond is quoted at a price of 104:18 with a 4.75% coupon. The bond pays interest semiannually. What is the current yield on one of these bonds?

Correct Answer
verified

The Exley Company bonds are currently selling for $1,041.30. These bonds mature in seven years, pay semi-annual interest and have a yield to maturity of 6.75%. What is the coupon rate?

Correct Answer
verified

A general claim on property that is not otherwise pledged is called a:

Correct Answer
verified

Exam 7: Interest Rates and Bond Valuation

Micalah's Crafts needs $225,000 today to purchase some new equipment. They are planning on issuing 10-year bonds with a 6% coupon rate and semi-annual interest payments. The current market rate of interest is 6.5%. How many bonds must Micalah's Crafts sell to raise the money they need?

Correct AnswerverifiedShow Answer

The amount by which the call price exceeds the bond's par value is the:

Correct AnswerverifiedShow Answer

The outstanding bonds of RTF, Inc., provide a real rate of return of 3.3%. The current rate of inflation is 2.85%. What is the nominal rate of return on these bonds?

Correct AnswerverifiedShow Answer

Your broker offers you the opportunity to purchase a bond with coupon payments of $90 per year and a face value of $1,000. If the yield to maturity on similar bonds is 8%, this bond should:

Correct AnswerverifiedShow Answer

Provide an appropriate definition of coupon.

Correct AnswerverifiedThe stated...View AnswerShow Answer

The zero-coupon bonds of Markco, Inc. have a market price of $394.47, a face value of $1,000, and a yield to maturity of 6.87%. How many years is it until this bond matures?

Correct AnswerverifiedShow Answer

Assume the required return on a zero-coupon bond will remain constant over the remainder of its life. The market value of the bond will:

Correct AnswerverifiedShow Answer

All of the following are bond rating services EXCEPT:

Correct AnswerverifiedShow Answer

Provide an appropriate definition of indenture.

Correct AnswerverifiedThe indenture is the...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Today Katerina purchased a bond at a quoted price of 98.7. The bond matures in five years, pays semi-annual interest, and has a 6.5% coupon rate. If Katerina holds the bond to maturity, what real rate of return will she earn if inflation remains constant at 2%?

Correct AnswerverifiedShow Answer

The relationship between nominal interest rates on default-free, pure discount securities and the time to maturity is called the:

Correct AnswerverifiedShow Answer

Provide an appropriate definition of call premium.

Correct AnswerverifiedAmount by which the ...View AnswerShow Answer

A zero-coupon bond with a face value of $1,000 is issued with an initial price of $387.50. The bond matures in 30 years. What is the implicit interest, in dollars, for the first year of the bond's life?

Correct AnswerverifiedShow Answer

One basis point is equal to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedNote that the question only implies the ...View AnswerShow Answer

If you want to sell a bond issued by a smaller corporation, you:

Correct AnswerverifiedShow Answer

A Treasury bond is quoted at a price of 104:18 with a 4.75% coupon. The bond pays interest semiannually. What is the current yield on one of these bonds?

Correct AnswerverifiedShow Answer

The Exley Company bonds are currently selling for $1,041.30. These bonds mature in seven years, pay semi-annual interest and have a yield to maturity of 6.75%. What is the coupon rate?

Correct AnswerverifiedShow Answer

A general claim on property that is not otherwise pledged is called a:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The stated...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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The indenture is the...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Amount by which the ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Note that the question only implies the ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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