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Use the table for the question(s) below. Consider the following four bonds that pay annual coupons: Use the table for the question(s) below. Consider the following four bonds that pay annual coupons: -Which of the four bonds is the most sensitive to a one percent increase in the YTM? A) Bond A B) Bond B C) Bond C D) Bond D -Which of the four bonds is the most sensitive to a one percent increase in the YTM?


A) Bond A
B) Bond B
C) Bond C
D) Bond D

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Which of the following statements is false?


A) 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.
B) 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.
C) Because we can convert any bond price into a yield, and vice versa, bond prices and yields are often used interchangeably.
D) The IRR of an investment in a bond is given a special name, the yield to maturity (YTM) .

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Use the table for the question(s) below. Consider the following zero-coupon yields on default-free securities: Use the table for the question(s) below. Consider the following zero-coupon yields on default-free securities: -Which of the following statements is false? A) The forward rate for year 1 is the rate on an investment that starts today and is repaid in one year; it is equivalent to an investment in a one-year zero-coupon bond. B) The forward rate is only a good predictor of spot interest rates in the future when investors are risk adverse. C) We can use the law of one price to calculate the forward rate from the zero-coupon yield curve. D) An interest rate forward contract is a contract today that fixes the interest rate for a loan or investment in the future. -Which of the following statements is false?


A) The forward rate for year 1 is the rate on an investment that starts today and is repaid in one year; it is equivalent to an investment in a one-year zero-coupon bond.
B) The forward rate is only a good predictor of spot interest rates in the future when investors are risk adverse.
C) We can use the law of one price to calculate the forward rate from the zero-coupon yield curve.
D) An interest rate forward contract is a contract today that fixes the interest rate for a loan or investment in the future.

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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 summarizes the YTM for similar ten-year corporate bonds of various credit ratings: 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 summarizes the YTM for similar ten-year corporate bonds of various credit ratings: -Explain why the expected return of a corporate bond does not equal its yield to maturity? -Explain why the expected return of a corporate bond does not equal its yield to maturity?

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Because we calculate the yield to maturi...

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Consider a zero coupon bond with 20 years to maturity.The percentage change in the price of the bond if its yield to maturity decreases from 7% to 5% is closest to:


A) 46%
B) 17%
C) 22%
D) 38%

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Use the table for the question(s) below. Consider the following four bonds that pay annual coupons: Use the table for the question(s) below. Consider the following four bonds that pay annual coupons: -Consider a corporate bond with a $1000 face value,8% coupon with semiannual coupon payments,7 years until maturity,and a YTM of 9%.It has been 57 days since the last coupon payment was made and there are 182 days in the current coupon period.The dirty (cash) price for this bond is closest to: A) $949.70 B) $961.40 C) $936.40 D) $948.90 -Consider a corporate bond with a $1000 face value,8% coupon with semiannual coupon payments,7 years until maturity,and a YTM of 9%.It has been 57 days since the last coupon payment was made and there are 182 days in the current coupon period.The dirty (cash) price for this bond is closest to:


A) $949.70
B) $961.40
C) $936.40
D) $948.90

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Use the table for the question(s) below. The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face value) : Use the table for the question(s) below. The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face value) : -The yield to maturity for the three year zero-coupon bond is closest to: A) 5.4% B) 5.8% C) 5.6% D) 6.0% -The yield to maturity for the three year zero-coupon bond is closest to:


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

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Which of the following statements is correct?


A) The value today of a bond equals the present value of all of its future cash flows.
B) The value today of a bond is smaller than the present value of all of its future cash flows.
C) The value today of a bond is greater than the present value of all of its future cash flows.
D) The value today of a bond equals the future value of all of its future cash flows.

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The coupon rate is the contractual rate of interest paid on the ________ of the bond.


A) present value
B) face value
C) price
D) prevailing rate of interest

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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 semi-annually. -Assuming the appropriate YTM on the Sisyphean bond is 9%,then this bond will trade at


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

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Which of the following statements is false?


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.

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Which of the following statements is false?


A) Given the spot interest rates, we can determine the price and yield of any other default-free bond.
B) As the coupon increases, earlier cash flows become relatively less important than later cash flows in the calculation of the present value.
C) When the yield curve is flat, all zero-coupon and coupon-paying bonds will have the same yield, independent of their maturities and coupon rates.
D) When Canadian bond traders refer to "the yield curve," they are often referring to the coupon-paying treasury yield curve.

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Which of the following statements is false?


A) If the bond trades at a discount, an investor who buys the bond will earn a return both from receiving the coupons and from receiving a face value that exceeds the price paid for the bond.
B) Most coupon bond issuers choose a coupon rate so that the bonds will initially trade at, or very near to, par.
C) Coupon bonds always trade for a discount.
D) At any point in time, changes in market interest rates affect a bond's yield to maturity and its price.

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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 semi-annually. -Assuming that this bond trades for $903,then the YTM for this bond is closest to:


A) 8.0%
B) 6.8%
C) 9.9%
D) 9.2%

Correct Answer

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Which of the following statements is false?


A) The 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.
B) The yield to maturity of a bond is the discount rate that sets the future value of the promised bond payments equal to the current market price of the bond.
C) Financial professionals also use the term spot interest rates to refer to the default-free zero-coupon yields.
D) When we calculate a bond's yield to maturity by solving the formula, Price of an n-period bond = Which of the following statements is false? A) The 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. B) The yield to maturity of a bond is the discount rate that sets the future value of the promised bond payments equal to the current market price of the bond. C) Financial professionals also use the term spot interest rates to refer to the default-free zero-coupon yields. D) When we calculate a bond's yield to maturity by solving the formula, Price of an n-period bond = + + ... + , the yield we compute will be a rate per coupon interval. + Which of the following statements is false? A) The 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. B) The yield to maturity of a bond is the discount rate that sets the future value of the promised bond payments equal to the current market price of the bond. C) Financial professionals also use the term spot interest rates to refer to the default-free zero-coupon yields. D) When we calculate a bond's yield to maturity by solving the formula, Price of an n-period bond = + + ... + , the yield we compute will be a rate per coupon interval. + ... + Which of the following statements is false? A) The 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. B) The yield to maturity of a bond is the discount rate that sets the future value of the promised bond payments equal to the current market price of the bond. C) Financial professionals also use the term spot interest rates to refer to the default-free zero-coupon yields. D) When we calculate a bond's yield to maturity by solving the formula, Price of an n-period bond = + + ... + , the yield we compute will be a rate per coupon interval. , the yield we compute will be a rate per coupon interval.

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Use the table for the question(s) below. Consider the following zero-coupon yields on default-free securities: Use the table for the question(s) below. Consider the following zero-coupon yields on default-free securities: -A 4-year default-free security with a face value of $1000 and an annual coupon rate of 5.25% will trade A) at a premium. B) at par. C) at a discount. D) There is insufficient information provided to answer this question. -A 4-year default-free security with a face value of $1000 and an annual coupon rate of 5.25% will trade


A) at a premium.
B) at par.
C) at a discount.
D) There is insufficient information provided to answer this question.

Correct Answer

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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 summarizes the YTM for similar ten-year corporate bonds of various credit ratings: 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 summarizes the YTM for similar ten-year corporate bonds of various credit ratings: -Assuming that Luther's bonds receive a AAA rating,the price of the bonds will be closest to: A) $1021 B) $1014 C) $1000 D) $937 -Assuming that Luther's bonds receive a AAA rating,the price of the bonds will be closest to:


A) $1021
B) $1014
C) $1000
D) $937

Correct Answer

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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 summarizes the YTM for similar ten-year corporate bonds of various credit ratings: 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 summarizes the YTM for similar ten-year corporate bonds of various credit ratings: -Assuming that Luther's bonds receive a AAA rating,the number of bonds that Luther must issue to raise the needed $25 million is closest to: A) 24,655 B) 25,000 C) 24,477 D) 26,681 -Assuming that Luther's bonds receive a AAA rating,the number of bonds that Luther must issue to raise the needed $25 million is closest to:


A) 24,655
B) 25,000
C) 24,477
D) 26,681

Correct Answer

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Use the table for the question(s) below. The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face value): Use the table for the question(s) below. The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face value): -Compute the yield to maturity for each of the five zero-coupon bonds. -Compute the yield to maturity for each of the five zero-coupon bonds.

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blured image Each yield to matur...

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Use the table for the question(s) below. The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face value): Use the table for the question(s) below. The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face value): -What is the relationship between a bond's price and its yield to maturity? -What is the relationship between a bond's price and its yield to maturity?

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There is an inverse relationsh...

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