Deck 6: Bonds

Question 1

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 $2000 and a coupon rate of 4.8% with monthly payments
B) a 10-year bond with a face value of $2000 and a coupon rate of 5.8% with monthly payments
C) a 10-year bond with a face value of $2009.67 and a coupon rate of 4.8% with monthly payments
D) a 10-year bond with a face value of $2009.67 and a coupon rate of 5.8% with monthly payments
E) a 10-year bond with a face value of $2009.67 and a coupon rate of 6.8% with monthly payments

Answer 1

a 10-year bond with a face value of $2000 and a coupon rate of 5.8% with monthly payments

Question 2

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 15-year bond with a notional value of $5000 and a coupon rate of 5% paid quarterly
B) a 15-year bond with a notional value of $5000 and a coupon rate of 1.25% paid annually
C) a 30-year bond with a notional value of $5000 and a coupon rate of 3.75% paid semi-annually
D) a 60-year bond with a notional value of $5000 and a coupon rate of 5% paid quarterly
E) a 30-year bond with a notional value of $5000 and a coupon rate of 2.5% paid semi-annually

Answer 2

a 15-year bond with a notional value of $5000 and a coupon rate of 5% paid quarterly

Question 3

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

A) $3.33
B) $10.00
C) $20.00
D) $40.00
E) $2.00

Answer 3

$10.00

Question 4

What is the coupon rate of a 30-year,$1000 bond with semi-annual payments of $22.50?

A) 5%
B) 2.25%
C) 4.5%
D) 2%
E) 22.5%

Question 5

Treasury bills have original maturities from one to ten years,while Treasury notes have original maturities of more than ten years.

Question 6

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

Question 7

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 semi-annual payments?

A)
B)
C)
D)
E)

Question 8

What is the coupon rate of a 10-year $4,000 bond with annual coupon payments of $100?

A) 2.5%
B) 4%
C) 5%
D) 10%
E) 25%

Question 9

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

Question 10

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

A) The issuers of bonds regularly pay interest on the face value of the bond to the buyers of those bonds.
B) When a company issues a bond, the buyer of that bond becomes a part owner of the issuing company.
C) Federal and local governments issue bonds to finance long-term projects.
D) 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.
E) Bonds are typically bought by banks, so the source of funds is the same.

Question 11

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

Question 12

A university issues a bond with a face value of $10,000 and a coupon rate of 5.65% that matures on 07/15/2020.The holder of such a bond receives coupon payments of $282.50.How frequently are coupon payments made in this case?

A) monthly
B) quarterly
C) semi-annually
D) annually
E) biannually

Question 13

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

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

Question 14

How much will the coupon payments be of a 30-year $10,000 bond with a 4.5% coupon rate and semi-annual payments?

A) $30
B) $225
C) $350
D) $450
E) $45

Question 15

A bond indenture indicates

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

Question 16

The face value of a 30-year coupon bond is $100,000.If it pays $1,500 every 3 months,what is its coupon rate?

A) 1.5%
B) 0.06%
C) 6%
D) 4.5%
E) 15%

Question 17

The only cash payment an investor in a zero-coupon bond receives is the face value of the bond on its maturity date.

Question 18

How much will the coupon payments be of a 10-year $10,000 bond with a 3% coupon rate and semi-annual payments?

A) $150
B) $120
C) $100
D) $300
E) $600

Question 19

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

Question 20

What is the coupon rate of a 10-year $10,000 bond with semi-annual payments of $300?

A) 1%
B) 10%
C) 1.5%
D) 3%
E) 6%

Question 21

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) 3.465%
D) 3.699%
E) 3.747%

Question 22

Under what situation can a zero-coupon bond be selling at a premium?

Question 23

Under what situation can a zero-coupon bond be selling at par to its face value?

Question 24

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) $602
C) $1040
D) $372
E) $906

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 price per $100 face value of a four-year,zero-coupon,risk-free bond?

A) $85.64
B) $87.99
C) $92.15
D) $96.67
E) $90.85

Question 26

The above table shows the price per $100 face value of several risk-free,zero-coupon bonds.What is the yield to maturity of the three-year,zero-coupon,risk-free bond shown?

A) 2.83%
B) 2.85%
C) 2.86%
D) 2.88%
E) 2.70%

Question 27

Bond A and Bond B are both zero-coupon,risk-free bonds.They both have the same yield to maturity and face value.However,they have different maturity dates.Using the information in the above table,what is the Price of Bond B?

A) $1,000
B) $620.92
C) $1,610.51
D) $500
E) $385.54

Question 28

Consider a zero-coupon bond with $1,000 face value and 20 years to maturity.The price at which this bond will trade if the YTM is 6% is closest to:

A) $215
B) $312
C) $335
D) $306
E) $402

Question 29

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

A) $29.55
B) $32.68
C) $36.24
D) $38.78
E) $39.41

Question 30

What is the yield to maturity of the zero-coupon bond in the above table?

A) 8.33%
B) 6%
C) 16.67%
D) 1.036%
E) 3.65%

Question 31

A zero-coupon bond with a $1000 face value has 7 years left until maturity.If its current price is $786,then the yield to maturity on this bond is approximately:

A) 3.5%
B) 1.27%
C) 1.03%
D) 0.035%
E) 7%

Question 32

A risk-free,zero-coupon bond with a face value of $1,000 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) $721
B) $686
C) $525
D) $429
E) $397

Question 33

Suppose that a zero-coupon bond has a face value of $10,000 and 5 years to maturity.If the YTM is 7.2%,at what price will this bond be traded?

A) $7,063.60
B) $6,965.59
C) $9,328.58
D) $7,129.86
E) $10,000

Question 34

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) 3.212%
B) 4.000%
C) 4.167%
D) 9.600%
E) 5.140%

Question 35

The yield to maturity of a 5-year,risk-free,zero-coupon bond is 4.25%.Its face value is $2,500,what is the cost of purchasing 5 of these zero-coupon bonds?

A) $12,500
B) $2,030.30
C) $2,035.17
D) $10,151.49
E) $10,175.87

Question 36

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) 7.5%
B) 10.4%
C) 9.7%
D) 8.1%
E) 7.2%

Question 37

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) 3.15%
C) 3.25%
D) 6.34%
E) 3.50%

Question 38

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 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.
B) 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.
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.
E) Since it the easiest bond to value and this gives investors an easy benchmark against which they can evaluate other investments.

Question 39

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 3.2%, and 8 years to maturity
C) one with a face value of $1000, a YTM of 6.8%, and 10 years to maturity
D) one with a face value of $1000, a YTM of 5.9%, and 20 years to maturity
E) one with a face value of $1000, a YTM of 6.2%, and 15 years to maturity

Question 40

Which of the following statements is true?

A) A coupon bond is a pure discount bond.
B) Prior to its maturity date, the price of a zero-coupon bond is always greater than its face value.
C) The simplest type of bond is a coupon bond.
D) Treasury bills are Government of Canada bonds with a maturity of up to 10 years.
E) The amount of each coupon payment is determined by the coupon rate of the bond.

Question 41

Shown above is information from FINRA regarding one of Caterpillar Financial Services' bonds.How much would the holder of such a bond earn each coupon payment for each $100 in face value if coupons are paid annually?

A) $1.38
B) $3.95
C) $4.00
D) $4.36
E) $5.17

Question 42

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) 6.30%
B) 8.48%
C) 9.22%
D) 10.32%
E) 9.88%

Question 43

A coupon bond with a face value of $25,000 and quarterly coupon payments has five years to maturity and a yield to maturity of 5%.If the current price is $10,980,what is the coupon rate?

A) 2%
B) 4.39%
C) 0.5%
D) 0%
E) 5%

Question 44

A bond with semi-annual coupon payments of $1,200 has three years to maturity and a yield to maturity of 10%.If the price of this bond is $20,467.11,what is its face value?

A) $27,000
B) $15,240.80
C) $12,000
D) $15,377.24
E) $20,467.11

Question 45

A $3000 bond with a coupon rate of 7.2% paid semi-annually has six years to maturity and a yield to maturity of 4.6%.If interest rates fall and the yield to maturity decreases by 0.4%,what will happen to the price of the bond?

A) rise by $24.13
B) rise by $54.77
C) fall by $68.04
D) fall by $67.71
E) fall by $48.65

Question 46

A $5000 bond with a coupon rate of 6.4% paid semi-annually 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 $84.46
D) rise by $142.78
E) The price of the bond will not change.

Question 47

The above table provides information on a coupon bond that has annual coupon payments.What is the face value of this bond?

A) $17,000
B) $20,000
C) $17,442
D) $16,158.26
E) $15,000

Question 48

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

Question 49

Use the information for the question(s) below.

Shown above is information from FINRA regarding one of Bank of America's bonds.How much would the holder of such a bond earn each coupon payment for each $100 in face value if coupons are paid semi-annually?

A) $1.49
B) $2.15
C) $2.32
D) $4.30
E) $2.18

Question 50

A $10,000 bond with a coupon rate of 5% paid semi-annually has five years to maturity and a yield to maturity of 3%.What is the price of this bond?

A) $9,771.01
B) $2,132.55
C) $7,440.94
D) $9,573.49
E) $10,915.94

Question 51

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

A) 4.30%
B) 5.07%
C) 6.30%
D) 8.60%
E) 4.50%

Question 52

How are the cash flows of a zero-coupon bond different from those of a coupon bond?

Question 53

A $10,000 bond with a coupon rate of 3.1% paid semi-annually has 10 years to maturity and a yield to maturity of 4.8%.If interest rates rise and the yield to maturity increases to 5.8%,what will happen to the price of the bond?

A) rise by $357.89
B) rise by $126.75
C) rise by $84.78
D) fall by $444.34
E) fall by $689.47

Question 54

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) $685.00
C) $799.22
D) $1005.26
E) $184.26

Question 55

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

A) 5.02%
B) 6.23%
C) 6.82%
D) 12.46%
E) 5.20%

Question 56

A bond,which is currently trading at $3440,has four years to maturity,a $4000 face value,and a 3.5% coupon rate with annual coupons.Which of the following is its approximate yield to maturity?

A) 3.84%
B) 3.5%
C) 7.7%
D) 5%
E) 3.01%

Question 57

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.
How much will each semi-annual coupon payment be?

A) $60
B) $40
C) $120
D) $80
E) $100

Question 58

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

A) 4.32%
B) 5.60%
C) 6.25%
D) 8.44%
E) 6.80%

Question 59

A $1000 bond with a coupon rate of 5.4% paid semi-annually 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) fall by $9.82
B) fall by $11.58
C) rise by $12.16
D) rise by $10.06
E) The price of the bond will not change.

Question 60

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

A) $9727.76
B) $9819.74
C) $10,619.63
D) $10,754.44
E) $8816.59

Question 61

Which of the following statements is true?

A) A fall in bond prices causes interest rates to fall.
B) A fall in interest rates causes a fall in bond prices.
C) A rise in interest rates causes bond prices to fall.
D) Bond prices change independently of interest rates.
E) Interest rates change independently of bond prices.

Question 62

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 7.5%,then the price that this bond trades for will be closest to:

A) $1045
B) $691
C) $1000
D) $957
E) $960

Question 63

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 $1000 face value trading at $999
C) a bond with a $1000 face value trading at $1000
D) a bond with a $2000 face value trading at $2012
E) a bond with a $1000 face value trading at $1200

Question 64

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

Question 65

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 two-year zero-coupon bond is closest to:

A) 6.0%
B) 5.8%
C) 5.6%
D) 5.5%
E) 5.0%

Question 66

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.
Why do bond traders typically quote bond yields rather than bond prices?

Question 67

Before it matures,the price of any bond is always less than its face value.

Question 68

A company releases a five-year bond with a face value of $1000 and coupons paid semi-annually.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) 3%
B) 4%
C) 6%
D) 8%
E) 5%

Question 69

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 $1112,then the YTM for this bond is closest to:

A) 8.0%
B) 3.4%
C) 6.8%
D) 9.2%
E) 11.2%

Question 70

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 9.0%,then the price that this bond trades for will be closest to:

A) $946
B) $919
C) $1086
D) $1000
E) $917

Question 71

A company releases a five-year bond with a face value of $1000 and coupons paid semi-annually.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) 4%
C) 6%
D) 8%
E) 9%

Question 72

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.
What care,if any,should be taken regarding the sign of the cash flows while drawing the timeline and associated cash flows of a coupon bond?

Question 73

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 $1035.44,then what is the YTM for this bond?

Question 74

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 five-year zero-coupon bond is closest to:

A) 5.4%
B) 5.8%
C) 5.6%
D) 6.0%
E) 5.0%

Question 75

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.
What care,if any,should be taken regarding the timing of the cash flows while drawing the timeline and associated cash flows of a coupon bond?

Question 76

Which of the following bonds is trading at a premium?

A) a five-year bond with a $2000 face value whose yield to maturity is 7.0% and coupon rate is 7.2% APR paid semi-annually
B) a ten-year bond with a $4000 face value whose yield to maturity is 6.0% and coupon rate is 5.9% APR paid semi-annually
C) 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 semi-annually
D) 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
E) a 20-year bond with a $5000 face value whose yield to maturity is 10.0% and coupon rate is 6.5%

Question 77

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%
E) 10.7%

Question 78

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%
E) 5.0%

Question 79

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):

Based upon the information provided in the table above,you can conclude

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

Question 80

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