Deck 14: Bond Prices and Yields

Question 1

Of the following four investments,________ is considered the safest.

A)commercial paper
B)corporate bonds
C)U.S.Agency issues
D)Treasury bonds
E)Treasury bills

Answer 1

E

Question 2

If a 6.75% coupon bond is trading for $1016.00,it has a current yield of ____________ percent.

A)7.38
B)6.64
C)7.25
D)8.53
E)7.18

Answer 2

B

Question 3

At issue,coupon bonds typically sell ________.

A)above par value
B)below par
C)at or near par value
D)at a value unrelated to par
E)none of the above

Answer 3

C

Question 4

Accrued interest

A)is quoted in the bond price in the financial press.
B)must be paid by the buyer of the bond and remitted to the seller of the bond.
C)must be paid to the broker for the inconvenience of selling bonds between maturity dates.
D)A and B.
E)A and C.

Question 5

The invoice price of a bond that a buyer would pay is equal to

A)the asked price plus accrued interest.
B)the asked price less accrued interest.
C)the bid price plus accrued interest.
D)the bid price less accrued interest.
E)the bid price.

Question 6

If a 7.75% coupon bond is trading for $1019.00,it has a current yield of ____________ percent.

A)7.38
B)6.64
C)7.25
D)7.61
E)7.18

Question 7

To earn a high rating from the bond rating agencies,a firm should have

A)a low times interest earned ratio
B)a low debt to equity ratio
C)a high quick ratio
D)B and C
E)A and C

Question 8

A coupon bond pays annual interest,has a par value of $1,000,matures in 4 years,has a coupon rate of 10%,and has a yield to maturity of 12%.The current yield on this bond is ___________.

A)10.65%
B)10.45%
C)10.95%
D)10.52%
E)none of the above

Question 9

If a 7.25% coupon bond is trading for $982.00,it has a current yield of ____________ percent.

A)7.38
B)6.53
C)7.25
D)8.53
E)7.18

Question 10

The current yield on a bond is equal to ________.

A)annual interest payment divided by the current market price
B)the yield to maturity
C)annual interest divided by the par value
D)the internal rate of return
E)none of the above

Question 11

Of the following four investments,________ is considered the least risky.

A)Treasury bills
B)corporate bonds
C)U.S.Agency issues
D)Treasury bonds
E)commercial paper

Question 12

If a 6% coupon bond is trading for $950.00,it has a current yield of ____________ percent.

A)6.5
B)6.3
C)6.1
D)6.0
E)6.6

Question 13

An 8% coupon U.S.Treasury note pays interest on May 30 and November 30 and is traded for settlement on August 15.The accrued interest on the $100,000 face value of this note is _________.

A)$491.80
B)$800.00
C)$983.61
D)$1,661.20
E)none of the above

Question 14

A firm with a low rating from the bond rating agencies would have

A)a low times interest earned ratio
B)a low debt to equity ratio
C)a low quick ratio
D)B and C
E)A and C

Question 15

A coupon bond pays annual interest,has a par value of $1,000,matures in 12 years,has a coupon rate of 8.7%,and has a yield to maturity of 7.9%.The current yield on this bond is ___________.

A)8.39%
B)8.43%
C)8.83%
D)8.66%
E)none of the above

Question 16

A coupon bond pays annual interest,has a par value of $1,000,matures in 12 years,has a coupon rate of 11%,and has a yield to maturity of 12%.The current yield on this bond is ___________.

A)10.39%
B)10.43%
C)10.58%
D)10.66%
E)none of the above

Question 17

If an 8% coupon bond is trading for $1025.00,it has a current yield of ____________ percent.

A)7.8
B)8.7
C)7.6
D)7.9
E)8.1

Question 18

A coupon bond pays annual interest,has a par value of $1,000,matures in 4 years,has a coupon rate of 8.25%,and has a yield to maturity of 8.64%.The current yield on this bond is ___________.

A)8.65%
B)8.45%
C)7.95%
D)8.36%
E)none of the above

Question 19

If a 7.5% coupon bond is trading for $1050.00,it has a current yield of ____________ percent.

A)7.0
B)7.4
C)7.1
D)6.9
E)6.7

Question 20

If a 7% coupon bond is trading for $975.00,it has a current yield of ____________ percent.

A)7.00
B)6.53
C)7.24
D)8.53
E)7.18

Question 21

A coupon bond is reported as having an ask price of 113% of the $1,000 par value in the Wall Street Journal.If the last interest payment was made two months ago and the coupon rate is 12%,the invoice price of the bond will be ____________.

A)$1,100
B)$1,110
C)$1,150
D)$1,160
E)none of the above

Question 22

The ______ is a measure of the average rate of return an investor will earn if the investor buys the bond now and holds until maturity.

A)current yield
B)dividend yield
C)P/E ratio
D)yield to maturity
E)discount yield

Question 23

The _________ gives the number of shares for which each convertible bond can be exchanged.

A)conversion ratio
B)current ratio
C)P/E ratio
D)conversion premium
E)convertible floor

Question 24

A Treasury bond due in one year has a yield of 4.3%; a Treasury bond due in 5 years has a yield of 5.06%.A bond issued by Boeing due in 5 years has a yield of 7.63%; a bond issued by Caterpillar due in one year has a yield of 7.16%.The default risk premiums on the bonds issued by Boeing and Caterpillar,respectively,are

A)3.33% and 2.10%
B)2.57% and 2.86%
C)1.2% and 1.0%
D)0.76% and 0.47%
E)none of the above

Question 25

Callable bonds

A)are called when interest rates decline appreciably.
B)have a call price that declines as time passes.
C)are called when interest rates increase appreciably.
D)A and B.
E)B and C.

Question 26

A coupon bond that pays interest annually has a par value of $1,000,matures in 5 years,and has a yield to maturity of 10%.The intrinsic value of the bond today will be ______ if the coupon rate is 7%.

A)$712.99
B)$620.92
C)$1,123.01
D)$886.28
E)$1,000.00

Question 27

The bonds of Ford Motor Company have received a rating of "B" by Moody's.The "B" rating indicates

A)the bonds are insured
B)the bonds are junk bonds
C)the bonds are referred to as "high yield" bonds
D)A and B
E)B and C

Question 28

A Treasury bond due in one year has a yield of 4.6%; a Treasury bond due in 5 years has a yield of 5.6%.A bond issued by Lucent Technologies due in 5 years has a yield of 8.9%; a bond issued by Exxon due in one year has a yield of 6.2%.The default risk premiums on the bonds issued by Exxon and Lucent Technologies,respectively,are:

A)1.6% and 3.3%
B)0.5% and 0.7%
C)3.3% and 1.6%
D)0.7% and 0.5%
E)none of the above

Question 29

A coupon bond that pays interest annually,has a par value of $1,000,matures in 5 years,and has a yield to maturity of 10%.The intrinsic value of the bond today will be _________ if the coupon rate is 12%.

A)$922.77
B)$924.16
C)$1,075.82
D)$1,077.20
E)none of the above

Question 30

A Treasury bond due in one year has a yield of 6.2%; a Treasury bond due in 5 years has a yield of 6.7%.A bond issued by Xerox due in 5 years has a yield of 7.9%; a bond issued by Exxon due in one year has a yield of 7.2%.The default risk premiums on the bonds issued by Exxon and Xerox,respectively,are

A)1.0% and 1.2%
B)0.5% and .7%
C)1.2% and 1.0%
D)0.7% and 0.5%
E)none of the above

Question 31

Ceteris paribus,the price and yield on a bond are

A)positively related.
B)negatively related.
C)sometimes positively and sometimes negatively related.
D)not related.
E)indefinitely related.

Question 32

Floating-rate bonds are designed to ___________ while convertible bonds are designed to __________.

A)minimize the holders' interest rate risk; give the investor the ability to share in the price appreciation of the company's stock
B)maximize the holders' interest rate risk; give the investor the ability to share in the price appreciation of the company's stock
C)minimize the holders' interest rate risk; give the investor the ability to benefit from interest rate changes
D)maximize the holders' interest rate risk; give investor the ability to share in the profits of the issuing company
E)none of the above

Question 33

A coupon bond that pays interest annually is selling at par value of $1,000,matures in 5 years,and has a coupon rate of 9%.The yield to maturity on this bond is:

A)8.0%
B)8.3%
C)9.0%
D)10.0%
E)none of the above

Question 34

A coupon bond that pays interest annually has a par value of $1,000,matures in 7 years,and has a yield to maturity of 9.3%.The intrinsic value of the bond today will be ______ if the coupon rate is 8.5%.

A)$712.99
B)$960.14
C)$1,123.01
D)$886.28
E)$1,000.00

Question 35

The bond market

A)can be quite "thin".
B)primarily consists of a network of bond dealers in the over the counter market.
C)consists of many investors on any given day.
D)A and B.
E)B and C.

Question 36

A coupon bond that pays interest semi-annually is selling at par value of $1,000,matures in 7 years,and has a coupon rate of 8.6%.The yield to maturity on this bond is:

A)8.0%
B)8.6%
C)9.0%
D)10.0%
E)none of the above

Question 37

A ___________ bond is a bond where the bondholder has the right to cash in the bond before maturity at a specified price after a specific date.

A)callable
B)coupon
C)put
D)Treasury
E)zero-coupon

Question 38

A coupon bond is reported as having an ask price of 108% of the $1,000 par value in the Wall Street Journal.If the last interest payment was made one month ago and the coupon rate is 9%,the invoice price of the bond will be ____________.

A)$1,087.50
B)$1,110.10
C)$1,150.00
D)$1,160.25
E)none of the above

Question 39

A coupon bond is a bond that _________.

A)pays interest on a regular basis (typically every six months)
B)does not pay interest on a regular basis but pays a lump sum at maturity
C)can always be converted into a specific number of shares of common stock in the issuing company
D)always sells at par
E)none of the above

Question 40

A Treasury bond due in one year has a yield of 5.7%; a Treasury bond due in 5 years has a yield of 6.2%.A bond issued by Ford Motor Company due in 5 years has a yield of 7.5%; a bond issued by Shell Oil due in one year has a yield of 6.5%.The default risk premiums on the bonds issued by Shell and Ford,respectively,are

A)1.0% and 1.2%
B)0.7% and 1.5%
C)1.2% and 1.0%
D)0.8% and 1.3%
E)none of the above

Question 41

Consider the following $1,000 par value zero-coupon bonds: $$\begin{array} { l | l | l | } \underline { \text { Bond } } & \underline { \text { Years to Maturity } } & \underline { \text { Price } } \\\hline \mathrm { A } & \mathbf { 1 } & \$ 909.09 \\\hline \mathrm { B } & 2 & \$ 811.62 \\\hline \mathrm { C } & 3 & \$ 711.78 \\\hline \mathrm { D } & 4 & \$ 635.52 \\\hline\end{array}$$

-The yield to maturity on bond D is _______.

A)10%
B)11%
C)12%
D)14%
E)none of the above

Question 42

A convertible bond has a par value of $1,000 and a current market value of $850.The current price of the issuing firm's stock is $27 and the conversion ratio is 30 shares.The bond's conversion premium is _________.

A)$40
B)$150
C)$190
D)$200
E)none of the above

Question 43

A Treasury bill with a par value of $100,000 due one month from now is selling today for $99,010.The effective annual yield is __________.

A)12.40%
B)12.55%
C)12.62%
D)12.68%
E)none of the above

Question 44

A coupon bond that pays interest semi-annually has a par value of $1,000,matures in 5 years,and has a yield to maturity of 10%.The intrinsic value of the bond today will be ________ if the coupon rate is 12%.

A)$922.77
B)$924.16
C)$1,075.80
D)$1,077.22
E)none of the above

Question 45

A 10% coupon bond,annual payments,10 years to maturity is callable in 3 years at a call price of $1,100.If the bond is selling today for $975,the yield to call is _________.

A)10.26%
B)10.00%
C)9.25%
D)13.98%
E)none of the above

Question 46

A Treasury bill with a par value of $100,000 due two months from now is selling today for $98,039,with an effective annual yield of _________.

A)12.40%
B)12.55%
C)12.62%
D)12.68%
E)none of the above

Question 47

You have just purchased a 10-year zero-coupon bond with a yield to maturity of 10% and a par value of $1,000.What would your rate of return at the end of the year be if you sell the bond? Assume the yield to maturity on the bond is 11% at the time you sell.

A)10.00%
B)20.42%
C)13.8%
D)1.4%
E)none of the above

Question 48

Consider two bonds,A and B.Both bonds presently are selling at their par value of $1,000.Each pays interest of $120 annually.Bond A will mature in 5 years while bond B will mature in 6 years.If the yields to maturity on the two bonds change from 12% to 10%,____________.

A)both bonds will increase in value,but bond A will increase more than bond B
B)both bonds will increase in value,but bond B will increase more than bond A
C)both bonds will decrease in value,but bond A will decrease more than bond B
D)both bonds will decrease in value,but bond B will decrease more than bond A
E)none of the above

Question 49

You purchased an annual interest coupon bond one year ago that now has 6 years remaining until maturity.The coupon rate of interest was 10% and par value was $1,000.At the time you purchased the bond,the yield to maturity was 8%.The amount you paid for this bond one year ago was

A)$1,057.50.
B)$1,075.50.
C)$1,088.50.
D)$1.092.46.
E)$1,104.13.

Question 50

A convertible bond has a par value of $1,000 and a current market price of $850.The current price of the issuing firm's stock is $29 and the conversion ratio is 30 shares.The bond's market conversion value is ______.

A)$729
B)$810
C)$870
D)$1,000
E)none of the above

Question 51

A zero-coupon bond has a yield to maturity of 9% and a par value of $1,000.If the bond matures in 8 years,the bond should sell for a price of _______ today.

A)422.41
B)$501.87
C)$513.16
D)$483.49
E)none of the above

Question 52

A coupon bond pays interest semi-annually,matures in 5 years,has a par value of $1,000 and a coupon rate of 12%,and an effective annual yield to maturity of 10.25%.The price the bond should sell for today is ________.

A)$922.77
B)$924.16
C)$1,075.80
D)$1,077.20
E)none of the above

Question 53

Consider the following $1,000 par value zero-coupon bonds: $$\begin{array} { l | l | l | } \underline { \text { Bond } } & \underline { \text { Years to Maturity } } & \underline { \text { Price } } \\\hline \mathrm { A } & \mathbf { 1 } & \$ 909.09 \\\hline \mathrm { B } & 2 & \$ 811.62 \\\hline \mathrm { C } & 3 & \$ 711.78 \\\hline \mathrm { D } & 4 & \$ 635.52 \\\hline\end{array}$$

-The yield to maturity on bond C is ____________.
Refer To:
1456

A)10%
B)11%
C)12%
D)14%
E)none of the above

Question 54

A coupon bond that pays interest semi-annually has a par value of $1,000,matures in 5 years,and has a yield to maturity of 10%.The intrinsic value of the bond today will be __________ if the coupon rate is 8%.

A)$922.78
B)$924.16
C)$1,075.80
D)$1,077.20
E)none of the above

Question 55

A Treasury bill with a par value of $100,000 due three months from now is selling today for $97,087,with an effective annual yield of _________.

A)12.40%
B)12.55%
C)12.62%
D)12.68%
E)none of the above

Question 56

Consider the following $1,000 par value zero-coupon bonds: $$\begin{array} { l | l | l | } \underline { \text { Bond } } & \underline { \text { Years to Maturity } } & \underline { \text { Price } } \\\hline \mathrm { A } & \mathbf { 1 } & \$ 909.09 \\\hline \mathrm { B } & 2 & \$ 811.62 \\\hline \mathrm { C } & 3 & \$ 711.78 \\\hline \mathrm { D } & 4 & \$ 635.52 \\\hline\end{array}$$

-The yield to maturity on bond B is _________.

A)10%
B)11%
C)12%
D)14%
E)none of the above

Question 57

A coupon bond that pays interest semi-annually has a par value of $1,000,matures in 7 years,and has a yield to maturity of 9.3%.The intrinsic value of the bond today will be ________ if the coupon rate is 9.5%.

A)$922.77
B)$1,010.12
C)$1,075.80
D)$1,077.22
E)none of the above

Question 58

You purchased an annual interest coupon bond one year ago that had 6 years remaining to maturity at that time.The coupon interest rate was 10% and the par value was $1,000.At the time you purchased the bond,the yield to maturity was 8%.If you sold the bond after receiving the first interest payment and the yield to maturity continued to be 8%,your annual total rate of return on holding the bond for that year would have been _________.

A)7.00%
B)7.82%
C)8.00%
D)11.95%
E)none of the above

Question 59

A coupon bond that pays interest of $100 annually has a par value of $1,000,matures in 5 years,and is selling today at a $72 discount from par value.The yield to maturity on this bond is __________.

A)6.00%
B)8.33%
C)12.00%
D)60.00%
E)none of the above

Question 60

Consider the following $1,000 par value zero-coupon bonds: $$\begin{array} { l | l | l | } \underline { \text { Bond } } & \underline { \text { Years to Maturity } } & \underline { \text { Price } } \\\hline \mathrm { A } & \mathbf { 1 } & \$ 909.09 \\\hline \mathrm { B } & 2 & \$ 811.62 \\\hline \mathrm { C } & 3 & \$ 711.78 \\\hline \mathrm { D } & 4 & \$ 635.52 \\\hline\end{array}$$

-The yield to maturity on bond A is ____________.

A)10%
B)11%
C)12%
D)14%
E)none of the above

Question 61

A 10% coupon,annual payments,bond maturing in 10 years,is expected to make all coupon payments,but to pay only 50% of par value at maturity.What is the expected yield on this bond if the bond is purchased for $975?

A)10.00%.
B)6.68%.
C)11.00%.
D)8.68%.
E)none of the above.

Question 62

You purchased an annual interest coupon bond one year ago with 6 years remaining to maturity at the time of purchase.The coupon interest rate is 10% and par value is $1,000.At the time you purchased the bond,the yield to maturity was 8%.If you sold the bond after receiving the first interest payment and the bond's yield to maturity had changed to 7%,your annual total rate of return on holding the bond for that year would have been _________.

A)7.00%
B)8.00%
C)9.95%
D)11.95%
E)none of the above

Question 63

Convertible bonds

A)give their holders the ability to share in price appreciation of the underlying stock.
B)offer lower coupon rates than similar nonconvertible bonds.
C)offer higher coupon rates than similar nonconvertible bonds.
D)both A and B are true.
E)both A and C are true.

Question 64

Consider a $1,000 par value 20-year zero coupon bond issued at a yield to maturity of 10%.If you buy that bond when it is issued and continue to hold the bond as yields decline to 9%,the imputed interest income for the first year of that bond is

A)zero.
B)$14.87.
C)$45.85.
D)$7.44.
E)none of the above.

Question 65

The yield to maturity of a 20-year zero coupon bond that is selling for $372.50 with a value at maturity of $1,000 is ________.

A)5.1%
B)8.8%
C)10.8%
D)13.4%
E)none of the above

Question 66

A bond will sell at a discount when __________.

A)the coupon rate is greater than the current yield and the current yield is greater than yield to maturity
B)the coupon rate is greater than yield to maturity
C)the coupon rate is less than the current yield and the current yield is greater than the yield to maturity
D)the coupon rate is less than the current yield and the current yield is less than yield to maturity
E)none of the above are true.

Question 67

A 12% coupon bond,semiannual payments,is callable in 5 years.The call price is $1,120; if the bond is selling today for $1,110,what is the yield to call?

A)12.03%.
B)10.86%.
C)10.95%.
D)9.14%.
E)none of the above.

Question 68

The bond indenture includes

A)the coupon rate of the bond.
B)the par value of the bond.
C)the maturity date of the bond.
D)all of the above.
E)none of the above.

Question 69

TIPS are

A)securities formed from the coupon payments only of government bonds.
B)securities formed from the principal payments only of government bonds.
C)government bonds with par value linked to the general level of prices.
D)government bonds with coupon rate linked to the general level of prices.
E)zero-coupon government bonds.

Question 70

Which one of the following statements about convertibles is true?

A)The longer the call protection on a convertible, the less the security is worth.
B)The more volatile the underlying stock, the greater the value of the conversion feature.
C)The smaller the spread between the dividend yield on the stock and the yield-to-maturity on the bond, the more the convertible is worth.
D)The collateral that is used to secure a convertible bond is one reason convertibles are more attractive than the underlying stock.
E)Convertibles are not callable.

Question 71

Consider a 5-year bond with a 10% coupon that has a present yield to maturity of 8%.If interest rates remain constant,one year from now the price of this bond will be _______.

A)higher
B)lower
C)the same
D)cannot be determined
E)$1,000

Question 72

The yield to maturity on a bond is ________.

A)below the coupon rate when the bond sells at a discount,and equal to the coupon rate when the bond sells at a premium
B)the discount rate that will set the present value of the payments equal to the bond price
C)based on the assumption that any payments received are reinvested at the coupon rate
D)none of the above.
E)A,B,and C.

Question 73

Most corporate bonds are traded

A)on a formal exchange operated by the New York Stock Exchange.
B)by the issuing corporation.
C)over the counter by bond dealers linked by a computer quotation system.
D)on a formal exchange operated by the American Stock Exchange.
E)on a formal exchange operated by the Philadelphia Stock Exchange.

Question 74

The ________ is used to calculate the present value of a bond.

A)nominal yield
B)current yield
C)yield to maturity
D)yield to call
E)none of the above

Question 75

Which one of the following statements about convertibles is false?

A)The longer the call protection on a convertible,the less the security is worth.
B)The more volatile the underlying stock,the greater the value of the conversion feature.
C)The smaller the spread between the dividend yield on the stock and the yield-to-maturity on the bond,the more the convertible is worth.
D)The collateral that is used to secure a convertible bond is one reason convertibles are more attractive than the underlying stock.
E)A,C and D.

Question 76

A bond with a 12% coupon,10 years to maturity and selling at 88: 00 has a yield to maturity of _______.

A)over 14%
B)between 13% and 14%
C)between 12% and 13%
D)between 10% and 12%
E)less than 12%

Question 77

A bond has a par value of $1,000,a time to maturity of 20 years,a coupon rate of 10% with interest paid annually,a current price of $850 and a yield to maturity of 12%.Intuitively and without the use calculations,if interest payments are reinvested at 10%,the realized compound yield on this bond must be ________.

A)10.00%
B)10.9%
C)12.0%
D)12.4%
E)none of the above

Question 78

The process of retiring high-coupon debt and issuing new bonds at a lower coupon to reduce interest payments is called

A)deferral.
B)reissue.
C)repurchase.
D)refunding.
E)none of the above.

Question 79

A Treasury bond quoted at 107: 16 107:
18 has a bid price of _______ and an asked price of _____.

A)$107.16, $107.18
B)$1,071.60, $1,071.80
C)$1,075.00, $1,075.63
D)$1,071.80, $1,071.60
E)$1,070.50,$1,070.56

Question 80

Using semiannual compounding,a 15-year zero coupon bond that has a par value of $1,000 and a required return of 8% would be priced at approximately ______.

A)$308
B)$315
C)$464
D)$555
E)none of the above