Question 1

What is the market value of a zero coupon bond with 5 years to maturity? The bond was originally sold with a yield to maturity equal to 11 percent, but the market rate today is 9 percent.
A)$593
B)$650
C)$621
D)$577

Accepted Answer

P = $1000(0.650) = $650

Question 2

Baywa has an outstanding bond that has a coupon rate of 8.3%.What is the market price of this bond if it pays interest semi-annually, has 15 years to maturity, and the current required rate of return is 9% on bonds of similar quality?
A)$943
B)$1059
C)$954
D)$1,000

Accepted Answer

P₀ = $41.50(16.29) + $1,000(.267) = $943

Question 3

Five years ago, the City of Baltimore sold at par a $1,000 bond with a coupon rate of 8 percent and 20 years to maturity.If this bond pays interest semiannually, what is the value of this bond to an investor who requires an 8 percent rate of return?
A)$607.72
B)$692.00
C)$1,000
D)$1,080

Accepted Answer

No calculation needed because yield to maturity equals the coupon rate

Question 4

Determine the yield-to-call (to nearest 0.1 of a percent) of an LTV bond with a 14 percent coupon, that pays interest semiannually.The bond can be called in 7 years, has a call premium of $140, and is currently selling for $1154.
A)12.0%
B)16.2%
C)13.7%
D)14%

Accepted Answer

Because the bond is selling for a premium, the YTC must be less than 14 percent.
Try 12 percent:
P = $70(9.295) + $1140(0.442) = $1,154.53
or using a calculator: N = 7
PV = -1154
PMT = 140
FV = 1140
Solve for I = 12.01%

Question 5

An Allied Northern preferred stock pays a $3.84 annual dividend.What is the value of the stock to an investor who requires a 9.5 percent return?
A)$40.42
B)$42.67
C)$38.40
D)$37.60

Accepted Answer

P₀ = $3.84/0.095 = $40.42

Question 6

What is the value of a PacTen bond with a 10 percent coupon that matures in 15 years? Assume the current market rate for this bond is 16 percent and that interest is paid semiannually.
A)$661.90
B)$1,227.78
C)$1,000
D)$875.51

Accepted Answer

P = $50(11.258) + $1,000(0.099) = $661.90

Question 7

Determine the yield to maturity to the nearest tenth of 1 percent of a zero coupon bond with 8 years to maturity that is currently selling for $404.
A)11.3%
B)12.3%
C)11.7%
D)12.0%

Accepted Answer

$404 = $1000(PVIFkd,₈)
kd = 12%

Question 8

Determine the yield to maturity (to the nearest tenth of 1 percent) of an 8-year zero coupon bond ($1,000 par value) that is currently selling for $521.
A)6.0%
B)7.9%
C)11.5%
D)8.5%

Accepted Answer

$521 = $1,000(PVIFkd, ₈)
PVIFkd,₈ = 0.521
kd = 8.5% by calculator or interpolation
Solution using calculator: N = 8
PV = -521
PMT = 0
FV = 1000
Solve for I = 8.49%

Question 9

A refrigerator manufacturer, Zero King, issued a zero coupon bond with 10 years to maturity.What is the yield-to- maturity of this bond if it is sold for $352?
A)12.2%
B)10%
C)11%
D)9%

Accepted Answer

Solution using a calculator:
N = 10
PV = -352
PMT = 0
FV = 1000
Solve for I = 11%

Question 10

Marko needs to raise capital through a zero-coupon bond debt offering.If the bonds will have 12 years to maturity and the rate of return on a bond in Marko's risk class is 11 percent, what will be the selling price of the bond?
A)$302.50
B)$335.50
C)$269.50
D)$286.00

Accepted Answer

PVIF₀.₁₁,₁₂ = 0.286
P = $1,000(0.286) = $286

Question 11

ICX Company has an issue of perpetual bonds (par value to $1,000) that pays 5% annual interest.Determine the yield (to the nearest tenth of 1 percent) if the bonds are currently selling for $625.
A)5.0%
B)8.0%
C)3.1%
D)6.25%

Accepted Answer

kd = $50/$625 = 0.08 or 8%

Question 12

What is the value of an Orion bond that has a 10 percent coupon, pays interest semiannually, and has 10 years to maturity, if the required rate of return is 12 percent?
A)$1,200
B)$885.50
C)$895.27
D)$1,000

Accepted Answer

P = $50(11.470) + 1000(0.312) = 885.50

Question 13

Mid-States Utility Company sold a 10-year note with a 7 7/8% coupon and a par value of $1,000.If the note sold at a discount for $930, what was the implied yield-to-maturity to the nearest tenth of one percent? Assume interest is paid semiannually.
A)8.5%
B)8.7%
C)8.9%
D)9.4%

Accepted Answer

N = 10
PV = -930
PMT = 78.75
FV = 1000
Solve for I = 4.47 × 2 = 8.94
Calculator solution: 4.47 percent per 6 months or 8.94%

Question 14

What is the rate of return on a preferred stock that has a par value of $50, a market price of $46.50, and a dividend of $4.10?
A)8.20%
B)11.34%
C)8.82%
D)12.20%

Accepted Answer

kp = Dp/P = $4.10/$46.50 = 0.0882 or 8.82%

Question 15

What is the value of a Northern Pacific bond with an 11 percent coupon, maturing in 15 years? Assume the market rate for this bond is 14 percent and that the interest is paid semiannually.
A)$1,000
B)$790.74
C)$813.50
D)$853.30

Accepted Answer

P = $55(12.409) + 1000(.131) = $813.50

Question 16

Assume that the dividend on Central Power Company's $3.25 preferred stock issue is paid annually at the end of the year.Determine the value of this preferred stock to an investor who requires a 12 percent rate of return.
A)$3.25
B)$39
C)$12
D)$27.08

Accepted Answer

P₀ = $3.25/0.12 = $27.08

Question 17

Two years ago, Trans-Atlantic Airlines sold $250 million worth of bonds at $1,000 each.The bonds had a maturity of 12 years and a coupon rate of 12%.Today these bonds are selling for $910.Determine the yield-to-maturity (to the nearest tenth of one percent).
A)13.2%
B)5.6%
C)13.7%
D)12.0%

Accepted Answer

Solution using a calculator:
N = (12 - 2) = 10
PV = -910
PMT = 120
FV = 1000
Solve for I = 13.71%

Question 18

What is the required rate of return to the investor who is willing to purchase a Duke Power preferred stock with an $8.70 dividend, a par value of $100, and a current market price of $87?
A)10.7%
B)8.7%
C)9.4%
D)10.0%

Accepted Answer

kp = D₀/P₀ = $8.70/$87 = 10%

Question 19

Up in Smoke Tobacco Shops' bond carries a 9 percent coupon, pays interest semiannually, and has 10 years to maturity.What is the bond's yield to maturity if the bond is selling for $937.75 (rounded to the nearest whole percent)?
A)8.0%
B)10.0%
C)9.0%
D)7.0%

Accepted Answer

Because the bond is selling at a discount, the YTM must be greater than the coupon of 9%. Therefore, try 10% (5% semiannually).
$937.75 = $45(12.462) + $1000(0.377)
$937.75 ≈ $937.79 therefore YTM = 10%
Solution using a financial calculator:
N = 10 × 2 = 20
PV = -937.75
PMT = .09 × 1000 = 90/2 = 45
FV = 1000
Solve for I = 4.99% × 2 = 10%

Question 20

What is the value of a $1000 par value Consul perpetual bond with a 6 percent coupon rate if the required rate of return is 9 percent?
A)$1,000
B)$666.67
C)$333.33
D)$540

Accepted Answer

P = $60/0.09 = $666.67

Quiz 6: Fixed-Income Securities: Characteristics and Valuation

What is the market value of a zero coupon bond with 5 years to maturity? The bond was originally sold with a yield to maturity equal to 11 percent, but the market rate today is 9 percent.

Baywa has an outstanding bond that has a coupon rate of 8.3%.What is the market price of this bond if it pays interest semi-annually, has 15 years to maturity, and the current required rate of return is 9% on bonds of similar quality?

Five years ago, the City of Baltimore sold at par a $1,000 bond with a coupon rate of 8 percent and 20 years to maturity.If this bond pays interest semiannually, what is the value of this bond to an investor who requires an 8 percent rate of return?

Determine the yield-to-call (to nearest 0.1 of a percent) of an LTV bond with a 14 percent coupon, that pays interest semiannually.The bond can be called in 7 years, has a call premium of $140, and is currently selling for $1154.

An Allied Northern preferred stock pays a $3.84 annual dividend.What is the value of the stock to an investor who requires a 9.5 percent return?

What is the value of a PacTen bond with a 10 percent coupon that matures in 15 years? Assume the current market rate for this bond is 16 percent and that interest is paid semiannually.

Determine the yield to maturity to the nearest tenth of 1 percent of a zero coupon bond with 8 years to maturity that is currently selling for $404.

Determine the yield to maturity (to the nearest tenth of 1 percent) of an 8-year zero coupon bond ($1,000 par value) that is currently selling for $521.

A refrigerator manufacturer, Zero King, issued a zero coupon bond with 10 years to maturity.What is the yield-to- maturity of this bond if it is sold for $352?

Marko needs to raise capital through a zero-coupon bond debt offering.If the bonds will have 12 years to maturity and the rate of return on a bond in Marko's risk class is 11 percent, what will be the selling price of the bond?

ICX Company has an issue of perpetual bonds (par value to $1,000) that pays 5% annual interest.Determine the yield (to the nearest tenth of 1 percent) if the bonds are currently selling for $625.

What is the value of an Orion bond that has a 10 percent coupon, pays interest semiannually, and has 10 years to maturity, if the required rate of return is 12 percent?

Mid-States Utility Company sold a 10-year note with a 7 7/8% coupon and a par value of $1,000.If the note sold at a discount for $930, what was the implied yield-to-maturity to the nearest tenth of one percent? Assume interest is paid semiannually.

What is the rate of return on a preferred stock that has a par value of $50, a market price of $46.50, and a dividend of $4.10?

What is the value of a Northern Pacific bond with an 11 percent coupon, maturing in 15 years? Assume the market rate for this bond is 14 percent and that the interest is paid semiannually.

Assume that the dividend on Central Power Company's $3.25 preferred stock issue is paid annually at the end of the year.Determine the value of this preferred stock to an investor who requires a 12 percent rate of return.

Two years ago, Trans-Atlantic Airlines sold $250 million worth of bonds at $1,000 each.The bonds had a maturity of 12 years and a coupon rate of 12%.Today these bonds are selling for $910.Determine the yield-to-maturity (to the nearest tenth of one percent) .

What is the required rate of return to the investor who is willing to purchase a Duke Power preferred stock with an $8.70 dividend, a par value of $100, and a current market price of $87?

Up in Smoke Tobacco Shops' bond carries a 9 percent coupon, pays interest semiannually, and has 10 years to maturity.What is the bond's yield to maturity if the bond is selling for $937.75 (rounded to the nearest whole percent) ?

What is the value of a $1000 par value Consul perpetual bond with a 6 percent coupon rate if the required rate of return is 9 percent?