Question 1

Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value?

Accepted Answer

A)  Interest rate risk premium
B)  Inflation premium
C)  Liquidity premium
D)  Taxability premium
E)  Default risk premiumF) B) and E)
G) C) and E)

Question 2

Jeffries,Inc.has 6 percent coupon bonds on the market that have 11 years left to maturity.The bonds make annual payments.If the YTM on these bonds is 7.4 percent,what is the current bond price?

Accepted Answer

A)  $895.88
B)  $897.08
C)  $903.14
D)  $921.42
E)  $933.33F) None of the above
G) A) and B)

Question 3

A bond dealer sells at the _____ price and buys at the _____ price.

Accepted Answer

A)  clean; dirty
B)  dirty; clean
C)  bid; asked
D)  asked; bid
E)  asked; askedF) A) and B)
G) A) and C)

Question 4

Which one of the following statements is correct regarding mortgage-backed securities (MBSs) ?

Accepted Answer

A)  There is a separate MBS for each individual mortgage processed by a mortgage broker.
B)  An MBS is a type of debenture.
C)  The originating bank is the seller of MBSs to investors.
D)  Investors in MBSs are protected from default.
E)  Investors in MBSs are subject to real estate deflation risk.F) A) and C)
G) A) and B)

Question 5

You've just found a 7 percent coupon bond on the market that sells for par value.What is the maturity on this bond?

Accepted Answer

A)  The bond must mature in 1 year.
B)  The bond could have any maturity date.
C)  The bond must be maturing today.
D)  The bond must mature in 10 years.
E)  None of these are correct.F) A) and B)
G) B) and D)

Question 6

Best Western has $1,000 face value bonds outstanding.These bonds pay interest semiannually,mature in six years,and have a 5 percent coupon.The current price is quoted at 101.What is the yield to maturity?

Accepted Answer

A)  2.32 percent
B)  4.64 percent
C)  5.00 percent
D)  5.13 percent
E)  5.27 percentF) All of the above
G) B) and E)

Question 7

What is the principal amount of a bond that is repaid at the end of the loan term called?

Accepted Answer

A)  Coupon
B)  Market price
C)  Accrued price
D)  Dirty price
E)  Face valueF) All of the above
G) C) and D)

Question 8

Which one of the following individuals is most apt to purchase a municipal bond?

Accepted Answer

A)  Minimum-wage employee
B)  Retired individual with minimal current income
C)  Recent college graduate
D)  Tax-exempt organization
E)  Highly compensated business ownerF) B) and E)
G) All of the above

Question 9

The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of those securities.

Accepted Answer

A)  face value
B)  market price
C)  maturity
D)  coupon rate
E)  issue dateF) A) and C)
G) A) and B)

Question 10

A registered form bond is defined as a bond that:

Accepted Answer

A)  is a bearer bond.
B)  is held in street name.
C)  pays coupon payments directly to the owner of record.
D)  is listed with the Securities and Exchange Commission (SE
C)  .
E)  is unsecured.F) A) and E)
G) C) and D)

Question 11

A 5.5 percent $1,000 bond matures in seven years,pays interest semiannually,and has a yield to maturity of 6.23 percent.What is the current market price of the bond?

Accepted Answer

A)  $945.08
B)  $947.21
C)  $959.09
D)  $959.60
E)  $962.40F) A) and D)
G) A) and C)

Question 12

A U.S.Treasury bond pays 9.5 percent interest.You are in the 25 percent tax bracket.What is your after-tax yield on this bond?

Accepted Answer

A)  1.28 percent
B)  2.23 percent
C)  7.13 percent
D)  8.35 percent
E)  9.50 percentF) B) and E)
G) A) and E)

Question 13

Which one of the following is the price that an investor pays to purchase an outstanding bond?

Accepted Answer

A)  Dirty price
B)  Face value
C)  Call price
D)  Bid price
E)  Clean priceF) B) and E)
G) A) and E)

Question 14

A bond for which no specific property has been pledged as security is classified as a:

Accepted Answer

A)  bearer bond.
B)  trust deed bond.
C)  registered bond.
D)  debenture.
E)  sinking fund bond.F) D) and E)
G) C) and D)

Question 15

A bond yielded a real rate of return of 3.87 percent for a time period when the inflation rate was 3.75 percent.What was the actual nominal rate of return?

Accepted Answer

A)  87.58 percent
B)  7.62 percent
C)  7.77 percent
D)  8.28 percent
E)  .36 percentF) D) and E)
G) C) and D)

Question 16

You purchase a bond with a coupon rate of 7 percent,semiannual coupons,and a clean price of $1,011.If the next coupon payment is due in four months,what is the invoice price?

Accepted Answer

A)  $1,022.67
B)  $1,029.36
C)  $1,031.00
D)  $1,037.67
E)  $1,044.33F) B) and E)
G) None of the above

Question 17

An unexpected decrease in market interest rates will cause a:

Accepted Answer

A)  coupon bond's current yield to increase.
B)  zero coupon bond's price to decrease.
C)  fixed-rate bond's coupon rate to decrease.
D)  zero coupon bond's current yield to decrease.
E)  coupon bond's yield to maturity to decrease.F) B) and E)
G) A) and B)

Question 18

Whitts BBQ would like to issue some semiannual coupon bonds at par.Comparable bonds have a current yield of 9.16 percent,an effective annual yield of 9.68 percent,and a yield to maturity of 9.50 percent.What coupon rate should Whitts BBQ set on its bonds?

Accepted Answer

A)  9.00 percent
B)  9.16 percent
C)  9.50 percent
D)  9.68 percent
E)  10.00 percentF) B) and E)
G) B) and D)

Question 19

A "floater" bond frequently has a:

Accepted Answer

A)  flexible deferred call period.
B)  fixed yield to maturity but a flexible coupon payment.
C)  government guarantee.
D)  fixed-dollar obligation.
E)  put provision.F) B) and C)
G) C) and D)

Question 20

You own two bonds.Both bonds pay annual interest,have 6 percent annual coupons,$1,000 face values,and currently have 6 percent yields to maturity.Bond A has 12 years to maturity and Bond B has 4 years to maturity.If the market rate of interest rises unexpectedly to 7 percent,Bond _____ will be the most volatile with a price decrease of _____ percent.

Accepted Answer

A)  A; 5.73
B)  A; 6.08
C)  A; 7.94
D)  B; 3.39
E)  B; 4.51F) B) and D)
G) C) and D)

Exam 6: Interest Rates and Bond Valuation

Which one of the following is the price that an investor pays to purchase an outstanding bond?

Correct Answer
verified

Whitts BBQ would like to issue some semiannual coupon bonds at par.Comparable bonds have a current yield of 9.16 percent,an effective annual yield of 9.68 percent,and a yield to maturity of 9.50 percent.What coupon rate should Whitts BBQ set on its bonds?

Correct Answer
verified

A bond dealer sells at the _ price and buys at the _ price.

Correct Answer
verified

Best Western has $1,000 face value bonds outstanding.These bonds pay interest semiannually,mature in six years,and have a 5 percent coupon.The current price is quoted at 101.What is the yield to maturity?

Correct Answer
verified

You purchase a bond with a coupon rate of 7 percent,semiannual coupons,and a clean price of $1,011.If the next coupon payment is due in four months,what is the invoice price?

Correct Answer
verified

A bond for which no specific property has been pledged as security is classified as a:

Correct Answer
verified

You've just found a 7 percent coupon bond on the market that sells for par value.What is the maturity on this bond?

Correct Answer
verified

A bond yielded a real rate of return of 3.87 percent for a time period when the inflation rate was 3.75 percent.What was the actual nominal rate of return?

Correct Answer
verified

A 5.5 percent $1,000 bond matures in seven years,pays interest semiannually,and has a yield to maturity of 6.23 percent.What is the current market price of the bond?

Correct Answer
verified

Jeffries,Inc.has 6 percent coupon bonds on the market that have 11 years left to maturity.The bonds make annual payments.If the YTM on these bonds is 7.4 percent,what is the current bond price?

Correct Answer
verified

A registered form bond is defined as a bond that:

Correct Answer
verified

Which one of the following statements is correct regarding mortgage-backed securities (MBSs) ?

Correct Answer
verified

Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value?

Correct Answer
verified

Correct Answer
verified

A "floater" bond frequently has a:

Correct Answer
verified

A U.S.Treasury bond pays 9.5 percent interest.You are in the 25 percent tax bracket.What is your after-tax yield on this bond?

Correct Answer
verified

Which one of the following individuals is most apt to purchase a municipal bond?

Correct Answer
verified

What is the principal amount of a bond that is repaid at the end of the loan term called?

Correct Answer
verified

An unexpected decrease in market interest rates will cause a:

Correct Answer
verified

The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of those securities.

Correct Answer
verified

Exam 6: Interest Rates and Bond Valuation

Which one of the following is the price that an investor pays to purchase an outstanding bond?

Correct AnswerverifiedShow Answer

Whitts BBQ would like to issue some semiannual coupon bonds at par.Comparable bonds have a current yield of 9.16 percent,an effective annual yield of 9.68 percent,and a yield to maturity of 9.50 percent.What coupon rate should Whitts BBQ set on its bonds?

Correct AnswerverifiedShow Answer

A bond dealer sells at the _____ price and buys at the _____ price.

Correct AnswerverifiedShow Answer

Best Western has $1,000 face value bonds outstanding.These bonds pay interest semiannually,mature in six years,and have a 5 percent coupon.The current price is quoted at 101.What is the yield to maturity?

Correct AnswerverifiedShow Answer

You purchase a bond with a coupon rate of 7 percent,semiannual coupons,and a clean price of $1,011.If the next coupon payment is due in four months,what is the invoice price?

Correct AnswerverifiedShow Answer

A bond for which no specific property has been pledged as security is classified as a:

Correct AnswerverifiedShow Answer

You've just found a 7 percent coupon bond on the market that sells for par value.What is the maturity on this bond?

Correct AnswerverifiedShow Answer

A bond yielded a real rate of return of 3.87 percent for a time period when the inflation rate was 3.75 percent.What was the actual nominal rate of return?

Correct AnswerverifiedShow Answer

A 5.5 percent $1,000 bond matures in seven years,pays interest semiannually,and has a yield to maturity of 6.23 percent.What is the current market price of the bond?

Correct AnswerverifiedShow Answer

Jeffries,Inc.has 6 percent coupon bonds on the market that have 11 years left to maturity.The bonds make annual payments.If the YTM on these bonds is 7.4 percent,what is the current bond price?

Correct AnswerverifiedShow Answer

A registered form bond is defined as a bond that:

Correct AnswerverifiedShow Answer

Which one of the following statements is correct regarding mortgage-backed securities (MBSs) ?

Correct AnswerverifiedShow Answer

Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A "floater" bond frequently has a:

Correct AnswerverifiedShow Answer

A U.S.Treasury bond pays 9.5 percent interest.You are in the 25 percent tax bracket.What is your after-tax yield on this bond?

Correct AnswerverifiedShow Answer

Which one of the following individuals is most apt to purchase a municipal bond?

Correct AnswerverifiedShow Answer

What is the principal amount of a bond that is repaid at the end of the loan term called?

Correct AnswerverifiedShow Answer

An unexpected decrease in market interest rates will cause a:

Correct AnswerverifiedShow Answer

The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of those securities.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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A bond dealer sells at the _ price and buys at the _ price.

Correct Answer
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