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1 | |
The current yield on a bond is equal to |
| | A) | the internal rate of return. |
| | B) | the yield to maturity. |
| | C) | annual interest divided by the current market price. |
| | D) | annual interest divided by the par value. |
| | E) | none of the above |
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2 | |
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. |
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3 | |
Ceteris paribus, the price and yield on a bond are |
| | A) | negatively related. |
| | B) | positively related. |
| | C) | sometimes positively and sometimes negatively related. |
| | D) | not related. |
| | E) | indefinitely related. |
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4 | |
A coupon bond is a bond that |
| | A) | does not pay interest on a regular basis but pays a lump sum at maturity. |
| | B) | pays interest on a regular basis (typically every six months). |
| | 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 |
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5 | |
Consider two bonds, X and Y. Both bonds presently are selling at their par value of $1,000. Each pays interest of $150 annually. Bond X will mature in 6 years while bond Y will mature in 7 years. If the yields to maturity on the two bonds decrease from 15% to 12% |
| | A) | both bonds will increase in value, but bond X will increase more than bond Y. |
| | B) | both bonds will decrease in value, but bond X will decrease more than bond Y. |
| | C) | both bonds will increase in value, but bond Y will increase more than bond X. |
| | D) | both bonds will decrease in value, but bond Y will decrease more than bond X. |
| | E) | none of the above |
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6 | |
The yield to maturity on a bond is |
| | A) | the discount rate that will set the present value of the payments equal to the bond price. |
| | B) | below the coupon rate when the bond sells at a discount, and equal to the coupon rate when the bond sells at a premium. |
| | C) | based on the assumption that any payments received are reinvested at the coupon rate. |
| | D) | all of the above |
| | E) | none of the above |
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7 | |
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) | $1,000. |
| | B) | higher. |
| | C) | lower. |
| | D) | the same. |
| | E) | cannot be determined. |
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8 | |
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) | Convertibles are not callable. |
| | 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) | The more volatile the underlying stock, the greater the value of the conversion feature. |
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9 | |
The bond indenture includes |
| | A) | the maturity date of the bond. |
| | B) | the par value of the bond. |
| | C) | the coupon rate of the bond. |
| | D) | all of the above |
| | E) | none of the above |
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10 | |
Most corporate bonds are traded |
| | A) | over the counter by bond dealers linked by a computer quotation system. |
| | B) | by the issuing corporation. |
| | C) | on a formal exchange operated by the New York Stock Exchange. |
| | D) | on a formal exchange operated by the American Stock Exchange. |
| | E) | on a formal exchange operated by the Philadelphia Stock Exchange. |
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