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| 1.
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A corporate bond has a coupon rate of 8%, payable semiannually, a maturity of 20 years, and a yield to maturity of 9%. How much should you pay for this bond? |
| | A) | $1,080 |
| | B) | $1,000 |
| | C) | $966 |
| | D) | $908 |
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| 2.
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An annual coupon bond issue has a coupon rate of 8% and 10 years maturity. Determine this bond's current yield if its yield to maturity is 7%. |
| | A) | 7.5% |
| | B) | 7.9% |
| | C) | 8.3% |
| | D) | 8.8% |
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| 3.
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A semiannual coupon bond is currently selling for $1,142.12. The bond has a maturity of 10 years and a yield to maturity of 7%. Determine the coupon rate of the bond. |
| | A) | 6% |
| | B) | 7% |
| | C) | 8% |
| | D) | 9% |
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| 4.
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A corporate bond has an annual coupon rate of 8%, payable semiannually, and a maturity of 25 years. Determine the bond's yield to maturity if its current yield is 6.36%. |
| | A) | 3% |
| | B) | 6% |
| | C) | 8% |
| | D) | 9% |
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| 5.
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The current yield of a premium bond would ______________ over time, assume there are no changes in the market interest rates. |
| | A) | increase |
| | B) | decrease |
| | C) | not change |
| | D) | None of the above. |
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| 6.
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You just purchased an annual coupon bond for $817.84. The bond has a maturity of 15 years, a face value of $1,000, a coupon rate of 5%, and a yield to maturity of 7%. What is the bond's total rate of return for the year if the interest rate increases to 7.5% one year later? |
| | A) | 9.79% |
| | B) | 7.50% |
| | C) | 3.75% |
| | D) | 2.44% |
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| 7.
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You just purchased a semiannual coupon bond for $1,148.77. The bond has a maturity of 10 years, a face value of $1,000, a coupon rate of 8%, and a yield to maturity of 6%. What is the bond's yield to call if the bond is called back 4 years later with a call premium of $80? |
| | A) | 5.6% |
| | B) | 6% |
| | C) | 7.2% |
| | D) | 8% |
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| 8.
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The yield spread of a corporate bond reported by the Wall Street Journal reflects the ______________ risk of the bond. |
| | A) | default |
| | B) | call |
| | C) | interest rate |
| | D) | maturity |
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| 9.
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A bond's invoice price is its stated price plus ______________. |
| | A) | the coupon interest |
| | B) | the accrued capital gain |
| | C) | the accrued coupon interest |
| | D) | the accrued capital gain and coupon interest |
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| 10.
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The current yield of a par bond must be ______________ its coupon rate. |
| | A) | equal to |
| | B) | lower than |
| | C) | higher than |
| | D) | Not enough information to determine. |
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| 11.
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Which of the following bonds is most likely to have the lowest yield to maturity? |
| | A) | Callable mortgage bond. |
| | B) | Callable debenture. |
| | C) | Noncallable debenture. |
| | D) | Noncallable mortgage bond. |
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| 12.
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Which of the following is(are) correct for a discount bond that has a current yield of 8%? |
| | A) | Capital gain yield is positive. |
| | B) | Coupon rate < 8%. |
| | C) | YTM > 8%. |
| | D) | All of the above are correct. |
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| 13.
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In a period of particularly low interest rates, which of the following bonds is most likely to be called? |
| | A) | Discount coupon bonds with 1 year maturity. |
| | B) | Zero coupon bonds. |
| | C) | Coupon bonds selling at a premium. |
| | D) | Discount coupon bonds with 25 years maturity. |
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| 14.
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The promised yield to maturity computation assumes that all coupons interest payments ______________. |
| | A) | are not reinvested |
| | B) | are reinvested at the current market rate |
| | C) | are reinvested at the bond's coupon rate |
| | D) | are reinvested at the bond's current yield |
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| 15.
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The liquidity premium theory argues that investors demand a higher return on ______________ bonds. |
| | A) | short-term |
| | B) | intermediate term |
| | C) | long-term |
| | D) | zero coupon |
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