Week 15

A bond with a par value of $5,000 is quoted at 104.487. What is the dollar price of the bond? $4,827.95 $5,224.35 $5,194.50 $5,174.59 $5,259.18

$5,224.35 Price = 104.487/100 × $5,000 = $5,224.35

There are zero coupon bonds outstanding that have a YTM of 4.95 percent and mature in 12 years. The bonds have a par value of $10,000. If we assume semiannual compounding, what is the price of the bonds? $5,600.29 $5,561.22 $5,375.84 $5,338.77 $5,422.19

$5,561.22

The bond has a coupon rate of 5.51 percent, it makes semiannual payments, and there are 4 months to the next coupon payment. A clean price of $917 and the par value is $1,000. What is the invoice price? $944.55 $926.18 $889.45 $907.82 $898.63

$926.18

A bond that pays interest annually yields a rate of return of 10.00 percent. The inflation rate for the same period is 4 percent. What is the real rate of return on this bond? 2.50% 14.0% 4.00% 5.77% 1.06%

1+ 0.10 = (1+r) x (1+0.04) r= 1.10/1.04 -1= 0.0577 or 5.77

Which one of the following bonds is the most sensitive to changes in market interest rates? 5-year, 8 percent coupon 5-year, zero coupon 10-year, zero coupon 5-year, 5 percent coupon 10-year, 5 percent coupon

10-year, zero coupon

A bond has a $1,000 face value, a market price of $989, and pays interest payments of $69.50 every year. What is the coupon rate? 7.03 percent 6.95 percent 8.14 percent 6.76 percent 7.00 percent

6.95

Which one of the following statements is true? A discount bond has a coupon rate that is less than the bond's yield to maturity. The current yield on a par value bond will exceed the bond's yield to maturity. The current yield on a premium bond is equal to the bond's coupon rate. The yield to maturity on a premium bond exceeds the bond's coupon rate. A premium bond has a current yield that exceeds the bond's coupon rate.

A discount bond has a coupon rate that is less than the bond's yield to maturity.

You purchase a bond with an invoice price of $1,009. The bond has a coupon rate of 5.39 percent, it makes semiannual payments, and there are 5 months to the next coupon payment. The par value is $1,000. What is the clean price of the bond? $1,035.95 $982.05 $986.54 $1,013.49 $1,004.51

Coupon payment = 0.0539($1,000)/2 = $26.95 Accrued interest = $26.95[(6 − 5)/6] = $4.49 Clean price = $1,009 − 4.49 = $1,004.51

American Hat has $1,000 face value bonds outstanding with a market price of $1,150. The bonds pay interest semiannually, mature in 8 years, and have a yield to maturity of 5.98 percent. What is the current yield? 7.61 percent 6.44 percent 6.15 percent 7.28 percent 7.06 percent

Current yield = (2 × $41.83) / $1,150 = 0.0728, or 7.28 percent

Which one of the following represents additional compensation provided to bondholders to offset the possibility that the bond issuer might not pay the interest and/or principal payments as expected? Interest rate risk premium Inflation premium Default risk premium Liquidity premium Taxability premium

Default risk premium

The term structure of interest rates is primarily based on which three of the following? I. Interest rate risk premium II. Real rate of interest III. Default risk premium IV. Inflation premium V. Liquidity premium II, IV, and V I, II, and V II, III, and IV I, III, and V I, II, and IV

I, II and IV

Lincoln Park Co. has a bond outstanding with a coupon rate of 5.76 percent and semiannual payments. The yield to maturity is 6.3 percent and the bond matures in 21 years. What is the market price if the bond has a par value of $2,000? $1,912.67 $1,876.09 $1,875.17 $1,880.53 $1,878.06

Pv = $57.60/0.0315 (1- 1/1.0315*42) + $2000/1.0315= $1,875.17

A bond's annual interest divided by its face value is referred to as the: coupon rate yield-to-maturity call rate current yield market rate

coupon rate

Miller Farm Products is issuing a 15-year, unsecured bond. Based on this information, you know that this debt can be described as a: call protected bond note bearer from bond registered form bond debenture

debenture

If inflation is expected to steadily decrease in the future, the term structure of interest rates will most likely be: double-humped. downward sloping. flat. humped. upward sloping.

downward sloping

What is the principal amount of a bond that is repaid at the end of the loan term called? Accrued price Dirty price Market price Face value Coupon

face value

The written agreement that contains the specific details related to a bond issue is called the bond: document issue paper debenture indenture registration statement

indenture

A protective covenant: limits the actions of the borrower. guarantees the market price of a bond will never be less than par value. guarantees the interest and principal payments will be paid in full on a timely basis. prevents a bond from being called. protects the borrower from unscrupulous practices by the lender.

limits the actions of the borrower

A call provision grants the bond issuer the: option of repurchasing the bonds prior to maturity at a prespecified price. right to repurchase the bonds on the open market prior to maturity. option to exchange the bonds for equity securities. right to automatically extend the bond's maturity date. right to contact each bondholder to determine if he or she would like to extend the term of his or her bonds.

option of repurchasing the bonds prior to maturity at a prespecified price.

What term is used to describe an account that a bond trustee manages for the sole purpose of redeeming bonds early? Premium fund Registered account Call account Sinking fund Bearer account

sinking fund