Ch. 6
Which of the following best illustrates why a bond is a type of loan?
When an investor buys a bond from an issuer, the investor is giving money to the issuer, with the assurance that it will be repaid at a date in the future
Which of the following statements regarding bonds and their terms is FALSE?
When prices are quoted in the bond market, they are conventionally quoted in increments of $1000
A university issues a bond with a face value of $5000 and a coupon rate of 4.41% that matures on July 15, 2018. The holder of such a bond receives coupon payments of $110.25. How frequently are coupon payments made in this case?
semiannually
Which of the following statements regarding bonds and their terms is FALSE?
the only cash payments the investor will receive from a zero coupon bond are the interest payments that are paid up until the maturity date
A bond certificate includes_____
the terms of the bond
A bond will trade at a discount if its coupon rate is less than its yield to maturity
true
Bonds with a high risk of default generally offer high yields.
true
The only cash payment an investor in a zero-coupon bond receives is the face value of the bond on its maturity date
true
What rating must Luther receive on these bonds if they want the bonds to be issued at par?
A
Which of the following statements is true of bond prices?
A rise in interest rates causes bond prices to fall.
The current zero coupon yield curve for risk free bonds is shown above. What is the risk free interest rate on a 4 year maturity?
3.25%
Consider a zero coupon bond with a $1000 face value and 10 years left until maturity. If the YTM of this bond is 10.2%, then the price of this bond closest to ___
$1000
The above table shows the yields to maturity on a number of two-year, zero-coupon securities. What is the credit spread on a two-year, zero-coupon corporate bond with a B rating?
$105.34
A mining company needs to raise $100 million in order to begin open-pit mining of a coal seam. The company will fund this by issuing 30-year bonds with a face value of $1,000 and a coupon rate of 6.5%, paid annually. The above table shows the yield to maturity for similar 30-year corporate bonds of different ratings. If the company's bonds are rated A, what will be their selling price?
$1054.48
A five-year bond with a $1,000 face value has a yield to maturity is 5.0% and it's coupon rate is 6.0% paid annually. The dirty price of this bond exactly 6 months after its second coupon payment is closest to ________.
$1057.23
The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 10 years. The bond certificate indicates that the stated coupon rate for this bond is 8.2% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 7.3%, then the price that this bond trades for will be closest to ___
$1063
What is the coupon payment of a 25-year $1000 bond with a 4.5% coupon rate with quarterly payments?
$11.25
The Sisyphean Company has a bond outstanding with a face value of $5000 that matures in 10 years. The bond certificate indicates that the stated coupon rate for this bond 8.9% and that the coupon payments are to be made semiannually. How much will each semiannual coupon payment be?
$222.50
Consider a zero coupon bond with $100 face value and 15 years to maturity. If the YTM is 7.4%, this bond will trade at a price closest to ___
$34.27
A bond has a $10,000 face value, ten years to maturity, and 8% semiannual coupon payments. What would be the expected difference in this bond's price immediately before and immediately after the next 15 coupon payment?
$400
A risk free, zero coupon bond with a face value of $10,000 has 15 years to maturity. If the YTM is 6.1%, which of the following would be closet to the price of this bond will trade at?
$4114
What is the coupon payment of a 15-year $10,000 bond with a 9% coupon rate semiannual payments?
$450
An investor holds a Ford bond with a face value of $5000, a coupon rate of 8.5% and semiannual payments that matures on January 15, 2029. How much will the investor receive on January 15,2029?
$5212.50
A risk free, zero coupon bond has a 15 years to maturity. Which of the following is closest to the price per $1000 of face value that the bond will trade at if the YTM is 6.1%?
$553.15
What must be the price of a $1000 bond with a 5.8% coupon rate, annual coupons, and 20 years to maturity if YTM is 7.8% APR?
$800.68
The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 10 years. The bond certificate indicates that the stated coupon rate for this bond is 8.0% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 11.1%, then the price that this bond trades for will be closest to ___
$816
The above table shows the yields to maturity on a number of three-year, zero-coupon securities. What is the price per $100 of the face value of a three-year, zero-coupon corporate bond with a BBB rating?
$82.55
What must be the price of a $10,000 bond with a 6.1% coupon rate, semiannual coupons, and five years to maturity if it has a yield to maturity of 10% APR?
$8494.26
The current zero coupon yield curve for risk-free bonds is shown above. What is the price of a zero coupon, four year, risk-free bond of $100?
$87.99
A company issues a ten-year $1,000 face value bond at par with a coupon rate of 6.1% paid semiannually. The YTM at the beginning of the third year of the bond (8 years left to maturity) is 8.1%. What is the new price of the bond?
$883.91
A firm issues 5-year bonds with a coupon rate of 4.7%, paid semiannually. The credit spread for this firm's 5-year debt is 1.2%. New 5-year Treasury notes are being issued at par with a coupon rate of 5.1%. What should the price of the firm's outstanding 5-year bonds be if their face value is $1,000?
$932.28
A 20-year bond with a $1,000 face value was issued with a yield to maturity of 4.3% and pays coupons semi-annually. After ten years, the yield to maturity is still 4.3% and the clean price of the bond is $959.71. After three more months go by, what would you expect the dirty price to be?
$969.21
A company issues a ten-year $1,000 face value bond at par with a coupon rate of 6.7% paid semiannually. The YTM at the beginning of the third year of the bond (8 years left to maturity) is 8.1%. What was the percentage change in the price of the bond over the past two years?
-8.13%
A ten-year, zero-coupon bond with a yield to maturity of 4% has a face value of $1000. An investor purchases the bond when it is initially traded, and then sells it four years later. What is the rate of return of this investment, assuming the yield to maturity does not change?
4.00%
A risk free, zero coupon bond with a $5000 face value has 15 years to maturity. The bond currently trades at $3750. What is the yield to maturity of this bond?
1.936%
A company releases a five-year bond with a face value of $1000 and coupons paid semiannually. If market interest rates imply a YTM of 8%, which of the following coupon rates will cause the bond to be issued at a premium?
10%
The above table shows the yields to maturity on a number of two-year, zero-coupon securities. What is the credit spread on a two-year, zero-coupon corporate bond with a B rating?
2.0%
What is the coupon rate of an eight year, $10,000 bond with semiannual coupons and a price of $9006.6568, if it has a yield to maturity of 6.5%?
4.888%
What is the yield to maturity of a(n) eight year, $5000 bond with a 4.4% coupon rate and semiannual coupons if this bond is currently trading for a price of $4723.70?
5.26%
Consider a zero coupon bond with a $1000 face value and 15 years left until maturity. If the bond is currently trading for $431, then the yield to maturity on this bond is closest to ___
5.77%
A company releases a five-year bond with a face value of $1000 and coupons paid semiannually. If market interest rates imply a YTM of 6%, what should be the coupon rate offered if the bond is to trade at par?
6%
What is the yield to maturity of a one-year, risk-free, zero coupon bond with a $10,000 face value and a price of $9400 when released?
6.383%
What is the yield to maturity of a ten year, $10,000 bond with a 5.4% coupon rate and semiannual coupons if this bond is currently trading for a price of $9207.93?
6.49%
The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in five years. The bond certificate indicates that the stated coupon rate for this bond is 8.5% and that the coupon payments are to be made semiannually. Assuming that this bond trades for $1081.7., then the YTM for this bond is closest to ___
6.56%
Consolidated Insurance wants to raise $35 million in order to build a new headquarters. The company will fund this by issuing 10-year bonds with a face value of $1,000 and a coupon rate of 6.3%, paid semiannually. The above table shows the yield to maturity for similar 10-year corporate bonds of different ratings. Which of the following is closest to how many more bonds Consolidated Insurance would have to sell to raise this money if their bonds received an A rating rather than an AA rating?
781 bonds
An investor purchases a 30-year, zero-coupon bond with a face value of $5000 and a yield to maturity of 8.4%. He sells this bond ten years later. What is the rate of return on his investment, assuming yield to maturity does not change?
8.40%
A bond has five years to maturity, a $1000 face value, and a 5.5% coupon rate with annual coupons. What is its yield to maturity if it is currently trading at $846.11?
9.51%
The Sisyphean Company has a bond outstanding with a face value of $5000 that reaches maturity in 8 years. The bond certificate indicates that the stated coupon rate for this bond is 8.2% and that the coupon payments are to be made semiannually. Assuming that this bond trades for $4541.53, then the YTM for this bond is closest to ___
9.9%
The price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a BBB rating is closest to ________.
93.90
The price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating is closest to ________.
94.61
Which of the following is true about the face value of a bond?
All of the above are true
A bond is currently trading below par. Which of the following must be true about that bond?
B or C above
What is the dirty price of a bond?
B) the bond's actual cash price
Lloyd Industries raised $28 million in order to upgrade its roller kiln furnace for the production of ceramic tiles. The company funded this by issuing 15-year bonds with a face value of $1,000 and a coupon rate of 6.2%, paid annually. The above table shows the yield to maturity for similar 15-year corporate bonds of different ratings issued at the same time. When Lloyd Industries issued their bonds, they received a price of $962.63. Which of the following is most likely to be the rating these bonds received?
BBB
Suppose that when these bonds were issued, Luther received a price of $972.42 for each bond. What is the likely rating that Luther's bonds received?
BBB
Which of the following statements regarding bonds and their terms is FALSE?
By convention, the coupon rate is expressed as an effective annual rate
Why are the interest rates of U.S. Treasury securities less than the interest rates of equivalent corporate bonds?
C) U.S. Treasury securities are widely regarded to be risk-free.
Which of the following bonds will be most sensitive to a change in interest rates if all bonds have the same initial yield to maturity?
C) a 20-year bond with a $1,000 face value whose coupon rate is 5.8% APR paid semiannually
The coupon value of a bond is the face value of the bond
False
Which of the following statements regarding bonds and their terms is FALSE?
Prior to its maturity date, the price of a zero coupon bond is always greater than its face value
Why is the yield to maturity of a zero coupon, risk-free bond that matures at the end of a given period the risk-free interest rate for that period?
Since such a bond provides a risk-free return over that period, the Law of One Price guarantees that the risk-free interest rate equals the yield to maturity
How are investors in zero-coupon bonds compensated for making such as an investment?
Such bonds are purchased at a discount, below their face value
A $1000 bond with a coupon rate of 6.2% paid semiannually has eight years to maturity and yield to maturity of 8.3%. if interest rates rise and the yield to maturity increases to 8.6%, what will happen to the price of the bond?
The price of the bond will fall by $15.78
A $5000 bond with a coupon rate of 5.7% paid semiannually has ten years to maturity and a yield to maturity of 6.4%. If interest rates fall and the yield to maturity decreases by 0.8%, what will happen to the price of the bond?
The price of the bond will rise by $293.50
Which of the following statements regarding bonds and their terms is FALSE?
The yield to maturity of a bond is the discount rate that sets the future value (FV) of the promised bond payments equal to the current market price of the bond
A bond is said to mature on the date when the issuer repays its notional value
True
Which of the following statements regarding bonds and their terms is FALSE?
Unlike the case of bonds that pay coupons, for zero coupon bonds, there is no formula to solve for the yield to maturity
A corporate bond makes payment of $9.67 every month for ten years with a final payment of $2009.67. Which of the following best describes this bond?
a 10 year bond with a face value of $2,000 and a coupon rate of 5.8% with monthly payments
Which of the following bonds will be most sensitive to a change in interest rates?
a 30-year bond with a $1,000 face value whose yield to maturity is 5.5% and coupon rate is 6.4% APR paid annually
If the yield to maturity of all of the following bonds is 6%, which will trade at the greatest premium per $100 face value?
a bond with a $1,000 face value, five years to maturity and 6.3% annual coupon payments
Which of the following bonds is trading at par?
a bond with a $1000 face value trading at $1000
The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 5 years. The bond certificate indicates that the stated coupon rate for this bond is 8.1% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 10.6%, then this bond will trade at ___
a discount
Which of the following bonds is trading at a premium?
a five-year bond with a $2,000 face value whose yield to maturity is 7.0% and coupon rate is 7.2% APR paid semiannually
The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 5 years. The bond certificate indicates that the stated coupon rate for this bond is 10.0% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 7.5%, then this bond will trade at ____
a premium
Which of the following bonds will be least sensitive to a change in interest rates?
a ten-year bond with a $2,000 face value whose yield to maturity is 5.8% and coupon rate is 5.8% APR paid semiannually
A corporate bond which receives a BBB rating from Standard & Poor's is considered ___
an investment grade bond
The above information is for a corporate bond issued by the Markel Corporation. What sort of bond is this?
an investment grade bond
How much are each of the semiannual coupon payments? Assuming the appropriate YTM on the Sisyphean bond is 8.8%, then at what price should this bond trade for?
coupon payments = $40
Which of the following risk free, zero coupon bonds could be bought for the lowest price?
one with a face value of $1000, a YTM of 5.9%, and 20 years to maturity
Before it matures, the price of any bond is always less than its face value
false
Bond traders generally quote bond yields rather than bond prices, since yield to maturity depends on the face value of the bond.
false
Prior to its maturity date, the price of a zero-coupon bond is its face value
false
The credit spread of a bond shrinks if it is perceived that the probability of the issuer defaulting increases
false
Treasury bonds have original maturities from one to ten years, while Treasury note have original maturities of more than ten years.
false
Which of the following best describes a bond rated by Standard & Poor's and Moody as B?
generally lacks the characteristics of a desirable investment
