Chapter 14

You purchased an annual interest coupon bond one year ago that now has six years remaining until maturity. The coupon rate of interest was 10% and par value was $1,000. At the time you purchased the bond, the yield to maturity was 8%. The amount you paid for this bond one year ago was Select one: $1,057.50. $1,075.50. $1,088.50. $1.092.46. $1,104.13.

$1,104.13

One year ago, you purchased a newly issued TIPS bond that has a 6% coupon rate, five years to maturity, and a par value of $1,000. The average inflation rate over the year was 4.2%. What is the amount of the coupon payment you will receive, and what is the current face value of the bond? Select one: $60.00, $1,000 $42.00, $1,042 $60.00, $1,042 $62.52, $1,042 $102.00, $1,000

$62.52, $1,042

A convertible bond has a par value of $1,000 and a current market price of$850. The current price of the issuing firm's stock is $29 and the conversion ratio is 30 shares. The bond's market conversion value is Select one: $729. $810. $870. $1,000. None of the options

$870

A coupon bond that pays interest annually has a par value of $1,000, matures in five years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be ______ if the coupon rate is 7%. Select one: $712.99 $620.92 $1,123.01 $886.28 $1,000.00

$886.28

A Treasury bond due in one year has a yield of 5.7%; a Treasury bond due in5 years has a yield of 6.2%. A bond issued by Ford Motor Company due in 5years has a yield of 7.5%; a bond issued by Shell Oil due in one year has a yield of 6.5%. The default risk premiums on the bonds issued by Shell andFord, respectively, are Select one: 1.0% and 1.2%. 0.7% and 1.5%. 1.2% and 1.0%. 0.8% and 1.3%. None of the options

0.8% and 1.3%.

If a 6% coupon bond is trading for $950.00, it has a current yield of Select one: 6.5%. 6.3%. 6.1%. 6.0%. 6.6%.

6.3%

You purchased an annual interest coupon bond one year ago that had six years remaining to maturity at that time. The coupon interest rate was 10%and the par value was $1,000. At the time you purchased the bond, the yield to maturity was 8%. If you sold the bond after receiving the first interest payment and the yield to maturity continued to be 8%, your annual total rate of return on holding the bond for that year would have been Select one: 7.00%. 7.82%. 8.00%. 11.95%. None of the options

8.00%

A coupon bond that pays interest semi-annually is selling at par value of$1,000, matures in seven years and has a coupon rate of 8.6%. The yield tomaturity on this bond is Select one: 8.0%. 8.6%. 9.0%. 10.0%. None of the options

8.6%

The current yield on a bond is equal to annual interest payment divided by the current market price. the yield to maturity. annual interest divided by the par value. the internal rate of return. None of the options

annual interest payment divided by the current market price

At issue, coupon bonds typically sell select one: above par value below par at or near par value at a value unrelated to par

at or near par value

When a bond indenture includes a sinking fund provision, Select one: firms must establish a cash fund for future bond redemption. bondholders always benefit because principal repayment on the scheduled maturity date is guaranteed. bondholders may lose because their bonds can be repurchased by the corporation at below-market prices. firms must establish a cash fund for future bond redemption and bondholders always benefit because principal repayment on the scheduled maturity date is guaranteed. None of the options is true.

bondholders may lose because their bonds can be repurchased by the corporation at below-market prices.

The bond market Select one: can be quite "thin." primarily consists of a network of bond dealers in the over-the-counter market. consists of many investors on any given day. can be quite "thin" and primarily consists of a network of bond dealers in the over-the-counter market. primarily consists of a network of bond dealers in the over-the-counter market and consists of many investors on any given day.

can be quite "thin" and primarily consists of a network of bond dealers in the over-the-counter market

The _________ gives the number of shares for which each convertible bond can be exchanged Select one: conversion ratio current ratio P/E ratio conversion premium convertible floor

conversion ratio

Accrued interest Select one: is quoted in the bond price in the financial press. must be paid by the buyer of the bond and remitted to the seller of the bond. must be paid to the broker for the inconvenience of selling bonds between maturity dates. is quoted in the bond price in the financial press and must be paid by the buyer of the bond and remitted to the seller of the bond. is quoted in the bond price in the financial press and must be paid to the broker for the inconvenience of selling bonds between maturity dates.

must be paid by the buyer of the bond and remitted to the seller of the bond.

Ceteris paribus, the price and yield on a bond are Select one: positively related. negatively related. sometimes positively and sometimes negatively related. not related. indefinitely related.

negatively related

The invoice price of a bond that a buyer would pay is equal to Select one: the asked price plus accrued interest. the asked price less accrued interest. the bid price plus accrued interest. the bid price less accrued interest. the bid price.

the asked price plus accrued interest

Debt securities are often called fixed-income securities because Select one: the government fixes the maximum rate that can be paid on bonds. they are held predominantly by older people who are living on fixed incomes. they pay a fixed amount at maturity. they promise either a fixed stream of income or a stream of income determined by a specific formula. they were the first type of investment offered to the public, which allowed them to "fix" their income at a higher level by investing in bonds.

they promise either a fixed stream of income or a stream of income determined by a specific formula.

Of the following four investments, ________ is considered the safest. Select one: commercial paper corporate bonds U.S. agency issues Treasury bonds Treasury bills

treasury bills

The ______ is a measure of the average rate of return an investor will earn if the investor buys the bond now and holds until maturity. Select one: current yield dividend yield P/E ratio yield to maturity discount yield

yield to maturity

You have just purchased a 10-year zero-coupon bond with a yield to maturity of 10% and a par value of $1,000. What would your rate of return at the end of the year be if you sell the bond? Assume the yield to maturity on the bond is 11% at the time you sell. Select one: 10.00% 20.42% 13.8% 1.4% None of the options

1.4%

A coupon bond pays annual interest, has a par value of $1,000, matures in four years, has a coupon rate of 10%, and has a yield to maturity of 12%. The current yield on this bond is Select one: 10.65%. 10.45%. 10.95%. 10.52%. None of the options

10.65%

Consider the following $1,000 par value zero-coupon bonds: Bond A: YTM: 1 Price: $909.09 Bond B: YTM: 2 Price: $811.62 Bond C YTM: 3 Price: $711.78 Bond D: YTM: 4 Price: $635.52 The yield to maturity on bond B is Select one: 10%. 11%. 12%. 14%. None of the options

11%

A Treasury bill with a par value of $100,000 due three months from now is selling today for $97,087, with an effective annual yield of Select one: 12.40%. 12.55%. 12.62%. 12.68%. None of the options

12.55%

A 10% coupon bond, annual payments, 10 years to maturity is callable in three years at a call price of $1,100. If the bond is selling today for $975, the yield to call is Select one: 10.26%. 10.00%. 9.25%. 13.98%. None of the options

13.98%