Finance Exam Ch. 6

A $1,000 face value bond currently has a yield to maturity of 6.69 percent. The bond matures in three years and pays interest annually. The coupon rate is 7 percent. What is the current price of this bond? a) $949.60 b) $1,008.18 c) $948.01 d) $1,010.13 e) $1,005.26

$1,008.18

Red Mountain, Inc. bonds have a face value of $1,000. The bonds carry a 7 percent coupon, pay interest semiannually, and mature in 13.5 years. What is the current price of these bonds if the yield to maturity is 6.82 percent? a.) $1,020.00 b.) $989.50 c.) $1,015.72 d.) $1,018.27 e.) $994.56

$1,015.72

A 5.5 percent $1,000 bond matures in seven years, pays interest semiannually, and has a yield to maturity of 6.23 percent. What is the current market price of the bond? a) $959.60 b) $959.09 c) $945.08 d) $962.40 e) $947.21

$959.09

AB Builders, Inc. has 12-year bonds outstanding with a face value of $1,000 and a market price of $974. The bonds pay interest annually and have a yield to maturity of 4.03 percent. What is the coupon rate? a) 7.50 percent b) 4.20 percent c) 8.40 percent d) 3.75 percent e) 4.25 percent

3.75 percent

A 12-year, semiannual coupon bond is priced at $1,102.60. The bond has a $1,000 face value and a yield to maturity of 5.33 percent. What is the coupon rate? a) 6.00 percent b) 5.00 percent c) 6.50 percent d) 5.25 percent e) 5.50 percent

6.50 percent

A U.S. Treasury bond pays 9.5 percent interest. You are in the 25 percent tax bracket. What is your after-tax yield on this bond? incorrect? a) 9.50 percent b) 1.28 percent c) 7.13 percent d) 2.23 percent e) 8.35 percent

7.13 percent

A bond has a $1,000 face value, a market price of $1,045, and pays interest payments of $80 every year. What is the coupon rate?

8.00 percent

A six-year, semiannual coupon bond is selling for $991.38. The bond has a face value of $1,000 and a yield to maturity of 9.19 percent. What is the coupon rate? a) 9.19 percent b) 9.00 percent c) 6.00 percent d) 4.50 percent e) 4.60 percent

9.00 percent

Whitts BBQ would like to issue some semiannual coupon bonds at par. Comparable bonds have a current yield of 9.16 percent, an effective annual yield of 9.68 percent, and a yield to maturity of 9.50 percent. What coupon rate should Whitts BBQ set on its bonds? a) 9.16 percent b) 9.00 percent c) 9.50 percent d) 10.00 percent e) 9.68 percent

9.50 percent

When you refer to a bond's coupon, you are referring to which one of the following? correct a) Annual interest payment b) Difference between the purchase price and the face value c) Annual interest divided by the current bond price d) Principal amount of the bond e) Difference between the bid and ask price

Annual interest payment

This morning, Jeff found a bond certificate lying on the floor of a bank. He picked it up and noticed that the bond matured today. He presented the bond to the bank teller and received both the principal and interest payment. The bond that Jeff found must have been which one of the following? a)Registered form bond b)Note c) Bearer form bond d) Debenture e) Callable bond

Bearer form bond

Which one of the following terms denotes for certain that a bond is unsecured? a) Blanket mortgage b) Debenture c) Bearer form d) Call provision e) Sinking fund

Debenture

What is the principal amount of a bond that is repaid at the end of the loan term called? a) Dirty Price b) Market Price c) Face value d) Coupon e) Accrued price

Face Value

Which of the following can generally be found in a bond's indenture agreement? I. Terms of repayment II. Names of registered shareholders III. Protective covenants IV. Total amount of the bond issue

I, III, and IV

On which one of the following dates is the principal amount of a bond repaid? a) Maturity date b) Issue date c) Coupon date d) Discount date e) Face date

Maturity Date

Which one of the following terms refers to a bond's rate of return that is required by the marketplace? a) Dirty Yield b) Discount rate c) Yield to maturity d) Coupon rate e) Call Yield

Yield to maturity

Which one of the following terms applies to a bond that initially sells at a deep discount and pays no interest payments? a) Callable b) Convertible c) Tax-free d) Income e) Zero coupon

Zero coupon

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

debenture

When a bond's yield to maturity is less than the bond's coupon rate, the bond: a)had to be recently issued. b) is priced at par. c) is selling at a discount. d) is selling at a premium. e) has reached its maturity date.

is selling at a premium

A protective covenant: a) is designed to protect the bond dealer from potential legal liability related to the bond issue. b) guarantees that a bond will be repaid in full with interest. c) protects the borrower from unscrupulous practices by the lender. d) limits the actions of the borrower. e) prevents a bond from being called.

limits the actions of the borrower