Business Finance Exam 2
A $1,000 face value bond currently has a yield to maturity of 6.69 percent. The bond matures in 3 years and pays interest annually. The coupon rate is 7 percent. What is the current price of this bond?
$1,008.18
You are buying a bond at a clean price of $1,140. The bond has a face value of $1,000, an 8 percent coupon, and pays interest semiannually. The next coupon payment is 1 month from now. What is the dirty price of this bond?
$1,173.33
A 6 percent bond has a yield to maturity of 6.5 percent. The bond matures in 7 years, has a face value of $1,000, and pays semiannual interest payments. What is the amount of each semiannual coupon payment?
$30.00
A 5.5 percent $1,000 bond matures in 7 years, pays interest semiannually, and has a yield to maturity of 6.23 percent. What is the current market price of the bond?
$959.09
Today, you are buying a $1,000 face value bond at an invoice price of $987. The bond has a 6 percent coupon and pays interest semiannually. There are 2 months until the next coupon date. What is the clean price of this bond?
$967
Municipal Securities
-Debt of state and local governments -Varying degrees of default risk, rated similar to corporate debt -Interest received is tax-exempt at the federal level (tax free) -Interest usually exempt from state tax in issuing state
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?
3.75 percent
Best Lodging has $1,000 face value bonds outstanding. These bonds pay interest semiannually, mature in 5 years, and have a 6 percent coupon. The current price is quoted at 101. What is the yield to maturity?
5.77 percent
A bond has a $1,000 face value, a market price of $1,036, and pays interest payments of $70 every year. What is the coupon rate?
7.00 percent
The $1,000 face value bonds of Jasper International have a 7.5 percent coupon and pay interest annually. Currently, the bonds are quoted at 98.27 and mature in 3.5 years. What is the yield to maturity?
8.09 percent
The variance is the average squared difference between which of the following?
Actual return and average return
When you refer to a bond's coupon, you are referring to which one of the following?
Annual interest payment
An efficient capital market is best defined as a market in which security prices reflect which one of the following?
Available information
Which one of the following is the quoted price of a bond?
Clean price
The price of a stock at year 4 can be expressed as:
D5/(R-g).
Which one of the following is the price that an investor pays to purchase an outstanding bond?
Dirty Price
Which one of the following is the hypothesis that securities markets are efficient?
Efficient markets hypothesis
What is the principal amount of a bond that is repaid at the end of the loan term called?
Face value
Bond Value
PV (coupons) + PV (par-value)
Bond Features
Par Value (face value)- $1,000 Coupon rate Coupon Payment Maturity Date Yield to Maturity (YTM)
Investors require a 4 percent return on risk-free investments. On a particular risky investment, investors require an excess return of 7 percent in addition to the risk-free rate of 4 percent. What is this excess return called?
Risk premium
Which one of the following is the positive square root of the variance?
Standard deviation
New Labs just announced that it has received a patent for a product that will eliminate all flu viruses. This news is totally unexpected and viewed as a major medical advancement. Which one of the following reactions to this announcement indicates the market for New Labs stock is efficient?
The price of New Labs stock increases rapidly to a higher price and then remains at that price.
The rate of return on which one of the following is used as the risk-free rate?
U.S. Treasury bill
Which one of the following terms refers to a bond's rate of return that is required by the market place?
Yield to maturity
Bond
a long-term debt instrument in which a borrower agrees to make payments of principal and interest to the bondholder on specific dates
Premium bond
bond trading above its par value; a bond trades at a premium when it offers a coupon rate higher than prevailing interest rates
Discount bond
bond where the face value is repaid at the time of maturity
Dividends are best defined as:
cash or stock payments to shareholders.
Treasury notes
coupon debt with original maturity between one and ten years
treasury bonds
coupon debt with original maturity greater than ten years
When a bond's yield to maturity is less than the bond's coupon rate, the bond:
is selling at a premium.
The dividend yield is defined as:
next year's expected cash dividend divided by the current market price per share.
If the financial markets are semi-strong form efficient, then:
only individuals with private information have a marketplace advantage.
Treasury Bills
pure discount bonds with original maturity of one year or less
maturity
specified date on which the principal amount of a bond is aid
One year ago, you purchased 100 shares of a stock .This morning you sold those shares and realized a total return of 8.2 percent. Given this information, you know for sure the:
sum of the dividend yield and the capital gains yield is 8.2 percent.
coupon rate
the annual coupon divided by the face value
face value
the principal amount of a bond that is repaid at the end of the term (par value)
yield to maturity (YTM)
the rate required in the market on a bond
coupon
the stated interest payment made on a bond
The standard deviation measures the _____ of a security's returns over time.
volatility
