CH10

A bond has a modified duration of 6.87 years, a par value of $1,000, and a current market value of $1,016. What is the dollar value of an 01?

$0.6980

Jefferson-Smith bonds are quoted at a price of $952.42 for a $1,000 face value bond. These bonds have a modified duration of 9.84. What is the dollar value of an 01?

$0.9372

A bond has 8 years to maturity, a 7 percent coupon, a $1,000 face value, and pays interest semiannually. What is the bond's current price if the yield to maturity is 6.91 percent?

$1,005.46

Last year, BT Motors issued 10-year bonds with a 9 percent coupon and semi-annual interest payments. What is the market price of a $1,000 bond if the yield to maturity is 8.9 percent?

$1,006.53

You own a bond that pays semiannual interest payments of $40. The bond is callable in 3 years at a premium of $80. What is the callable bond price if the yield to call is 9.7 percent?

$1,016.86

Green Roofing Materials has 7.5 percent bonds outstanding that are currently priced at $1,068 each. The bonds pay interest on December 1 and June 1. What is the dirty price of this bond if today's date is May 1? Assume a 360-day year.

$1,099.25

Will owns a bond with a make-whole call provision. The bond matures in 14 years but is being called today. The coupon rate is 9 percent with interest paid semiannually. What is the current call price if the applicable discount rate is 7.5 percent and the make-whole call provision applies?

$1,128.66

Ferrous Metals has bonds outstanding which it is calling today under the make-whole call provision. The bonds mature in 6 years, have a 10 percent coupon, pay interest semiannually, and have a par value of $1,000. What is today's call price given that the applicable discount rate is 7.20 percent?

$1,134.49

Two bonds have a coupon rate of 7 percent, semi-annual payments, face values of $1,000, and yields to maturity of 7.4 percent. Bond S matures in 5 years and bond L matures in 10 years. What is the difference in the current prices of these bonds?

$11.45

You are considering two bonds. Both have semi-annual, 8 percent coupons, $1,000 face values, and yields to maturity of 7.5 percent. Bond S matures in 4 years and Bond L matures in 8 years. What is the difference in the current prices of these bonds?

$12.67

A bond has a par value of $1,000 and a coupon rate of 6 percent. What is the dollar amount of each semiannual interest payment if you own 6 of these bonds?

$180

A bond has a face value of $1,000 and a coupon rate of 5.5 percent. What is your annual interest payment if you own 8 of these bonds?

$440

Ted owns a bond which is callable in 2.5 years. The bond has a 6 percent coupon, pays interest semiannually, has a par value of $1,000, and has a yield to call of 6.3 percent. What is the call premium if the bond currently sells for $1,044.54?

$60

You are buying a bond at a quoted price of $887. The bond has a 8.0 percent coupon and pays interest semiannually on February 1 and August 1. What is the dirty price of this bond if today is April 1? Assume a 360-day year.

$900.33

You want to buy a bond that has a quoted price of $923. The bond pays interest semiannually on April 1 and October 1. The coupon rate is 6 percent. What is the clean price of this bond if today's date is June 1? Assume a 360-day year.

$923.00

The Country Inn has bonds outstanding with a par value of $1,000 each and a 6.5 percent coupon. The bonds mature in 7.5 years and pay interest semiannually. What is the current value of each of these bonds if the yield to maturity is 6.8 percent?

$982.60

A 6.5 percent coupon bond has a face value of $1,000 and a current yield of 6.61 percent. What is the current market price?

$983.36

A bond has a Macaulay duration of 5.75 years. What will be the percentage change in the bond price if the yield to maturity increases from 6 percent to 6.4 percent?

-2.23 percent

You own a 7 percent, semiannual coupon bond that matures in 8 years. The par value is $1,000 and the current yield to maturity is 7.6 percent. What will the percentage change in the price of your bond be if the yield to maturity suddenly increases by 75 basis points?

-4.37 percent

A bond has a modified duration of 7.22 and a yield to maturity of 8.9 percent. If interest rates increase by 75 basis points, the bond's price will decrease by _____ percent.

-5.42

A bond has a dollar value of an 01 of .0634. What is the yield value of a 32nd?

.4929

Alex purchased a $1,000 par value bond one year ago at a price of $1,008. At the time of purchase, the bond had 14 years to maturity and a 6 percent, semiannual coupon. Today, the bond has a yield to maturity of 6.5 percent. What is his realized yield as of today?

0.86 percent

A $1,000 face value bond has a 7 percent coupon and pays interest semiannually. The bond matures in 2 years and has a yield to maturity of 6.8 percent. What is the Macaulay duration?

1.90 years

An 8.5 percent coupon bond pays interest semiannually and has 10.5 years to maturity. The bond has a face value of $1,000 and a market value of $878.50. What is the yield to maturity?

10.43 percent

Cochran's Furniture Outlet is issuing 30-year, 10 percent callable bonds. These bonds are callable in 5 years with a call premium of $50. The bonds are being issued at par and pay interest semi-annually. What is the yield to call?

12.89 percent

. One year ago, you purchased a $1,000 face value bond at a yield to maturity of 9.45 percent. The bond has a 9 percent coupon and pays interest semiannually. When you purchased the bond, it had 12 years left until maturity. You are selling the bond today when the yield to maturity is 8.20 percent. What is your realized yield on this bond?

18.11 percent

A $1,000 par value 5 percent Treasury bond pays interest semiannually and matures in 7.5 years. What is the yield to maturity if the bond is currently quoted at a price of 112.34?

3.14 percent

The price of a bond decreased by 1.45 percent in response to an increase in the yield to maturity from 7.2 to 7.6 percent. What is the bond's Macaulay duration?

3.76 years

A zero-coupon bond has a par value of $1,000 and matures in 4.5 years. The yield to maturity is 6.4 percent. What is the Macaulay duration?

4.50 years

Phil owns a 7 percent, semiannual coupon bond that has a face value of $1,000 and matures in 16 years. The bond has a current yield to maturity of 7.1 percent. What will the percentage change in the price of his bond be if interest rates decrease by 50 basis points?

4.91 percent

A 6 percent, semiannual coupon bond has a yield to maturity of 7.4 percent and a Macaulay duration of 5.7. The bond has a modified duration of _____ and will have a _____ percentage increase in price in response to a 25 basis point decrease in the yield to maturity

5.4966; 1.37

A bond has a par value of $1,000, a market price of $1,012, and a coupon rate of 5.75 percent. What is the current yield?

5.68 percent

A $1,000 face value bond is selling for $1,016.36. The bond pays interest semiannually and has 3.5 years to maturity. The yield to maturity is 5.48 percent. The current yield is _____ percent and the coupon rate is _____ percent.

5.90; 6.00

A $1,000 face value bond matures in 9 years, pays interest semiannually, and has a 6.5 percent coupon. The bond currently sells for $1,015. What is the yield to maturity?

6.28 percent

The outstanding bonds of International Plastics mature in 4 years and pay semiannual interest payments of $32.50 on a $1,000 face value bond. The bonds are currently selling for $1,008.64. The coupon rate is _____ percent, the current yield is _____ percent, and the yield to maturity is _____ percent.

6.50; 6.44; 6.25

Alaskan Motors has outstanding bonds that mature in 14 years and pay $32.50 every 6 months in interest. The par value is $1,000 per bond and the market value is $981. The coupon rate is _____ percent, the current yield is _____ percent, and the yield to maturity is _____ percent.

6.50; 6.63; 6.71

A bond has a Macaulay duration of 7.5, a yield to maturity of 6.6 percent, a coupon rate of 7.5 percent, and semiannual interest payments. What is the bond's modified duration?

7.26 years

A bond pays semiannual interest payments of $37.50. What is the coupon rate if the par value is $1,000?

7.50 percent

A $1,000 semiannual coupon bond matures in 13 years, has a coupon rate of 7.5 percent, and a market price of $982. What is the yield to maturity?

7.72 percent

A bond has a $1,000 par value, semiannual interest payments of $40, and a current market value of $1,054. The bonds mature in 12.5 years. The coupon rate is _____ percent, the current yield is _____ percent, and the yield to maturity is _____ percent.

8.00; 7.59; 7.33

A $1,000 par value bond is currently valued at $1,033.53. The bond pays interest semi-annually, has 6 years to maturity, and has a yield to maturity of 7.3 percent. The coupon rate is _____ percent and the current yield is _____ percent.

8.00; 7.74

Blue Water Homes has 8 percent bonds outstanding that mature in 13 years. The bonds pay interest semiannually. These bonds have a par value of $1,000 and are callable in 2 years at a premium of $75. What is the yield to call if the current price is equal to 103.25 percent of par?

9.66 percent

The outstanding bonds of Alpha Extracts have a yield to maturity of 8.4 percent and a modified duration of 10.8. If the yield to maturity instantly decreased to 7.5 percent, the bond's price would increase/decrease by _____ percent.

9.72

The yield-to-maturity assumes which one of the following?

All coupon payments are reinvested at the yield-to-maturity rate.

Which one of the following statements is correct according to Malkiel's Theorems? - For a given change in a bond's yield to maturity, the shorter the term to maturity, the greater will be the magnitude of the change in the bond's price. - The price of an outstanding bond is unaffected by changes in market interest rates. - The size of the change in a bond's price increases at a constant rate given even incremental increases in a bond's yield-to-maturity even as the term to maturity lengthens. - For a given change in a bond's yield-to-maturity, the absolute magnitude of the resulting change in the bond's price is directly related to the bond's coupon rate. - For a given absolute change in a bond's yield-to-maturity, a decrease in yield will cause a greater change in the bond's price than will an increase in yield.

For a given absolute change in a bond's yield-to-maturity, a decrease in yield will cause a greater change in the bond's price than will an increase in yield

Which combination of bond characteristics causes a bond to be most sensitive to changes in market interest rates? I. low coupon rates II. high coupon rates III. short time to maturity IV. long time to maturity

I. low coupon rates IV. long time to maturity

Which of the following will increase if the coupon rate increases? I. face value II. market value III. yield-to-maturity IV. current yield

II. market value III. yield-to-maturity IV. current yield

All else constant, which of the following will decrease the Macaulay duration of a straight bond? I. reducing the coupon payment II. shortening the time to maturity III. lowering the yield to maturity

II. shortening the time to maturity

Which one of the following increases the probability that a bond will be called?

Market interest rates decline.

Which one of the following statements is correct?

Reinvestment risk causes realized yields to differ from promised yields

A bond has a current yield that is equal to the yield-to-maturity. Given this, which one of the following must also be true?

The bond can have any maturity date

Which one of the following statements is correct concerning discount bonds?

The current yield is less than the yield to maturity

Which one of the following statements applies to a par value bond?

The current yield, coupon rate, and yield-to-maturity are equal.

Which one of the following statements is correct concerning Macaulay duration?

The duration of a zero coupon bond is equal to the time to maturity.

Which one of the following statements is correct concerning premium bonds?

The yield to maturity is less than the coupon rate.

Which one of the following statements is correct concerning a callable bond that is currently selling below face value? Assume there is no risk of default. Also assume the issuer only calls bonds when they can be refinanced at a lower rate of interest.

The yield-to-maturity is presently more relevant to an investor than the yield-to-call.

Which one of the following is the correct definition of a coupon rate?

annual interest/par value

Which one of the following does an issuer pay to redeem a bond prior to maturity?

call price

An issuer has a bond outstanding that matures in 18 years. Which one of the following prevents the issuer from buying back that bond today?

call protection period

A callable bond:

can be redeemed by the issuer prior to maturity

A change in a bond's price caused by which one of the following is defined as the dollar value of an 01?

change in yield to maturity of one basis point

The price of a bond, net of accrued interest, is referred to as the bond's:

clean price.

For a premium bond, the:

coupon rate exceeds both the yield to maturity and the current yield

What is the annual interest divided by the market price of a bond called?

current yield

Which one of the following will decrease the current yield of a bond?

decrease in the coupon rate

The yield to maturity is the:

discount rate that equates a bond's price with the present value of the bond's future cash flows

Which one of the following measures a bond's sensitivity to changes in market interest rates?

duration

Which one of the following must be equal for two bonds if they are to have similar changes in their prices given a relatively small change in bond yields?

duration

Periodically rebalancing a portfolio so that the duration continues to match the target date is called:

dynamic immunization.

Davis Industrial bonds have a current market price of $990 and a 6 percent coupon. The bonds pay interest semi-annually on March 1 and September 1. Assume today is January 1. How many months of accrued interest are included in the dirty price of these bonds?

four

A dedicated portfolio is a bond portfolio created to:

fund a future cash outlay

A discount bond:

has a face value that exceeds the market value.

A premium bond is defined as a bond that:

has a market price that exceeds par value.

Which one of the following involves creating a portfolio in a manner which minimizes the uncertainty of the portfolio's maturity target date value?

immunization

How does the size of the change in a bond's price react in response to a given change in the yield to maturity as the time to maturity increases?

increases at a diminishing rate

Which one of the following is the risk that market interest rates may increase causing the price of a bond to decline?

interest rate risk

According to Malkiel's theorems, bond prices and bond yields are:

inversely related.

The dirty price of a bond is the:

invoice price.

Which one of the following prices is equal to the present value of a bond's future cash flows and is paid when a bond is redeemed prior to maturity?

make-whole call

Which one of the following will occur if a bond's discount rate is lowered?

market price will increase

To immunize your portfolio, you should:

match bond durations to your target dates.

Assuming there is no default risk, both a premium bond and a discount bond must share which one of the following characteristics?

maturity value equal to a par value bond

Last year, you created an immunized portfolio with an average maturity date of 14.5 years, a yield-to-maturity of 9.8 percent, and a duration of 9.6 years. According to the policy of dynamic immunization, you should now modify your portfolio in which one of the following ways?

modify the portfolio so the duration becomes 8.6 years

The modified duration:

multiplied by (-1 × Change in the yield to maturity) equals the approximate percentage change in a bond's price

The rate of return an investor actually earns from owning a bond is called which one of the following?

realized yield

Dynamic immunization is primarily aimed at reducing which one of the following risks?

reinvestment

Which one of the following risks is associated with investing a coupon payment at a rate that is lower than the bond's yield-to-maturity?

reinvestment rate risk

A basic bond that has a face value of $1,000 and pays regular semiannual coupon payments is referred to as which one of the following?

straight bond

Price risk is the risk that:

the bonds in a dedicated portfolio will decrease in value in response to an increase in interest rates.

The yield that a bond will earn given that it is bought back by the issuer at the earliest possible date is the:

yield to call.

The yield value of a 32nd is the change needed in which one of the following to cause a bond's price to change by 1/32nd?

yield to maturity

A bond pays interest semiannually on February 1 and August 1. Assume today is October 1. How many months of accrued interest are included in the clean price of this bond?

zero