FIN CH7

Dexter Mills issued 20-year bonds

$1,089.02

You purchase a bond with an invoice price of $1,460. The bond has a coupon rate of 7.5 percent, and there are 3 months to the next semiannual coupon

$1,441.25

A corporate bond was quoted yesterday at 102.16 while

$1.50

You want to have $1.04 million in real dollars in an account

$11,194.39

A Treasury bond is quoted as 99:18 asked and 99:09 bid. What is the bid-ask spread in dollars on a $5,000 face value bond?

$14.06

You are purchasing a 20-year, zero-coupon bond. The yield to maturity is 8.68 percent and the face value is $1,000. What is the current market price?

$182.80

You purchased an investment which will pay you $8,000, in

$22,004

Northern Warehouses wants to raise

$350,448

The semiannual, 8-year bonds of Alto Music are selling at par and have an

$42.25

A Treasury bond is quoted at a price of 105:10. What is the market price of this bond if the face value is $5,000?

$5,265.63

You have won a contest and will receive $2,500 a

$7,057

Today, you want to sell a $1,000 face value zero coupon bond you currently own. The bond matures in 4.5 years. How much will you receive for your bond if the market yield to maturity is currently 5.33 percent?

$789.22

A 16-year, 4.5 percent coupon bond pays interest annually. The bond has a face value of $1,000. What is the percentage change in the price of this bond if the market yield

2.14% decrease

Which one of the following bonds is the least sensitive to interest rate risk?

3 year, 6% coupon

A Treasury bond is quoted at a price of 106:23 with a 3.50 percent coupon. The bond pays interest semiannually. What is the current yield on one of these

3.28%

A bond that pays interest annually yielded 7.47 percent last year. The inflation

3.34%

An investment offers a 10.5 percent total return over the

4.05%

The yield to maturity on a bond is currently 8.46 percent. The real rate of return is 3.22 percent. What is the rate of inflation?

5.08%

Bonner Metals wants to issue new

6.60%

Greenbrier Industrial Products' bonds have a 7.60 percent coupon and pay

6.94%

Mary is a retired widow who is financially dependent upon the interest income produced by her bond portfolio. Which one of the following

7 year income bond

A Treasury bond is quoted at a price of 101:14 with a current yield of 7.236 percent. What is the coupon rate?

7.34%

Technical Sales, Inc. has 6.6 percent

7.93%

The bonds issued by Stainless Tubs bear an 8 percent coupon, payable

8.69%

Sylvan Trees has a 7 percent coupon bond on the

9.52%

bonds issued by the us gov

are considered to be free of default risk.

The items included in an indenture that limit certain actions of the issuer in order to protect bondholder's interests are referred to

protective covenants

municipal bonds

pay interest that is federally tax-free.

A deferred call provision is

prohibition which prevents bond issuers from redeeming callable bonds prior to a specified date

Suppose the following bond quote for the Beta Company appears

13.27%

Bond S is a 4 percent coupon bond. Bond

-12.92%

The break-even tax rate between a taxable corporate bond yielding 7 percent and a comparable nontaxable municipal bond yielding 5 percent can be expressed as:

0.05/(1 - t * ) = 0.07.

Getty Markets has bonds

1.13%

Soo Lee Imports issued 17-year bonds 2

10.04%

The outstanding bonds of Winter Time Products provide

10.54%

Which one of the following relationships is stated correctly?

Decreasing the time to maturity increases the price of a discount bond, all else constant

Which of the following statements is correct concerning the term structure of interest rates?

I II and III only

Which of the following defines a note?

II and III only

A bond has a market price that exceeds its face value. Which of the following features currently apply to this bond?

II and IV only

Which of the following are characteristics of a premium bond?

II and IV only

which of the following statements is correct?

The real rate must be less than the nominal rate given a positive rate of inflation.

The taxability risk premium compensates bond holders for which one of the following?

a bonds unfavorable tax status

All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity.

a discount, less than

protective covenants

are primarily designed to protect bondholders.

You want to buy a bond from a dealer. Which one of the following prices will you pay?

asked price

A bond that is payable to whomever has physical possession of the bond is said to be in:

bearer form

The Leeward Company just issued 15-year, 8 percent, unsecured bonds at par. These bonds fit the definition of which one of the following terms?

debenture

A sinking fund is managed by a trustee for which one of the following purposes?

early bond redemption

treasury bonds are

generally issued as semi-annual coupon bonds.

A newly issued bond has a 7 percent coupon with semiannual interest payments. The bonds are currently priced at par value. The effective annual rate provided by these bonds must be:

greater than 7%

Which one of the following rates represents the change, if any, in your purchasing power as a result of owning a bond?

real rate

The Fisher effect is defined as the relationship between which of the following variables?

real rates, inflation rates, and nominal rates

Which one of the following statements concerning bond ratings is correct?

split rate bonds are called crossover bonds

An 8 percent corporate bond that pays interest semi-annually was issued last year. Which two of the following most likely apply to this bond today if the current yield-to- maturity is 7 percent?

I and IV only

Recently, you discovered a putable income bond that is convertible. If you purchase this bond, you will have the right to do which of the following?

I and IV only

Which of the following increase the price sensitivity of a bond to changes in interest rates?

I and IV only

Texas Foods has a 6 percent bond issue outstanding that pays $30 in interest every March and September. The bonds are investment grade and sell at par.

II III and IV only

Which of the following are negative covenants that might be found in a bond indenture?

II and III only

Which of the following relationships apply to a par value bond?

II and IV only

Which two of the following factors cause the yields on a corporate bond to differ from those on a comparable Treasury security?

III and IV only

The difference between the price that a dealer is willing to pay and the price at which he or she will sell is called the:

spread

The pure time value of money is known as the:

term structure of interest rates

The Corner Grocer has a 7-year, 6 percent annual

the bond price will decrease by 8%

Green Roof Inns is preparing a bond offering with a 6 percent, semiannual

the bonds will sell at premium if the market rate is 5.5

the liquidity premium is compensation to investors for

the lack of an active market wherein a bond can be sold for its actual value.

An indenture is

the legal agreement between the bond issuer and the bondholders.

The collar of a floating-rate bond refers to the minimum and maximum:

coupon rates

As a bonds time to maturity increases, the bonds sensitivity to interest rate

increases at a decreasing rate

Real rates are defined as nominal rates that have been adjusted for which of the following?

inflation

Which one of the following premiums is compensation for expected future inflation?

inflation

cat bonds are

insurance companies fund excessive claims.

A zero coupon bond with a face value of $1,000 is issued with an initial price of $212.56. The bond matures in 22 years. What is the implicit interest, in dollars, for the first year of the bond's

$15.50

The 7 percent, semi-annual coupon bonds offered by House Renovators are callable in 2 years at $1,054. What is the amount of the call premium on a

$54

Grand Adventure Properties offers a 9.5 percent coupon bond with annual payments.

$895.43

Roadside Markets has a 6.75 percent coupon bond outstanding that matures in

$967.24

Suppose the real rate is 9.5 percent and the inflation rate is 1.8 percent. What rate would you expect to see on a Treasury bill?

11.47%

Kaiser Industries has bonds on the market making annual

12%

Global Communications has a 7 percent,

12.53 years

The zero coupon bonds of D&L Movers have a market price of $319.24, a face value of $1,000, and a yield to maturity of 8.45 percent. How many years

13.80 years

The yield-to- maturity on a bond is the

14.89%

A 6-year, $1,000 face value bond issued by Taylor Tools pays interest

2 months interest

Redesigned Computers has 6.5 percent coupon bonds outstanding with a

2.10 years

Al is retired and enjoys his daily life. His one concern is that his bonds provide a steady stream of income that will continue to allow him to

5 year TIPS

A corporate bond is quoted at a price of 103.16 and carries a 5.20 percent coupon. The bond pays interest semiannually. What is the current yield on one of these bonds?

5.04%

Blackwell bonds have a face value of $1,000 and

5.08%

The outstanding bonds of The River Front Ferry carry

6.32%

Bryceton, Inc. has bonds on the

6.56%

Which of the following correctly describe U.S. Treasury bonds?

I and II only

Which of the following statements concerning bonds are correct?

I and II only

Which one of the following is the price a dealer will pay to purchase a bond?

bid price

Mary just purchased a bond which pays $60 a year in interest. What is this $60 called?

coupon

A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus any accrued interest. The additional $30 is called which one of the following?

call premium

A bond that can be paid off early at the issuer's discretion is referred to as being which one of the following?

callable

A call-protected bond

cannot be called during a certain period of time.

A bond is quoted at a price of $989. This price is referred to as which one of the following?

clean price

You are trying to compare the present values of two separate streams of cash flows which have equivalent risks. One stream is expressed

comparable real rate

interest rate risk premium is

compensation investors demand for accepting interest rate risk.

The Walthers Company has a semi-annual coupon bond outstanding. An i

decrease the market price

Which one of the following risk premiums compensates for the possibility of nonpayment by the bond issuer?

default risk

Pete paid $1,032 as his total cost of purchasing a bond. This price is referred to as the:

dirty price

Today, June 15, you want to buy a bond with a quoted price of 98.64. The bond pays interest on January 1 and July 1. Which one of the following

dirty price

A bond's coupon rate is equal to the annual interest divided by

face value

Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity. What is the $1,000 called?

face value

A U.S. Treasury bond that is quoted at 100:11 is selling:

for 100 and 11/32nds % of face value

a zero coupon bond.

has more interest rate risk than a comparable coupon bond.

Callable bonds generally:

have a sinking fund provision

Atlas Entertainment has 15-year bonds outstanding. The interest payments on

in registered form

You expect interest rates to decline in the near future even though the bond market is not indicating any sign of this change. Which one of the following bonds should you purchase now to maximize your gains if the rate decline

long term, zero coupon

Last year, you purchased a "TIPS" at par. Since that time, both market interest rates and the inflation rate have increased by 0.25 percent.

maintained a fixed real rate of return

The current yield is defined as the annual interest on a bond divided by which one of the following?

market price

A Treasury yield curve plots Treasury interest rates relative to which one of the following?

maturity

The specified date on which the principal amount of a bond is payable is referred to as which one of the following?

maturity

Interest rates that include an inflation premium are referred to as:

nominal rates

Last year, Lexington Homes issued $1 million in unsecured, non-callable debt. This debt pays an annual interest payment of $55 and

note

A 6 percent, annual coupon bond is currently selling at a premium and matures in 7 years. The bond was originally issued 3 years ago at par. Which one of the following statements is accurate in respect to this bond today?

the ytm is less than the coupon rate

Phil has researched TLM Technologies and believes the firm is poised to vastly increase in value. He wants to invest in this company. Phil

warrant

Currently, the bond market requires a return of 11.6 percent on the 10-year bonds issued by Winston Industries. The 11.6 percent is referred to as which one of the following?

yield to maturity

You own a bond that has a 6 percent annual coupon and matures 5 years from now. You purchased this 10-year bond at par value when it

you will realize a capital gain on the bond if you sell it today

A bond that has only one payment, which occurs at maturity, defines which one of the following?

zero coupon

A 10-year, 4.5 percent, semiannual coupon bond issued by Tyler Rentals has a $1,000 face value. The bond is currently quoted at 98.7. What

$987

Oil Well Supply offers 7.5 percent coupon bonds with semiannual payments

$991.47

The Fisher Effect primarily emphasizes the effects of _____ on an investors rate of return.

inflation

Which one of the following risks would a floating-rate bond tend to have less of as compared to a fixed-rate coupon bond?

interest rate risk

A fallen angel ; is a bond that has moved from:

investment grade to speculative grade