Finance Chapter 6
A firm issues two -year bonds with a coupon rate of 6.7%, paid semiannually. The credit spread for this firmʹs two -year debt is 0.8%. New two -year Treasury notes are being issued at par with a coupon rate of 3.1%. What should the price of the firmʹs outstanding two -year bonds be per $100 of face value?
$105.34
A mining company needs to raise $100 million in order to begin open -pit mining of a coal seam. The company will fund this by issuing 30-year bonds with a face value of $1,000 and a coupon rate of 6.5%, paid annually. The above table shows the yield to maturity for similar 30-year corporate bonds of different ratings. If the companyʹs bonds are rated A, what will be their selling price?
$1054.48
A five-year bond with a $1,000 face value has a yield to maturity is 5.0% and itʹs coupon rate is 6.0% paid annually. The dirty price of this bond exactly 6 months after its second coupon payment is closest to ________.
$1057.23
The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 10 years. The bond certificate indicates that the stated coupon rate for this bond is 8.2% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 7.3%, then the price that this bond trades for will be closest to ________.
$1063
Assuming that Lutherʹs bonds are rated AAA, their price will be closest to ________.
$1064
What is the coupon payment of a 25-year $1000 bond with a 4.5% coupon rate with quarterly payments?
$11.25
The Sisyphean Company has a bond outstanding with a face value of $5000 that matures in 10 years. The bond certificate indicates that the stated coupon rate for this bond is 8.9% and that the coupon payments are to be made semiannually. How much will each semiannual coupon payment be?
$222.5
consider a zero-coupon bond with $100 face value and 15 years to maturity. If the YTM is 7.4%, this bond will trade at a price closest to ________.
$34.27
Consider a zero-coupon bond with a $1000 face value and 10 years left until maturity. If the YTM of this bond is 10.2%, then the price of this bond is closest to ________.
$379
A bond has a $10,000 face value, ten years to maturity, and 8% semiannual coupon payments. What would be the expected difference in this bondʹs price immediately before and immediately after the next coupon payment?
$400
A risk-free, zero-coupon bond with a face value of $10,000 has 15 years to maturity. If the YTM is 6.1%, which of the following would be closest to the price this bond will trade at?
$4114
What is the coupon payment of a 15-year $10,000 bond with a 9% coupon rate with semiannual payments?
$450
An investor holds a Ford bond with a face value of $5000 , a coupon rate of 8.5%, and semiannual payments that matures on January 15, 2029. How much will the investor receive on January 15, 2029?
$5212.50
A risk-free, zero-coupon bond has 15 years to maturity. Which of the following is closest to the price per $1000 of face value that the bond will trade at if the YTM is 6.1%?
$553.15
What must be the price of a $1000 bond with a 5.8% coupon rate, annual coupons, and 20 years to maturity if YTM is 7.8% APR?
$800.68
The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 10 years. The bond certificate indicates that the stated coupon rate for this bond is 8.0% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 11.1%, then the price that this bond trades for will be closest to ________.
$816
The current zero-coupon yield curve for risk-free bonds is shown above. What is the price of a zero-coupon, four-year, risk-free bond of $100?
$87.99
A company issues a ten-year $1,000 face value bond at par with a coupon rate of 6.1% paid semiannually. The YTM at the beginning of the third year of the bond (8 years left to maturity) is 8.1%. What is the new price of the bond?
$883.91
A firm issues 5-year bonds with a coupon rate of 4.7%, paid semiannually. The credit spread for this firmʹs 5-year debt is 1.2%. New 5-year Treasury notes are being issued at par with a coupon rate of 5.1%. What should the price of the firmʹs outstanding 5-year bonds be if their face value is $1,000?
$932.28
Assuming that Lutherʹs bonds receive a AA rating, the price of the bonds will be closest to ________.
$941
A 20-year bond with a $1,000 face value was issued with a yield to maturity of 4.3% and pays coupons semi-annually. After ten years, the yield to maturity is still 4.3% and the clean price of the bond is $959.71 . After three more months go by, what would you expect the dirty price to be?
$969.21
A company issues a ten-year $1,000 face value bond at par with a coupon rate of 6.7% paid semiannually. The YTM at the beginning of the third year of the bond (8 years left to maturity) is 8.1%. What was the percentage change in the price of the bond over the past two years?
-8.13%
The credit spread of the BBB corporate bond is closest to ________.
0.8%
The credit spread of the B corporate bond is closest to ________
1.4%
A risk-free, zero-coupon bond with a $5000 face value has 15 years to maturity. The bond currently trades at $3750 . What is the yield to maturity of this bond?
1.936 %
A company releases a five-year bond with a face value of $1000 and coupons paid semiannually. If market interest rates imply a YTM of 8%, which of the following coupon rates will cause the bond to be issued at a premium?
10%
The above table shows the price per $100-face value bond of several risk-free, zero-coupon bonds. What is the yield to maturity of the two year, zero-coupon, risk-free bond shown?
2.85%
Assuming that Lutherʹs bonds receive a AAA rating, the number of bonds that Luther must issue to raise the needed $25 million is closest to ________.
23,724
Assuming that Lutherʹs bonds receive a AA rating, the number of bonds that Luther must issue to raise the needed $25 million is closest to ________.
27,848
The current zero-coupon yield curve for risk-free bonds is shown above. What is the risk-free interest rate on a 4-year maturity?
3.25%
A ten-year, zero-coupon bond with a yield to maturity of 4% has a face value of $1000 . An investor purchases the bond when it is initially traded, and then sells it four years later. What is the rate of return of this investment, assuming the yield to maturity does not change?
4.00%
What is the coupon rate of an eight-year, $10,000 bond with semiannual coupons and a price of $9006.6568 , if it has a yield to maturity of 6.5%?
4.888 %
What is the yield to maturity of a(n) eight-year, $5000 bond with a 4.4% coupon rate and semiannual coupons if this bond is currently trading for a price of $4723.70 ?
5.26%
Consider a zero-coupon bond with a $1000 face value and 15 years left until maturity. If the bond is currently trading for $431 , then the yield to maturity on this bond is closest to ________
5.77%
company releases a five-year bond with a face value of $1000 and coupons paid semiannually. If market interest rates imply a YTM of 6%, what should be the coupon rate offered if the bond is to trade at par?
6%
What is the yield to maturity of a one-year, risk-free, zero-coupon bond with a $10,000 face value and a price of $9400 when released?
6.383%
What is the yield to maturity of a ten-year, $10,000 bond with a 5.4% coupon rate and semiannual coupons if this bond is currently trading for a price of $9207.93 ?
6.49%
The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in five years. The bond certificate indicates that the stated coupon rate for this bond is 8.5% and that the coupon payments are to be made semiannually. Assuming that this bond trades for $1081.73 , then the YTM for this bond is closest to ________.
6.56%
Consolidated Insurance wants to raise $35 million in order to build a new headquarters. The company will fund this by issuing 10-year bonds with a face value of $1,000 and a coupon rate of 6.3%, paid semiannually. The above table shows the yield to maturity for similar 10-year corporate bonds of different ratings. Which of the following is closest to how many more bonds Consolidated Insurance would have to sell to raise this money if their bonds received an A rating rather than an AA rating?
781 bonds
An investor purchases a 30-year, zero-coupon bond with a face value of $5000 and a yield to maturity of 8.4%. He sells this bond ten years later. What is the rate of return on his investment, assuming yield to maturity does not change?
8.40%
What must be the price of a $10,000 bond with a 6.1% coupon rate, semiannual coupons, and five years to maturity if it has a yield to maturity of 10% APR?
8494.26
A bond has five years to maturity, a $1000 face value, and a 5.5% coupon rate with annual coupons. What is its yield to maturity if it is currently trading at $846.11 ?
9.51%
The Sisyphean Company has a bond outstanding with a face value of $5000 that reaches maturity in 8 years. The bond certificate indicates that the stated coupon rate for this bond is 8.2% and that the coupon payments are to be made semiannually. Assuming that this bond trades for $4541.53 , then the YTM for this bond is closest to ________.
9.9%
The price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a BBB rating is closest to ________.
93.90
The price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating is closest to ________.
94.61
What rating must Luther receive on these bonds if they want the bonds to be issued at par?
A
Which of the following statements is true of bond prices?
A rise in interest rates causes bond prices to fall.
Which of the following is true about the face value of a bond?
All of the above are true.
A bond is currently trading below par. Which of the following must be true about that bond?
B or C above
Lloyd Industries raised $28 million in order to upgrade its roller kiln furnace for the production of ceramic tiles. The company funded this by issuing 15-year bonds with a face value of $1,000 and a coupon rate of 6.2%, paid annually. The above table shows the yield to maturity for similar 15-year corporate bonds of different ratings issued at the same time. When Lloyd Industries issued their bonds, they received a price of $962.63. Which of the following is most likely to be the rating these bonds received?
BBB
Suppose that when these bonds were issued, Luther received a price of $972.42 for each bond. What is the likely rating that Lutherʹs bonds received?
BBB
Which of the following statements regarding bonds and their terms is FALSE?
By convention, the coupon rate is expressed as an effective annual rate.
Which of the following statements regarding bonds and their terms is FALSE?
Prior to its maturity date, the price of a zero-coupon bond is always greater than its face value.
Why is the yield to maturity of a zero-coupon, risk-free bond that matures at the end of a given period the risk-free interest rate for that period?
Since such a bond provides a risk-free return over that period, the Law of One Price guarantees that the risk-free interest rate equals the yield to maturity.
How are investors in zero-coupon bonds compensated for making such an investment?
Such bonds are purchased at a discount, below their face value.
Which of the following statements regarding bonds and their terms is FALSE?
The only cash payments the investor will receive from a zero-coupon bond are the interest payments that are paid up until the maturity date.
A $1000 bond with a coupon rate of 6.2% paid semiannually has eight years to maturity and a yield to maturity of 8.3%. If interest rates rise and the yield to maturity increases to 8.6%, what will happen to the price of the bond?
The price of the bond will fall by $15.78 .
A $5000 bond with a coupon rate of 5.7% paid semiannually has ten years to maturity and a yield to maturity of 6.4%. If interest rates fall and the yield to maturity decreases by 0.8%, what will happen to the price of the bond?
The price of the bond will rise by $293.50 .
Which of the following statements regarding bonds and their terms is FALSE?
The yield to maturity of a bond is the discount rate that sets the future value (FV) of the promised bond payments equal to the current market price of the bond.
Why are the interest rates of U.S. Treasury securities less than the interest rates of equivalent corporate bonds?
U.S. Treasury securities are widely regarded to be risk-free.
Which of the following statements regarding bonds and their terms is FALSE?
Unlike the case of bonds that pay coupons, for zero-coupon bonds, there is no formula to solve for the yield to maturity.
Which of the following best illustrates why a bond is a type of loan?
When an investor buys a bond from an issuer, the investor is giving money to the issuer, with the assurance that it will be repaid at a date in the future.
Which of the following statements regarding bonds and their terms is FALSE?
When prices are quoted in the bond market, they are conventionally quoted in increments of $1,000.
A corporate bond makes payments of $9.67 every month for ten years with a final payment of $2009.67. Which of the following best describes this bond?
a 10-year bond with a face value of $2,000 and a coupon rate of 5.8% with monthly payments
A corporation issues a bond that generates the above cash flows. If the periods are of 3 -month intervals, which of the following best describes that bond?
a 15-year bond with a notional value of $5000 and a coupon rate of 4.6% paid quarterly
Which of the following bonds will be most sensitive to a change in interest rates if all bonds have the same initial yield to maturity?
a 20-year bond with a $1,000 face value whose coupon rate is 5.8% APR paid semiannually
Which of the following bonds will be most sensitive to a change in interest rates?
a 30-year bond with a $1,000 face value whose yield to maturity is 5.5% and coupon rate is 6.4% APR paid annually
If the yield to maturity of all of the following bonds is 6%, which will trade at the greatest premium per $100 face value?
a bond with a $1,000 face value, five years to maturity and 6.3% annual coupon payments
The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 5 years. The bond certificate indicates that the stated coupon rate for this bond is 8.1% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 10.6%, then this bond will trade at ________.
a discount
Which of the following bonds is trading at a premium?
a five-year bond with a $2,000 face value whose yield to maturity is 7.0% and coupon rate is 7.2% APR paid semiannually
The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 5 years. The bond certificate indicates that the stated coupon rate for this bond is 10.0% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 7.5%, then this bond will trade at ________.
a premium
Which of the following bonds will be least sensitive to a change in interest rates?
a ten-year bond with a $2,000 face value whose yield to maturity is 5.8% and coupon rate is 5.8% APR paid semiannually
A corporate bond which receives a BBB rating from Standard & Poorʹs is considered ________.
an investment grade bond
Which of the following bonds is trading at par?
bond with a $1,000 face value trading at $1,000
Which of the following best describes a bond rated by Standard & Poorʹs and Moody as B?
generally lacks the characteristics of a desirable investment
Which of the following risk-free, zero-coupon bonds could be bought for the lowest price?
one with a face value of $1,000, a YTM of 5.9%, and 20 years to maturity
A university issues a bond with a face value of $5000 and a coupon rate of 4.41% that matures on July 15, 2018. The holder of such a bond receives coupon payments of $110.25 . How frequently are coupon payments made in this case?
semiannually
What is the dirty price of a bond?
the bondʹs actual cash price
A bond certificate includes ________.
the terms of the bond
