Finance 2

Olivares, Incorporated, bonds mature in 17 years and have a coupon rate of 5.4 percent. If the market rate of interest increases, then the:

market price of the bond will decrease.

Syed Development issued 20-year bonds one year ago at a coupon rate of 10.2 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM is 8.2 percent, what is the current bond price?

$1,190.93

Rao Investments has 6.5 percent coupon bonds outstanding with a current market price of $548. The yield to maturity is 13.2 percent and the face value is $1,000. Interest is paid annually. How many years is it until these bonds mature?

17.84 years

A bond has a yield to maturity of 3.89 percent. If the inflation rate is 1.48 percent, what is the real rate of return on the bond?

2.37%

A 3.25 percent Treasury bond is quoted at a price of 99.04. The bond pays interest semiannually. What is the current yield?

3.28%

A six-year, $1,000 face value bond issued by Nguyen Corporation pays interest semiannually on February 1 and August 1. Assume today is October 1. What is the current difference, if any, between this bond's clean and dirty prices?

Two months' interest

A newly issued 10-year, $1,000 face value zero coupon bond just sold for $311.05. What is the implicit interest, in dollars, for the first year of the bond's life? Assume semiannual compounding.

$38.53

A Treasury bond is quoted at a price of 101.4621. What is the market price of this bond if the face value is $5,000?

$5,073.11

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:

.05/(1 − t*) = .07.

Rollins, Incorporated, has a 15-year bond issue with a coupon rate of 4.5 percent that matures in 11.5 years. The bonds have a par value of $1,000 and a market price of $1,105.50. Interest is paid semiannually. What is the yield to maturity?

3.38%

The 30-year, 5.5 percent bonds issued by Modern Kitchens pay interest semiannually, mature in four years, and have a $1,000 face value. Currently, the bonds sell for $1,020.66. What is the yield to maturity?

4.92%

Suppose the real rate is 3.45 percent and the inflation rate is 2.2 percent. What rate would you expect to earn on a Treasury bill?

5.73%

Nazarian's has bonds on the market with 13 years to maturity, a YTM of 7.6 percent, and a current price of $901.98. The bonds make semiannual payments and have a face value of $1,000. What is the coupon rate?

6.40%

Lampson bonds have a face value of $1,000 and are currently quoted at 867.25. The bonds have coupon rate of 6.5 percent. What is the current yield on these bonds?

7.49%

Which one of the following risk premiums compensates for the inability to easily resell a bond prior to maturity?

Liquidity

A corporation issued bonds three years ago. Which one of the following is most apt to be included in the bond's indenture?

List of collateral used as bond security

Which bond would you generally expect to have the highest yield?

Long-term, taxable junk bond

Last year, you purchased a TIPS at par. Since that time, both market interest rates and the inflation rate have increased by .25 percent. Your bond has most likely done which one of the following since last year?

Maintained a fixed real rate of return

Last year, Lagunes Outdoor issued $1 million in unsecured, noncallable debt. This debt pays an annual interest payment of $55 and matures six years from now. The face value is $1,000 and the market price is $1,020. Which one of these terms correctly describes a feature of this debt?

Note

Buxbaum Corporation is preparing a bond offering with a coupon rate of 6 percent, paid semiannually, and a face value of $1,000. The bonds will mature in 10 years and will be sold at par. Given this, which one of the following statements is correct?

The bonds will sell at a premium if the market rate is 5.5 percent.

A bond that has only one payment, which occurs at maturity, defines which one of these types of bonds?

Zero coupon

A note is generally defined as:

an unsecured bond with an initial maturity of 10 years or less.

Dilan owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. The $1,000 is referred to as the:

face value.

As a bond's time to maturity increases, the bond's sensitivity to interest rate risk:

increases at a decreasing rate.

The Fisher effect primarily emphasizes the effects of ________ on an investor's rate of return.

inflation

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

investment grade to speculative grade.

The current yield is defined as the annual interest on a bond divided by the:

market price.

A deferred call provision:

prohibits the bond issuer from redeeming callable bonds prior to a specified date.

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

spread.

The pure time value of money is known as the:

term structure of interest rates.