Financial Management Exam 3

Consider a zero coupon bond with 20 years to maturity. The price will this bond trade if the YTM is 6% is

$311.80

The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 15 years. The bond certificate indicates that t the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually. How much will each semiannual coupon payment be?

$40

The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 7.5%, then the price that this bond trades for will be

1044.57

A three-month treasury bill sold for a price of $99.311998 per $100 face value. The yield to maturity of this bond expressed as an EAR is

2.8%

Consider a zero-coupon bond with a $1000 face value and 10 years left until maturity. If the YTM of this bond is 10.4%, then the price of this bond is

371.80

The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually. Assuming that this bond trades for $1,112, then the YTM for this bond is

6.80%

Suppose a ten-year bond with semiannual coupons has a price of $1,071.06 and a yield to maturity of 7%. This bond's coupon rate is

8.0%

Consider a zero-coupon bond with a $1000 face value and 10 years left until maturity. If the bond is currently trading for $459, then the yield to maturity on this bond is

8.09%

Suppose a five- year bond with a 7% coupon rate and semiannual compounding is trading for a price of $951.58. Expressed as an APR with semiannual compounding, this bonds yield to maturity (YTM) is

8.199898%

Suppose the current zero-coupon yield curve for risk-free bonds is as follows: Maturity (years) 1: 3.25% 2: 3.50% 3: 3.90% 4: 4.25% 5: 4.40% YTM The price per $100 face value of a four-year, zero-coupon, risk-free bond is

84.6634

Suppose the current zero-coupon yield curve for risk-free bonds is as follows: Maturity (years) 1: 3.25% 2: 3.50% 3: 3.90% 4: 4.25% 5: 4.40% YTM The price per $100 face value of a three-year, zero-coupon, risk-free bond is

89.1566

The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually. Assuming that this bond trades for $903, then the YTM for this bond is

9.20%

The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually. A ssuming the appropriate YTM on the Sisyphean bond is 9.0%, then the price that this bond trades for will be

918.56

True or False: Bond traders typically quote bond prices rather than bond yields .

False

True or False: By convention the coupon rate is expressed as an effective annual rate.

False

True or False: Payments are made on bonds until a final repayment date, called the term date of the bond.

False

True or False: Prior to its maturity date, the price of a zero-coupon bond is always greater than its face value.

False

True or 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.

False

True or False: The yield to maturity of a bond is the discount rate that sets the future value of the promised bond payments equal to the current market price of the bond.

False

True or False: Unlike the case of bonds that pay coupons, for zero-coupon bonds, there is no simple formula to solve for the yield to maturity directly.

False

True or False: When prices are quoted in the bond market, they are conventionally quoted in increments of $1000.

False

True or False: Because we can convert any bond price into a yield, and vice versa, bond prices and yields are often used interchangeably.

True

True or False: Bonds are securities sold by governments and corporations to raise money from investors today in exchange for promised future payments.

True

True or False: Bonds typically make two types of payments to their holders.

True

True or False: Financial professionals also use the term spot interest rates to refer to the default-free zerocoupon yields.

True

True or False: One advantage of quoting the yield to maturity rather than the price is that the yield is independent of the face value of the bond.

True

True or False: The IRR of an investment in a bond is given a special name, the yield to maturity (YTM).

True

True or False: The IRR of an investment in a zero-coupon bond is the rate of return that investors will earn on their money if they buy a default free bond at its current price and hold it to maturity.

True

True or False: The IRR of an investment opportunity is the discount rate at which the NPV of the investment opportunity is equal to zero.

True

True or False: The amount of each coupon payment is determined by the coupon rate of the bond.

True

True or False: The bond certificate indicates the amounts and dates of all payments to be made.

True

True or False: The bond certificate typically specifies that the coupons will be paid periodically until the maturity date of the bond.

True

True or False: The coupon rate of a bond is set by the issuer and stated on the bond certificate

True

True or False: The principal or face value of a bond is the notional amount we use to compute the interest payments.

True

True or False: The promised interest payments of a bond are called coupons.

True

True or False: The simplest type of bond is a zero-coupon bond.

True

True or False: The time remaining until the repayment date is known as the term of the bond.

True

True or False: The yield to maturity for a zero-coupon bond is the return you will earn as an investor from holding the bond to maturity and receiving the promised face value payment.

True

True or False: The yield to maturity is typically stated as an annual rate by multiplying the calculated YTM by the number of coupon payment per year, thereby converting it to an APR.

True

True or False: Treasury bills are U.S. government bonds with a maturity of up to one year.

True

True or False: Treasury bills are zero-coupon bonds.

True

True or False: Usually the face value of a bond is repaid at maturity

True

True or False: Zero-coupon bonds always trade at a discount.

True

True or False: Zero-coupon bonds are also called pure discount bonds.

True

The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 9%, then this bond will trade at

a discount

The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8% 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