Valuation

Chapter 14 - Bond Prices and YieldsChapter 14Bond Prices and Yields

Multiple Choice Questions 1. The current yield on a bond is equal to ________. A. annual interest payment divided by the current maret priceB. the yield to maturityC. annual interest divided by the par value!. the internal rate o" return#. $one o" these is correct. %. &" a '( coupon bond is tradin) "or *+',.--. it has a current yield o" ____________ percent. A. '.--B. /.,0C. '.%4!. 1.,0#. '.11 0. &" a '.%,( coupon bond is tradin) "or *+1%.--. it has a current yield o" ____________ percent. A. '.01B. /.,0C. '.%,!. 1.,0#. '.11 4. &" a /.',( coupon bond is tradin) "or *1-1/.--. it has a current yield o" ____________ percent. A. '.01B. /./4C. '.%,!. 1.,0#. '.11 14-1Chapter 14 - Bond Prices and Yields,. &" a '.',( coupon bond is tradin) "or *1-1+.--. it has a current yield o" ____________ percent. A. '.01B. /./4C. '.%,!. './1#. '.11 /. &" a /( coupon bond is tradin) "or *+,-.--. it has a current yield o" ____________ percent. A. /.,B. /.0C. /.1!. /.-#. /./ '. &" an 1( coupon bond is tradin) "or *1-%,.--. it has a current yield o" ____________ percent. A. '.1B. 1.'C. './!. '.+#. 1.1 1. &" a '.,( coupon bond is tradin) "or *1-,-.--. it has a current yield o" ____________ percent. A. '.-B. '.4C. '.1!. /.+#. /.' 14-%Chapter 14 - Bond Prices and Yields+. A coupon bond pays annual interest. has a par value o" *1.---. matures in 4 years. has a coupon rate o" 1-(. and has a yield to maturity o" 1%(. The current yield on this bond is ___________. A. 1-./,(B. 1-.4,(C. 1-.+,(!. 1-.,%(#. $one o" these is correct. 1-. A coupon bond pays annual interest. has a par value o" *1.---. matures in 4 years. has a coupon rate o" 1.%,(. and has a yield to maturity o" 1./4(. The current yield on this bond is ___________. A. 1./,(B. 1.4,(C. '.+,(!. 1.0/(#. $one o" these is correct. 11. A coupon bond pays annual interest. has a par value o" *1.---. matures in 1% years. has a coupon rate o" 11(. and has a yield to maturity o" 1%(. The current yield on this bond is ___________. A. 1-.0+(B. 1-.40(C. 1-.,1(!. 1-.//(#. $one o" these is correct. 1%. A coupon bond pays annual interest. has a par value o" *1.---. matures in 1% years. has a coupon rate o" 1.'(. and has a yield to maturity o" '.+(. The current yield on this bond is ___________. A. 1.0+(B. 1.40(C. 1.10(!. 1.//(#. $one o" these is correct. 14-0Chapter 14 - Bond Prices and Yields10. 2" the "ollo3in) "our investments. ________ is considered the sa"est. A. commercial paperB. corporate bondsC. 4. 5. A)ency issues!. Treasury bonds#. Treasury bills 14. 2" the "ollo3in) "our investments. ________ is considered the least risy. A. Treasury billsB. corporate bondsC. 4. 5. A)ency issues!. Treasury bonds#. commercial paper 1,. To earn a hi)h ratin) "rom the bond ratin) a)encies. a "irm should have A. a lo3 times interest earned ratio.B. a lo3 debt to equity ratio.C. a hi)h quic ratio.!. both a lo3 debt to equity ratio and a hi)h quic ratio.#. both a lo3 times interest earned ratio and a hi)h quic ratio. 1/. A "irm 3ith a lo3 ratin) "rom the bond ratin) a)encies 3ould have A. a lo3 times interest earned ratio.B. a lo3 debt to equity ratio.C. a lo3 quic ratio.!. both a lo3 debt to equity ratio and a lo3 quic ratio.#. both a lo3 times interest earned ratio and a lo3 quic ratio. 1'. At issue. coupon bonds typically sell ________. A. above par valueB. belo3 parC. at or near par value!. at a value unrelated to par#. $one o" these is correct. 14-4Chapter 14 - Bond Prices and Yields11. Accrued interest A. is quoted in the bond price in the "inancial press.B. must be paid by the buyer o" the bond and remitted to the seller o" the bond.C. must be paid to the broer "or the inconvenience o" sellin) bonds bet3een maturity dates.!. is quoted in the bond price in the "inancial press and must be paid by the buyer o" the bond and remitted to the seller o" the bond.#. is quoted in the bond price in the "inancial press and must be paid to the broer "or the inconvenience o" sellin) bonds bet3een maturity dates. 1+. The invoice price o" a bond that a buyer 3ould pay is equal to A. the ased price plus accrued interest.B. the ased price less accrued interest.C. the bid price plus accrued interest.!. the bid price less accrued interest.#. the bid price. %-. An 1( coupon 4. 5. Treasury note pays interest on 6ay 0- and $ovember 0- and is traded "or settlement on Au)ust 1,. The accrued interest on the *1--.--- "ace value o" this note is _________. A. *4+1.1-B. *1--.--C. *+10./1!. *1.//1.%-#. $one o" these is correct. %1. A coupon bond is reported as havin) an as price o" 1-1( o" the *1.--- par value in the 7all 5treet 8ournal. &" the last interest payment 3as made one month a)o and the coupon rate is +(. the invoice price o" the bond 3ill be ____________. A. *1.-1'.,-B. *1.11-.1-C. *1.1,-.--!. *1.1/-.%,#. $one o" these is correct. 14-,Chapter 14 - Bond Prices and Yields%%. A coupon bond is reported as havin) an as price o" 110( o" the *1.--- par value in the 7all 5treet 8ournal. &" the last interest payment 3as made t3o months a)o and the coupon rateis 1%(. the invoice price o" the bond 3ill be ____________. A. *1.1--B. *1.11-C. *1.1,-!. *1.1/-#. $one o" these is correct. %0. The bonds o" 9ord 6otor Company have received a ratin) o" :B: by 6oody;s. The :B: ratin) indicates A. the bonds are insured.B. the bonds are >on due in one year has a yield o" '.%(. The de"ault ris premiums on the bonds issued by #>>on and Eero>. respectively. are A. 1.-( and 1.%(B. -.,( and .'(C. 1.%( and 1.-(!. -.'( and -.,(#. $one o" these is correct. 04. A Treasury bond due in one year has a yield o" 4.0(B a Treasury bond due in , years has ayield o" ,.-/(. A bond issued by Boein) due in , years has a yield o" './0(B a bond issued by Caterpillar due in one year has a yield o" '.1/(. The de"ault ris premiums on the bonds issued by Boein) and Caterpillar. respectively. are A. 0.00( and %.1-(B. %.,'( and %.1/(C. 1.%( and 1.-(!. -.'/( and -.4'(#. $one o" these is correct. 0,. 9loatin)-rate bonds are desi)ned to ___________ 3hile convertible bonds are desi)ned to __________. A. minimiAe the holders; interest rate risB )ive the investor the ability to share in the price appreciation o" the company;s stocB. ma>imiAe the holders; interest rate risB )ive the investor the ability to share in the price appreciation o" the company;s stocC. minimiAe the holders; interest rate risB )ive the investor the ability to bene"it "rom interest rate chan)es!. ma>imiAe the holders; interest rate risB )ive investor the ability to share in the pro"its o" the issuin) company#. $one o" these is correct. 14-+Chapter 14 - Bond Prices and Yields0/. A coupon bond that pays interest annually is sellin) at par value o" *1.---. matures in , years. and has a coupon rate o" +(. The yield to maturity on this bond isD A. 1.-(B. 1.0(C. +.-(!. 1-.-(#. $one o" these is correct. 0'. A coupon bond that pays interest semi-annually is sellin) at par value o" *1.---. matures in ' years. and has a coupon rate o" 1./(. The yield to maturity on this bond isD A. 1.-(B. 1./(C. +.-(!. 1-.-(#. $one o" these is correct. 01. A coupon bond that pays interest annually has a par value o" *1.---. matures in , years. and has a yield to maturity o" 1-(. The intrinsic value o" the bond today 3ill be ______ i" thecoupon rate is '(. A. *'1%.++B. */%-.+%C. *1.1%0.-1!. *11/.%1#. *1.---.-- 0+. A coupon bond that pays interest annually has a par value o" *1.---. matures in ' years. and has a yield to maturity o" +.0(. The intrinsic value o" the bond today 3ill be ______ i" the coupon rate is 1.,(. A. *'1%.++B. *+/-.14C. *1.1%0.-1!. *11/.%1#. *1.---.-- 14-1-Chapter 14 - Bond Prices and Yields4-. A coupon bond that pays interest annually. has a par value o" *1.---. matures in , years. and has a yield to maturity o" 1-(. The intrinsic value o" the bond today 3ill be _________ i"the coupon rate is 1%(. A. *+%%.''B. *+%4.1/C. *1.-',.1%!. *1.-''.%-#. $one o" these is correct. 41. A coupon bond that pays interest semi-annually has a par value o" *1.---. matures in , years. and has a yield to maturity o" 1-(. The intrinsic value o" the bond today 3ill be __________ i" the coupon rate is 1(. A. *+%%.'1B. *+%4.1/C. *1.-',.1-!. *1.-''.%-#. $one o" these is correct. 4%. A coupon bond that pays interest semi-annually has a par value o" *1.---. matures in ' years. and has a yield to maturity o" +.0(. The intrinsic value o" the bond today 3ill be ________ i" the coupon rate is +.,(. A. *+%%.''B. *1.-1-.1%C. *1.-',.1-!. *1.-''.%%#. $one o" these is correct. 40. A coupon bond that pays interest semi-annually has a par value o" *1.---. matures in , years. and has a yield to maturity o" 1-(. The intrinsic value o" the bond today 3ill be ________ i" the coupon rate is 1%(. A. *+%%.''B. *+%4.1/C. *1.-',.1-!. *1.-''.%%#. $one o" these is correct. 14-11Chapter 14 - Bond Prices and Yields44. A coupon bond that pays interest o" *1-- annually has a par value o" *1.---. matures in , years. and is sellin) today at a *'% discount "rom par value. The yield to maturity on this bondis __________. A. /.--(B. 1.00(C. 1%.--(!. /-.--(#. $one o" these is correct. 4,. You purchased an annual interest coupon bond one year a)o that no3 has / years remainin) until maturity. The coupon rate o" interest 3as 1-( and par value 3as *1.---. At the time you purchased the bond. the yield to maturity 3as 1(. The amount you paid "or this bond one year a)o 3as A. *1.-,'.,-.B. *1.-',.,-.C. *1.-11.,-.!. *1.-+%.4/.#. *1.1-4.10. 4/. You purchased an annual interest coupon bond one year a)o that had / years remainin) to maturity at that time. The coupon interest rate 3as 1-( and the par value 3as *1.---. At the time you purchased the bond. the yield to maturity 3as 1(. &" you sold the bond a"ter receivin) the "irst interest payment and the yield to maturity continued to be 1(. your annual total rate o" return on holdin) the bond "or that year 3ould have been _________. A. '.--(B. '.1%(C. 1.--(!. 11.+,(#. $one o" these is correct. 14-1%Chapter 14 - Bond Prices and Yields4'. Consider t3o bonds. A and B. Both bonds presently are sellin) at their par value o" *1.---. #ach pays interest o" *1%- annually. Bond A 3ill mature in , years 3hile bond B 3ill mature in / years. &" the yields to maturity on the t3o bonds chan)e "rom 1%( to 1-(. ____________. A. both bonds 3ill increase in value. but bond A 3ill increase more than bond BB. both bonds 3ill increase in value. but bond B 3ill increase more than bond AC. both bonds 3ill decrease in value. but bond A 3ill decrease more than bond B!. both bonds 3ill decrease in value. but bond B 3ill decrease more than bond A#. $one o" these is correct. 41. A Aero-coupon bond has a yield to maturity o" +( and a par value o" *1.---. &" the bond matures in 1 years. the bond should sell "or a price o" _______ today. A. 4%%.41B. *,-1.1'C. *,10.1/!. *410.4+#. $one o" these is correct. 4+. You have pected yield on this bond i" the bond is purchased "or *+',F A. 1-.--(.B. /./1(.C. 11.--(.!. 1./1(.#. $one o" these is correct. /0. You purchased an annual interest coupon bond one year a)o 3ith / years remainin) to maturity at the time o" purchase. The coupon interest rate is 1-( and par value is *1.---. At the time you purchased the bond. the yield to maturity 3as 1(. &" you sold the bond a"ter receivin) the "irst interest payment and the bond;s yield to maturity had chan)ed to '(. your annual total rate o" return on holdin) the bond "or that year 3ould have been _________. A. '.--(B. 1.--(C. +.+,(!. 11.+,(#. $one o" these is correct. /4. The ________ is used to calculate the present value o" a bond. A. nominal yieldB. current yieldC. yield to maturity!. yield to call#. $one o" these is correct. /,. The yield to maturity on a bond is ________. A. belo3 the coupon rate 3hen the bond sells at a discount. and equal to the coupon rate 3henthe bond sells at a premiumB. the discount rate that 3ill set the present value o" the payments equal to the bond priceC. based on the assumption that any payments received are reinvested at the coupon rate!. $one o" these are correct.#. the discount rate that 3ill set the present value o" the payments equal to the bond price. andbased on the assumption that any payments received are reinvested at the coupon rate 14-1'Chapter 14 - Bond Prices and Yields//. A bond 3ill sell at a discount 3hen __________. A. the coupon rate is )reater than the current yield and the current yield is )reater than yield tomaturityB. the coupon rate is )reater than yield to maturityC. the coupon rate is less than the current yield and the current yield is )reater than the yield to maturity!. the coupon rate is less than the current yield and the current yield is less than yield to maturity#. $one o" these is correct. /'. Consider a ,-year bond 3ith a 1-( coupon that has a present yield to maturity o" 1(. &" interest rates remain constant. one year "rom no3 the price o" this bond 3ill be _______. A. hi)herB. lo3erC. the same!. cannot be determined#. *1.--- /1. A bond has a par value o" *1.---. a time to maturity o" %- years. a coupon rate o" 1-( 3ith interest paid annually. a current price o" *1,- and a yield to maturity o" 1%(. &ntuitively and 3ithout the use calculations. i" interest payments are reinvested at 1-(. the realiAed compound yield on this bond must be ________. A. 1-.--(B. 1-.+(C. 1%.-(!. 1%.4(#. $one o" these is correct. /+. A bond 3ith a 1%( coupon. 1- years to maturity and sellin) at 11D-- has a yield to maturity o" _______. A. over 14(B. bet3een 10( and 14(C. bet3een 1%( and 10(!. bet3een 1-( and 1%(#. less than 1%( 14-11Chapter 14 - Bond Prices and Yields'-. 4sin) semiannual compoundin). a 1,-year Aero coupon bond that has a par value o" *1.--- and a required return o" 1( 3ould be priced at appro>imately ______. A. *0-1B. *01,C. *4/4!. *,,,#. $one o" these is correct. '1. The yield to maturity o" a %--year Aero coupon bond that is sellin) "or *0'%.,- 3ith a value at maturity o" *1.--- is ________. A. ,.1(B. 1.1(C. 1-.1(!. 10.4(#. $one o" these is correct. '%. 7hich one o" the "ollo3in) statements about convertibles is trueF A. The lon)er the call protection on a convertible. the less the security is 3orth.B. The more volatile the underlyin) stoc. the )reater the value o" the conversion "eature.C. The smaller the spread bet3een the dividend yield on the stoc and the yield-to-maturity on the bond. the more the convertible is 3orth.!. The collateral that is used to secure a convertible bond is one reason convertibles are more attractive than the underlyin) stoc.#. Convertibles are not callable. '0. 7hich one o" the "ollo3in) statements about convertibles is falseF A. The lon)er the call protection on a convertible. the less the security is 3orth.B. The more volatile the underlyin) stoc. the )reater the value o" the conversion "eature.C. The smaller the spread bet3een the dividend yield on the stoc and the yield-to-maturity on the bond. the more the convertible is 3orth.!. The collateral that is used to secure a convertible bond is one reason convertibles are more attractive than the underlyin) stoc.#. The lon)er the call protection on a convertible. the less the security is 3orth. the smaller the spread bet3een the dividend yield on the stoc and the yield-to-maturity on the bond. the more the convertible is 3orth and the collateral that is used to secure a convertible bond is onereason convertibles are more attractive than the underlyin) stoc. 14-1+Chapter 14 - Bond Prices and Yields'4. Consider a *1.--- par value %--year Aero coupon bond issued at a yield to maturity o" 1-(. &" you buy that bond 3hen it is issued and continue to hold the bond as yields decline to +(. the imputed interest income "or the "irst year o" that bond is A. Aero.B. *14.1'.C. *4,.1,.!. *'.44.#. $one o" these is correct. ',. The bond indenture includes A. the coupon rate o" the bond.B. the par value o" the bond.C. the maturity date o" the bond.!. All o" these are correct.#. $one o" these is correct. '/. A Treasury bond quoted at 1-'D1/ 1-'D11 has a bid price o" _______ and an ased price o"_____. A. *1-'.1/B *1-'.11B. *1.-'1./-B *1.-'1.1-C. *1.-',.--B *1.-',./0!. *1.-'1.1-B *1.-'1./-#. *1.-'-.,-B *1.-'-.,/ ''. 6ost corporate bonds are traded A. on a "ormal e>chan)e operated by the $e3 Yor 5toc #>chan)e.B. by the issuin) corporation.C. over the counter by bond dealers lined by a computer quotation system.!. on a "ormal e>chan)e operated by the American 5toc #>chan)e.#. on a "ormal e>chan)e operated by the Philadelphia 5toc #>chan)e. 14-%-Chapter 14 - Bond Prices and Yields'1. The process o" retirin) hi)h-coupon debt and issuin) ne3 bonds at a lo3er coupon to reduce interest payments is called A. de"erral.B. reissue.C. repurchase.!. re"undin).#. $one o" these is correct. '+. Convertible bonds A. )ive their holders the ability to share in price appreciation o" the underlyin) stoc.B. o""er lo3er coupon rates than similar nonconvertible bonds.C. o""er hi)her coupon rates than similar nonconvertible bonds.!. )ive their holders the ability to share in price appreciation o" the underlyin) stoc and o""erlo3er coupon rates than similar nonconvertible bonds.#. )ive their holders the ability to share in price appreciation o" the underlyin) stoc and o""erhi)her coupon rates than similar nonconvertible bonds. 1-. T&P5 are A. securities "ormed "rom the coupon payments only o" )overnment bonds.B. securities "ormed "rom the principal payments only o" )overnment bonds.C. )overnment bonds 3ith par value lined to the )eneral level o" prices.!. )overnment bonds 3ith coupon rate lined to the )eneral level o" prices.#. Aero-coupon )overnment bonds. 11. Altman;s G scores are assi)ned based on a "irm;s "inancial characteristics and are used to predict A. required coupon rates "or ne3 bond issues.B. banruptcy ris.C. the lielihood o" a "irm becomin) a taeover tar)et.!. the probability o" a bond issue bein) called.#. $one o" these is correct. 14-%1Chapter 14 - Bond Prices and Yields1%. 7hen a bond indenture includes a sinin) "und provision A. "irms must establish a cash "und "or "uture bond redemption.B. bondholders al3ays bene"it. because principal repayment on the scheduled maturity date is )uaranteed.C. bondholders may lose because their bonds can be repurchased by the corporation at belo3-maret prices.!. "irms must establish a cash "und "or "uture bond redemption and bondholders al3ays bene"it. because principal repayment on the scheduled maturity date is )uaranteed.#. $one o" these is correct. 10. 5ubordination clauses in bond indentures A. may restrict the amount o" additional borro3in) the "irm can undertae.B. are al3ays bad "or investors.C. provide hi)her priority to senior creditors in the event o" banruptcy.!. All o" these are correct.#. may restrict the amount o" additional borro3in) the "irm can undertae and provide hi)her priority to senior creditors in the event o" banruptcy. 14. CollateraliAed bonds A. rely on the )eneral earnin) po3er o" the "irm "or the bond;s sa"ety.B. are baced by speci"ic assets o" the issuin) "irm.C. are considered the sa"est variety o" bonds.!. All o" these are correct.#. are baced by speci"ic assets o" the issuin) "irm and are considered the sa"est variety o" bonds. 1,. !ebt securities are o"ten called "i>ed-income securities because A. the )overnment "i>es the ma>imum rate that can be paid on bonds.B. they are held predominantly by older people 3ho are livin) on "i>ed incomes.C. they pay a "i>ed amount at maturity.!. they promise either a "i>ed stream o" income or a stream o" income determined by a speci"ic "ormula.#. they 3ere the "irst type o" investment o""ered to the public. 3hich allo3ed them to :"i>: their income at a hi)her level by investin) in bonds. 14-%%Chapter 14 - Bond Prices and Yields1/. A Aero-coupon bond is one that A. e""ectively has a Aero percent coupon rate.B. pays interest to the investor based on the )eneral level o" interest rates. rather than at a speci"ied coupon rate.C. pays interest to the investor 3ithout requirin) the actual coupon to be mailed to the corporation.!. is issued by state )overnments because they don;t have to pay interest.#. is analyAed primarily by "ocusin) ?:Aeroin) in:@ on the coupon rate. 1'. 53in)in; 5oiree. &nc. is a "irm that has its main o""ice on the Hi)ht Ban in Paris. The "irmation rami"ications o" Aero coupon bonds. Ko3 has this ta>ation procedure chan)ed over the yearsF Ko3 has this chan)e a""ected the demand "or these bondsF 1%1. 7hy are many bonds callableF 7hat is the disadvanta)e to the investor o" a callable bondF 7hat does the investor receive in e>chan)e "or a bond bein) callableF Ko3 are bond valuation calculations a""ected i" bonds are callableF 1%+. You purchased a Aero-coupon bond that has a "ace value o" *1.---. "ive years to maturity. and a yield to maturity o" '.0(. &t is one year later and similar bonds are o""erin) a yield to maturity o" 1.1(. You 3ill sell the bond no3. You have a ta> rate o" 4-( on re)ular income and 1,( on capital )ains. Calculate the "ollo3in) "or this bond. the purchase price o" the bond the current price o" the bond the imputed interest income the capital )ain ?or loss@ on the bond the be"ore-ta> rate o" return on this investment the a"ter-ta> rate o" return on this investment 14-04Chapter 14 - Bond Prices and YieldsChapter 14 Bond Prices and Yields Ans3er Ley

Multiple Choice Questions 1. The current yield on a bond is equal to ________. A. annual interest payment divided by the current maret priceB. the yield to maturityC. annual interest divided by the par value!. the internal rate o" return#. $one o" these is correct.A is current yield and is quoted as such in the "inancial press. AACSB: AnalyticBloom's: RememberDifficulty: BasicTopic: Bonds %. &" a '( coupon bond is tradin) "or *+',.--. it has a current yield o" ____________ percent. A. '.--B. /.,0C. '.%4!. 1.,0E. '.11'-=+', M '.11. AACSB: AnalyticBloom's: ApplyDifficulty: BasicTopic: Bonds 14-0,Chapter 14 - Bond Prices and Yields0. &" a '.%,( coupon bond is tradin) "or *+1%.--. it has a current yield o" ____________ percent. A. '.01B. /.,0C. '.%,!. 1.,0#. '.11'%.,-=+1% M '.01. AACSB: AnalyticBloom's: ApplyDifficulty: BasicTopic: Bonds 4. &" a /.',( coupon bond is tradin) "or *1-1/.--. it has a current yield o" ____________ percent. A. '.01B. /./4C. '.%,!. 1.,0#. '.11/'.,-=1-1/ M /./40'. AACSB: AnalyticBloom's: ApplyDifficulty: BasicTopic: Bonds 14-0/Chapter 14 - Bond Prices and Yields,. &" a '.',( coupon bond is tradin) "or *1-1+.--. it has a current yield o" ____________ percent. A. '.01B. /./4C. '.%,. './1#. '.11''.,-=1-1+ M './-,. AACSB: AnalyticBloom's: ApplyDifficulty: BasicTopic: Bonds /. &" a /( coupon bond is tradin) "or *+,-.--. it has a current yield o" ____________ percent. A. /.,B. /.0C. /.1!. /.-#. /.//-=+,- M /.0. AACSB: AnalyticBloom's: ApplyDifficulty: BasicTopic: Bonds 14-0'Chapter 14 - Bond Prices and Yields'. &" an 1( coupon bond is tradin) "or *1-%,.--. it has a current yield o" ____________ percent. A. '.1B. 1.'C. './!. '.+#. 1.11-=1-%, M '.1. AACSB: AnalyticBloom's: ApplyDifficulty: BasicTopic: Bonds 1. &" a '.,( coupon bond is tradin) "or *1-,-.--. it has a current yield o" ____________ percent. A. '.-B. '.4C. '.1!. /.+#. /.'',=1-,- M '.1. AACSB: AnalyticBloom's: ApplyDifficulty: BasicTopic: Bonds 14-01Chapter 14 - Bond Prices and Yields+. A coupon bond pays annual interest. has a par value o" *1.---. matures in 4 years. has a coupon rate o" 1-(. and has a yield to maturity o" 1%(. The current yield on this bond is ___________. A. 1-./,(B. 1-.4,(C. 1-.+,(!. 1-.,%(#. $one o" these is correct.9J M 1---. n M 4. P6T M 1--. i M 1%. PJ M +0+.%,B *1--=*+0+.%, M 1-./,(. AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 1-. A coupon bond pays annual interest. has a par value o" *1.---. matures in 4 years. has a coupon rate o" 1.%,(. and has a yield to maturity o" 1./4(. The current yield on this bond is ___________. A. 1./,(B. 1.4,(C. '.+,(. 1.0/(#. $one o" these is correct.9J M 1---. n M 4. P6T M 1%.,-. i M 1./4. PJ M +1'.%/B *1%.,-=*+1'.%/ M 1.0/(. AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 14-0+Chapter 14 - Bond Prices and Yields11. A coupon bond pays annual interest. has a par value o" *1.---. matures in 1% years. has a coupon rate o" 11(. and has a yield to maturity o" 1%(. The current yield on this bond is ___________. A. 1-.0+(B. 1-.40(C. 1-.,1(. 1-.//(#. $one o" these is correct.9J M 1---. n M 1%. P6T M 11-. i M 1%. PJM +01.-/B *1--=*+01.-/ M 1-.//(. AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 1%. A coupon bond pays annual interest. has a par value o" *1.---. matures in 1% years. has a coupon rate o" 1.'(. and has a yield to maturity o" '.+(. The current yield on this bond is ___________. A. 1.0+(B. 1.40(C. 1.10(!. 1.//(E. $one o" these is correct.9J M 1---. n M 1%. P6T M 1'. i M '.+. PJ M 1.-/-./-B *1'=*1.-/-./- M 1.%-( AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 14-4-Chapter 14 - Bond Prices and Yields10. 2" the "ollo3in) "our investments. ________ is considered the sa"est. A. commercial paperB. corporate bondsC. 4. 5. A)ency issues!. Treasury bondsE. Treasury bills2nly Treasury issues are insured by the 4.5. )overnmentB the shorter-term the instrument. the sa"er the instrument. AACSB: AnalyticBloom's: RememberDifficulty: BasicTopic: Bonds 14. 2" the "ollo3in) "our investments. ________ is considered the least risy. A. Treasury billsB. corporate bondsC. 4. 5. A)ency issues!. Treasury bonds#. commercial paper2nly Treasury issues are insured by the 4.5. )overnmentB the shorter-term the instrument. the sa"er the instrument. AACSB: AnalyticBloom's: RememberDifficulty: BasicTopic: Bonds 14-41Chapter 14 - Bond Prices and Yields1,. To earn a hi)h ratin) "rom the bond ratin) a)encies. a "irm should have A. a lo3 times interest earned ratioB. a lo3 debt to equity ratioC. a hi)h quic ratio. both a lo3 debt to equity ratio and a hi)h quic ratio#. both a lo3 times interest earned ratio and a hi)h quic ratioKi)h values "or the times interest and quic ratios and a lo3 debt to equity ratio are desirable indicators o" sa"ety. AACSB: AnalyticBloom's: RememberDifficulty: BasicTopic: Bonds 1/. A "irm 3ith a lo3 ratin) "rom the bond ratin) a)encies 3ould have A. a lo3 times interest earned ratioB. a lo3 debt to equity ratioC. a lo3 quic ratio!. both a lo3 debt to equity ratio and a lo3 quic ratioE. both a lo3 times interest earned ratio and a lo3 quic ratioKi)h values "or the times interest and quic ratios and a lo3 debt to equity ratio are desirable indicators o" sa"ety. AACSB: AnalyticBloom's: RememberDifficulty: BasicTopic: Bonds 14-4%Chapter 14 - Bond Prices and Yields1'. At issue. coupon bonds typically sell ________. A. above par valueB. belo3 parC. at or near par value!. at a value unrelated to par#. $one o" these is correct.&" the investment baner has appraised the maret and the quality o" the bond correctly. the bond 3ill sell at or near par ?unless interest rates have chan)ed very dramatically and very quicly around the time o" issuance@. AACSB: AnalyticBloom's: RememberDifficulty: BasicTopic: Bonds 11. Accrued interest A. is quoted in the bond price in the "inancial press.B. must be paid by the buyer o" the bond and remitted to the seller o" the bond.C. must be paid to the broer "or the inconvenience o" sellin) bonds bet3een maturity dates.!. is quoted in the bond price in the "inancial press and must be paid by the buyer o" the bond and remitted to the seller o" the bond.#. is quoted in the bond price in the "inancial press and must be paid to the broer "or the inconvenience o" sellin) bonds bet3een maturity dates.Accrued interest must be paid by the buyer. but is not included in the quotations pa)e price. AACSB: AnalyticBloom's: RememberDifficulty: IntermediateTopic: Bonds 14-40Chapter 14 - Bond Prices and Yields1+. The invoice price o" a bond that a buyer 3ould pay is equal to A. the ased price plus accrued interest.B. the ased price less accrued interest.C. the bid price plus accrued interest.!. the bid price less accrued interest.#. the bid price.The buyer o" a bond 3ill buy at the ased price and 3ill be invoiced "or any accrued interest due to the seller. AACSB: AnalyticBloom's: RememberDifficulty: BasicTopic: Bonds %-. An 1( coupon 4. 5. Treasury note pays interest on 6ay 0- and $ovember 0- and is traded "or settlement on Au)ust 1,. The accrued interest on the *1--.--- "ace value o" this note is _________. A. *4+1.1-B. *1--.--C. *+10./1. *1.//1.%-#. $one o" these is correct.'/=110?*4.---@ M *1.//1.%-. Appro>imationD .-1=1%N1--.--- M ///./' per month. ///./'=month N %., months M 1.///./'. AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 14-44Chapter 14 - Bond Prices and Yields%1. A coupon bond is reported as havin) an as price o" 1-1( o" the *1.--- par value in the 7all 5treet 8ournal. &" the last interest payment 3as made one month a)o and the coupon rate is +(. the invoice price o" the bond 3ill be ____________. A. *1.-1'.,-B. *1.11-.1-C. *1.1,-.--!. *1.1/-.%,#. $one o" these is correct.*1.-1- O *'., ?accrued interest@ M *1.-1'.,-. AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds %%. A coupon bond is reported as havin) an as price o" 110( o" the *1.--- par value in the 7all 5treet 8ournal. &" the last interest payment 3as made t3o months a)o and the coupon rateis 1%(. the invoice price o" the bond 3ill be ____________. A. *1.1--B. *1.11-C. *1.1,-!. *1.1/-#. $one o" these is correct.*1.10- O *%- ?accrued interest@ M *1.1,-. AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 14-4,Chapter 14 - Bond Prices and Yields%0. The bonds o" 9ord 6otor Company have received a ratin) o" :B: by 6oody;s. The :B: ratin) indicates A. the bonds are insuredB. the bonds are chan)ed. A. conversion ratioB. current ratioC. P=# ratio!. conversion premium#. convertible "loorThe conversion premium is the amount "or 3hich the bond sells above conversion valueB the price o" bond as a strai)ht bond provides the "loor. The other terms are not speci"ically relevant to convertible bonds. AACSB: AnalyticBloom's: RememberDifficulty: BasicTopic: Bonds %1. A coupon bond is a bond that _________. A. pays interest on a re)ular basis ?typically every si> months@B. does not pay interest on a re)ular basis but pays a lump sum at maturityC. can al3ays be converted into a speci"ic number o" shares o" common stoc in the issuin) company!. al3ays sells at par#. $one o" these is correct.A coupon bond 3ill pay the coupon rate o" interest on a re)ular basis unless the "irm de"aults on the bond. Convertible bonds are speci"ic types o" bonds. AACSB: AnalyticBloom's: RememberDifficulty: BasicTopic: Bonds 14-41Chapter 14 - Bond Prices and Yields%+. A !!!!!!!!!!! bond is a bond 3here the bondholder has the ri)ht to cash in the bond be"ore maturity at a speci"ied price a"ter a speci"ic date. A. callableB. couponC. put!. Treasury#. Aero-couponAny bond may be redeemed prior to maturity. but all bonds other than put bonds are redeemedat a price determined by the prevailin) interest rates. AACSB: AnalyticBloom's: RememberDifficulty: BasicTopic: Bonds 0-. Callable bonds A. are called 3hen interest rates decline appreciably.B. have a call price that declines as time passes.C. are called 3hen interest rates increase appreciably.. are called 3hen interest rates decline appreciably and have a call price that declines as timepasses.#. have a call price that declines as time passes and are called 3hen interest rates increase appreciably.Callable bonds o"ten are re"unded ?called@ 3hen interest rates decline appreciably. The call price o" the bond ?appro>imately par and one year;s coupon payment@ declines to par as time passes and maturity is reached. AACSB: AnalyticBloom's: RememberDifficulty: BasicTopic: Bonds 14-4+Chapter 14 - Bond Prices and Yields01. A Treasury bond due in one year has a yield o" ,.'(B a Treasury bond due in , years has ayield o" /.%(. A bond issued by 9ord 6otor Company due in , years has a yield o" '.,(B a bond issued by 5hell 2il due in one year has a yield o" /.,(. The de"ault ris premiums on the bonds issued by 5hell and 9ord. respectively. are A. 1.-( and 1.%(B. -.'( and 1.,(C. 1.%( and 1.-(. -.1( and 1.0(#. $one o" these is correct.5hellD /.,( ,.'( M .1(B 9ordD '.,( /.%( M 1.0(. AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 0%. A Treasury bond due in one year has a yield o" 4./(B a Treasury bond due in , years has ayield o" ,./(. A bond issued by Cucent Technolo)ies due in , years has a yield o" 1.+(B a bond issued by #>>on due in one year has a yield o" /.%(. The de"ault ris premiums on the bonds issued by #>>on and Cucent Technolo)ies. respectively. areD A. 1./( and 0.0(B. -.,( and -.'(C. 0.0( and 1./(!. -.'( and -.,(#. $one o" these is correct.#>>onD /.%( 4./( M 1./(B Cucent Technolo)iesD 1.+( ,./( M 0.0(. AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 14-,-Chapter 14 - Bond Prices and Yields00. A Treasury bond due in one year has a yield o" /.%(B a Treasury bond due in , years has ayield o" /.'(. A bond issued by Eero> due in , years has a yield o" '.+(B a bond issued by #>>on due in one year has a yield o" '.%(. The de"ault ris premiums on the bonds issued by #>>on and Eero>. respectively. are A. 1.-( and 1.%(B. -.,( and .'(C. 1.%( and 1.-(!. -.'( and -.,(#. $one o" these is correct.#>>onD '.%( /.%( M 1.-(B Eero>D '. +( /.'( M 1.%(. AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 04. A Treasury bond due in one year has a yield o" 4.0(B a Treasury bond due in , years has ayield o" ,.-/(. A bond issued by Boein) due in , years has a yield o" './0(B a bond issued by Caterpillar due in one year has a yield o" '.1/(. The de"ault ris premiums on the bonds issued by Boein) and Caterpillar. respectively. are A. 0.00( and %.1-(B. %.,'( and %.1/(C. 1.%( and 1.-(!. -.'/( and -.4'(#. $one o" these is correct.Boein)D './0( ,.-/( M %.,'(B CaterpillarD '. 1/( 4.0-( M %.1/(. AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 14-,1Chapter 14 - Bond Prices and Yields0,. 9loatin)-rate bonds are desi)ned to ___________ 3hile convertible bonds are desi)ned to __________. A. minimiAe the holders; interest rate risB )ive the investor the ability to share in the price appreciation o" the company;s stocB. ma>imiAe the holders; interest rate risB )ive the investor the ability to share in the price appreciation o" the company;s stocC. minimiAe the holders; interest rate risB )ive the investor the ability to bene"it "rom interest rate chan)es!. ma>imiAe the holders; interest rate risB )ive investor the ability to share in the pro"its o" the issuin) company#. $one o" these is correct.9loatin) rate bonds allo3 the investor to earn a rate o" interest income tied to current interest rates. thus ne)atin) one o" the maed income investments. Convertible bonds allo3 the investor to bene"it "rom the appreciation o" the stoc price. either by convertin) to stoc or holdin) the bond. 3hich 3ill increase in price as the stoc price increases. AACSB: AnalyticBloom's: RememberDifficulty: IntermediateTopic: Bonds 0/. A coupon bond that pays interest annually is sellin) at par value o" *1.---. matures in , years. and has a coupon rate o" +(. The yield to maturity on this bond isD A. 1.-(B. 1.0(C. +.-(!. 1-.-(#. $one o" these is correct.7hen a bond sells at par value. the coupon rate is equal to the yield to maturity. AACSB: AnalyticBloom's: ApplyDifficulty: BasicTopic: Bonds 14-,%Chapter 14 - Bond Prices and Yields0'. A coupon bond that pays interest semi-annually is sellin) at par value o" *1.---. matures in ' years. and has a coupon rate o" 1./(. The yield to maturity on this bond isD A. 1.-(B. 1./(C. +.-(!. 1-.-(#. $one o" these is correct.7hen a bond sells at par value. the coupon rate is equal to the yield to maturity. AACSB: AnalyticBloom's: ApplyDifficulty: BasicTopic: Bonds 01. A coupon bond that pays interest annually has a par value o" *1.---. matures in , years. and has a yield to maturity o" 1-(. The intrinsic value o" the bond today 3ill be ______ i" thecoupon rate is '(. A. *'1%.++B. */%-.+%C. *1.1%0.-1. *11/.%1#. *1.---.--9J M 1---. P6T M '-. n M ,. i M 1-. PJ M 11/.%1. AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 14-,0Chapter 14 - Bond Prices and Yields0+. A coupon bond that pays interest annually has a par value o" *1.---. matures in ' years. and has a yield to maturity o" +.0(. The intrinsic value o" the bond today 3ill be ______ i" the coupon rate is 1.,(. A. *'1%.++B. *+/-.14C. *1.1%0.-1!. *11/.%1#. *1.---.--9J M 1---. P6T M 1,. n M '. i M +.0. PJ M +/-.101. AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 4-. A coupon bond that pays interest annually. has a par value o" *1.---. matures in , years. and has a yield to maturity o" 1-(. The intrinsic value o" the bond today 3ill be _________ i"the coupon rate is 1%(. A. *+%%.''B. *+%4.1/C. *1.-',.1%!. *1.-''.%-#. $one o" these is correct.9J M 1---. P6T M 1%-. n M ,. i M 1-. PJ M 1-',.1% AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 14-,4Chapter 14 - Bond Prices and Yields41. A coupon bond that pays interest semi-annually has a par value o" *1.---. matures in , years. and has a yield to maturity o" 1-(. The intrinsic value o" the bond today 3ill be __________ i" the coupon rate is 1(. A. *+%%.'1B. *+%4.1/C. *1.-',.1-!. *1.-''.%-#. $one o" these is correct.9J M 1---. P6T M 4-. n M 1-. i M ,. PJ M +%%.'1 AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 4%. A coupon bond that pays interest semi-annually has a par value o" *1.---. matures in ' years. and has a yield to maturity o" +.0(. The intrinsic value o" the bond today 3ill be ________ i" the coupon rate is +.,(. A. *+%%.''B. *1.-1-.1%C. *1.-',.1-!. *1.-''.%%#. $one o" these is correct.9J M 1---. P6T M 4'.,-. n M 14. i M 4./,. PJ M 1.-1-.1% AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 14-,,Chapter 14 - Bond Prices and Yields40. A coupon bond that pays interest semi-annually has a par value o" *1.---. matures in , years. and has a yield to maturity o" 1-(. The intrinsic value o" the bond today 3ill be ________ i" the coupon rate is 1%(. A. *+%%.''B. *+%4.1/C. *1.-',.1-. *1.-''.%%#. $one o" these is correct.9J M 1---. P6T M /-. n M 1-. i M ,. PJ M 1-''.%% AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 44. A coupon bond that pays interest o" *1-- annually has a par value o" *1.---. matures in , years. and is sellin) today at a *'% discount "rom par value. The yield to maturity on this bondis __________. A. /.--(B. 1.00(C. 1%.--(!. /-.--(#. $one o" these is correct.9J M 1---. P6T M 1--. n M ,. PJ M +%1. i M 11.++'( AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 14-,/Chapter 14 - Bond Prices and Yields4,. You purchased an annual interest coupon bond one year a)o that no3 has / years remainin) until maturity. The coupon rate o" interest 3as 1-( and par value 3as *1.---. At the time you purchased the bond. the yield to maturity 3as 1(. The amount you paid "or this bond one year a)o 3as A. *1.-,'.,-.B. *1.-',.,-.C. *1.-11.,-.!. *1.-+%.4/.E. *1.1-4.10.9J M 1---. P6T M 1--. n M '. i M 1. PJ M 11-4.10 AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 4/. You purchased an annual interest coupon bond one year a)o that had / years remainin) to maturity at that time. The coupon interest rate 3as 1-( and the par value 3as *1.---. At the time you purchased the bond. the yield to maturity 3as 1(. &" you sold the bond a"ter receivin) the "irst interest payment and the yield to maturity continued to be 1(. your annual total rate o" return on holdin) the bond "or that year 3ould have been _________. A. '.--(B. '.1%(C. 1.--(!. 11.+,(#. $one o" these is correct.9J M 1---. P6T M 1--. n M /. i M 1. PJ M 1-+%.4/B 9J M 1---. P6T M 1--. n M ,. i M 1. PJ M 1-'+.1,B KPH M ?1-'+.1, 1-+%.4/ O 1--@=1-+%.4/ M 1( AACSB: AnalyticBloom's: ApplyDifficulty: ChallengeTopic: Bonds 14-,'Chapter 14 - Bond Prices and Yields4'. Consider t3o bonds. A and B. Both bonds presently are sellin) at their par value o" *1.---. #ach pays interest o" *1%- annually. Bond A 3ill mature in , years 3hile bond B 3ill mature in / years. &" the yields to maturity on the t3o bonds chan)e "rom 1%( to 1-(. ____________. A. both bonds 3ill increase in value. but bond A 3ill increase more than bond BB. both bonds 3ill increase in value. but bond B 3ill increase more than bond AC. both bonds 3ill decrease in value. but bond A 3ill decrease more than bond B!. both bonds 3ill decrease in value. but bond B 3ill decrease more than bond A#. $one o" these is correct.The lon)er the maturity. the )reater the price chan)e 3hen interest rates chan)e. AACSB: AnalyticBloom's: UnderstandDifficulty: IntermediateTopic: Bonds 41. A Aero-coupon bond has a yield to maturity o" +( and a par value o" *1.---. &" the bond matures in 1 years. the bond should sell "or a price o" _______ today. A. 4%%.41B. *,-1.1'C. *,10.1/!. *410.4+#. $one o" these is correct.*1.---=?1.-+@1 M *,-1.1' AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 14-,1Chapter 14 - Bond Prices and Yields4+. You have pected yield on this bond i" the bond is purchased "or *+',F A. 1-.--(.B. /./1(.C. 11.--(.!. 1./1(.#. $one o" these is correct.9J M ,--. P6T M 1--. n M 1-. PJ M +',. i M /./1( AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds /0. You purchased an annual interest coupon bond one year a)o 3ith / years remainin) to maturity at the time o" purchase. The coupon interest rate is 1-( and par value is *1.---. At the time you purchased the bond. the yield to maturity 3as 1(. &" you sold the bond a"ter receivin) the "irst interest payment and the bond;s yield to maturity had chan)ed to '(. your annual total rate o" return on holdin) the bond "or that year 3ould have been _________. A. '.--(B. 1.--(C. +.+,(. 11.+,(#. $one o" these is correct.9J M 1---. P6T M 1--. n M /. i M 1. PJ M 1-+%.4/B 9J M 1---. P6T M 1--. n M ,. i M '. PJ M 11%0.-1B KPH M ?11%0.-1 1-+%.4/ O 1--@=1-+%.4/ M 11.+,(. AACSB: AnalyticBloom's: ApplyDifficulty: ChallengeTopic: Bonds 14-/,Chapter 14 - Bond Prices and Yields/4. The ________ is used to calculate the present value o" a bond. A. nominal yieldB. current yieldC. yield to maturity!. yield to call#. $one o" these is correct.Yield to maturity is the discount rate used in the bond valuation "ormula. 9or callable bonds. yield to call is sometimes the more appropriate calculation "or the investor ?i" interest rates aree>pected to decrease@. AACSB: AnalyticBloom's: RememberDifficulty: BasicTopic: Bonds /,. The yield to maturity on a bond is ________. A. belo3 the coupon rate 3hen the bond sells at a discount. and equal to the coupon rate 3henthe bond sells at a premiumB. the discount rate that 3ill set the present value o" the payments equal to the bond priceC. based on the assumption that any payments received are reinvested at the coupon rate!. $one o" these are correct.#. the discount rate that 3ill set the present value o" the payments equal to the bond price. andbased on the assumption that any payments received are reinvested at the coupon rate.The yield to maturity on a bond is the discount rate that 3ill set the present value o" the payments equal to the bond price. AACSB: AnalyticBloom's: UnderstandDifficulty: BasicTopic: Bonds 14-//Chapter 14 - Bond Prices and Yields//. A bond 3ill sell at a discount 3hen __________. A. the coupon rate is )reater than the current yield and the current yield is )reater than yield tomaturityB. the coupon rate is )reater than yield to maturityC. the coupon rate is less than the current yield and the current yield is )reater than the yield to maturity. the coupon rate is less than the current yield and the current yield is less than yield to maturity#. $one o" these is correct.&n order "or the investor to earn more than the current yield the bond must be sellin) "or a discount. Yield to maturity 3ill be )reater than current yield as investor 3ill have purchased the bond at discount and 3ill be receivin) the coupon payments over the li"e o" the bond. AACSB: AnalyticBloom's: UnderstandDifficulty: IntermediateTopic: Bonds /'. Consider a ,-year bond 3ith a 1-( coupon that has a present yield to maturity o" 1(. &" interest rates remain constant. one year "rom no3 the price o" this bond 3ill be _______. A. hi)herB. lo3erC. the same!. cannot be determined#. *1.---This bond is a premium bond as interest rates have declined since the bond 3as issued. &" interest rates remain constant. the price o" a premium bond declines as the bond approaches maturity. AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 14-/'Chapter 14 - Bond Prices and Yields/1. A bond has a par value o" *1.---. a time to maturity o" %- years. a coupon rate o" 1-( 3ith interest paid annually. a current price o" *1,- and a yield to maturity o" 1%(. &ntuitively and 3ithout the use calculations. i" interest payments are reinvested at 1-(. the realiAed compound yield on this bond must be ________. A. 1-.--(B. 1-.+(C. 1%.-(!. 1%.4(#. $one o" these is correct.&n order to earn yield to maturity. the coupons must be reinvested at the yield to maturity. Ko3ever. as the bond is sellin) at discount the yield must be hi)her than the coupon rate. There"ore. B is the only possible ans3er. AACSB: AnalyticBloom's: ApplyDifficulty: ChallengeTopic: Bonds /+. A bond 3ith a 1%( coupon. 1- years to maturity and sellin) at 11D-- has a yield to maturity o" _______. A. over 14(B. bet3een 10( and 14(C. bet3een 1%( and 10(!. bet3een 1-( and 1%(#. less than 1%(YT6 M 14.00(. AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 14-/1Chapter 14 - Bond Prices and Yields'-. 4sin) semiannual compoundin). a 1,-year Aero coupon bond that has a par value o" *1.--- and a required return o" 1( 3ould be priced at appro>imately ______. A. *0-1B. *01,C. *4/4!. *,,,#. $one o" these is correct.9J M 1---. n M 0-. & M 4. PJ M 0-1.0% AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds '1. The yield to maturity o" a %--year Aero coupon bond that is sellin) "or *0'%.,- 3ith a value at maturity o" *1.--- is ________. A. ,.1(B. 1.1(C. 1-.1(!. 10.4(#. $one o" these is correct.R*1.---=?*0'%.,-S1=%- 1 M ,.1(. AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 14-/+Chapter 14 - Bond Prices and Yields'%. 7hich one o" the "ollo3in) statements about convertibles is trueF A. The lon)er the call protection on a convertible. the less the security is 3orth.B. The more volatile the underlyin) stoc. the )reater the value o" the conversion "eature.C. The smaller the spread bet3een the dividend yield on the stoc and the yield-to-maturity on the bond. the more the convertible is 3orth.!. The collateral that is used to secure a convertible bond is one reason convertibles are more attractive than the underlyin) stoc.#. Convertibles are not callable.The lon)er the call protection the more attractive the bond. The smaller the spread ?c@. the lessthe bond is 3orth. Convertibles are debentures ?unsecured bonds@. All convertibles are callable at the option o" the issuer. AACSB: AnalyticBloom's: RememberDifficulty: IntermediateTopic: Bonds '0. 7hich one o" the "ollo3in) statements about convertibles is falseF A. The lon)er the call protection on a convertible. the less the security is 3orth.B. The more volatile the underlyin) stoc. the )reater the value o" the conversion "eature.C. The smaller the spread bet3een the dividend yield on the stoc and the yield-to-maturity on the bond. the more the convertible is 3orth.!. The collateral that is used to secure a convertible bond is one reason convertibles are more attractive than the underlyin) stoc.E. The lon)er the call protection on a convertible. the less the security is 3orth. the smaller the spread bet3een the dividend yield on the stoc and the yield-to-maturity on the bond. the more the convertible is 3orth and the collateral that is used to secure a convertible bond is onereason convertibles are more attractive than the underlyin) stoc.The lon)er the call protection the more attractive the bond. The smaller the spread ?c@. the lessthe bond is 3orth. Convertibles are debentures ?unsecured bonds@. All convertibles are callable at the option o" the issuer. AACSB: AnalyticBloom's: RememberDifficulty: IntermediateTopic: Bonds 14-'-Chapter 14 - Bond Prices and Yields'4. Consider a *1.--- par value %--year Aero coupon bond issued at a yield to maturity o" 1-(. &" you buy that bond 3hen it is issued and continue to hold the bond as yields decline to +(. the imputed interest income "or the "irst year o" that bond is A. Aero.B. *14.1'.C. *4,.1,.!. *'.44.#. $one o" these is correct.*1.---=?1.1-@%- M *141./4B *1.---=?1.1-@1+ M *1/0.,1B *1/0.,1*141./4 M *14.1'. AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds ',. The bond indenture includes A. the coupon rate o" the bond.B. the par value o" the bond.C. the maturity date o" the bond.. All o" these are correct.#. $one o" these is correct.The bond indenture includes the coupon rate. par value and maturity date o" the bond as 3ell as any other contractual "eatures. AACSB: AnalyticBloom's: RememberDifficulty: BasicTopic: Bonds 14-'1Chapter 14 - Bond Prices and Yields'/. A Treasury bond quoted at 1-'D1/ 1-'D11 has a bid price o" _______ and an ased price o"_____. A. *1-'.1/. *1-'.11B. *1.-'1./-. *1.-'1.1-C. *1.-',.--. *1.-',./0!. *1.-'1.1-. *1.-'1./-#. *1.-'-.,-. *1.-'-.,/Treasury bonds are quoted as a percenta)e o" par value ?*1.---@ 3ith the number a"ter the colon representin) the "ractions o" a point in 0%nds. The bid price is quoted "irst and is the lo3er o" the t3o. AACSB: AnalyticBloom's: RememberDifficulty: IntermediateTopic: Bonds ''. 6ost corporate bonds are traded A. on a "ormal e>chan)e operated by the $e3 Yor 5toc #>chan)e.B. by the issuin) corporation.C. over the counter by bond dealers lined by a computer quotation system.!. on a "ormal e>chan)e operated by the American 5toc #>chan)e.#. on a "ormal e>chan)e operated by the Philadelphia 5toc #>chan)e.6ost corporate bonds are traded in a loosely or)aniAed net3or o" bond dealers lined by a computer quote system. 2nly a small proportion is traded on the $e3 Yor #>chan)e. AACSB: AnalyticBloom's: RememberDifficulty: IntermediateTopic: Bonds 14-'%Chapter 14 - Bond Prices and Yields'1. The process o" retirin) hi)h-coupon debt and issuin) ne3 bonds at a lo3er coupon to reduce interest payments is called A. de"erral.B. reissue.C. repurchase.. re"undin).#. $one o" these is correct.The process o" re"undin) re"ers to callin) hi)h-coupon bonds and issuin) ne3. lo3er coupon debt. AACSB: AnalyticBloom's: RememberDifficulty: IntermediateTopic: Bonds '+. Convertible bonds A. )ive their holders the ability to share in price appreciation o" the underlyin) stoc.B. o""er lo3er coupon rates than similar nonconvertible bonds.C. o""er hi)her coupon rates than similar nonconvertible bonds.. )ive their holders the ability to share in price appreciation o" the underlyin) stoc and o""erlo3er coupon rates than similar nonconvertible bonds.#. )ive their holders the ability to share in price appreciation o" the underlyin) stoc and o""erhi)her coupon rates than similar nonconvertible bonds.Convertible bonds o""er appreciation potential throu)h the ability to share in price appreciation o" the underlyin) stoc but o""er a lo3er coupon and yield than similar nonconvertible bonds. AACSB: AnalyticBloom's: RememberDifficulty: IntermediateTopic: Bonds 14-'0Chapter 14 - Bond Prices and Yields1-. T&P5 are A. securities "ormed "rom the coupon payments only o" )overnment bonds.B. securities "ormed "rom the principal payments only o" )overnment bonds.C. )overnment bonds 3ith par value lined to the )eneral level o" prices.!. )overnment bonds 3ith coupon rate lined to the )eneral level o" prices.#. Aero-coupon )overnment bonds.Treasury &n"lation Protected 5ecurities ?T&P5@ are bonds 3hose par value ades the ma>imum rate that can be paid on bonds.B. they are held predominantly by older people 3ho are livin) on "i>ed incomes.C. they pay a "i>ed amount at maturity.. they promise either a "i>ed stream o" income or a stream o" income determined by a speci"ic "ormula.#. they 3ere the "irst type o" investment o""ered to the public. 3hich allo3ed them to :"i>: their income at a hi)her level by investin) in bonds.This de"inition is )iven in the chapter;s introduction. &t helps the student understand the natureo" bonds. AACSB: AnalyticBloom's: RememberDifficulty: BasicTopic: Bonds 14-'/Chapter 14 - Bond Prices and Yields1/. A Aero-coupon bond is one that A. e""ectively has a Aero percent coupon rate.B. pays interest to the investor based on the )eneral level o" interest rates. rather than at a speci"ied coupon rate.C. pays interest to the investor 3ithout requirin) the actual coupon to be mailed to the corporation.!. is issued by state )overnments because they don;t have to pay interest.#. is analyAed primarily by "ocusin) ?:Aeroin) in:@ on the coupon rate.Gero-coupon bonds pay no interest. &nvestors receive the "ace value at maturity. AACSB: AnalyticBloom's: RememberDifficulty: IntermediateTopic: Bonds 1'. 53in)in; 5oiree. &nc. is a "irm that has its main o""ice on the Hi)ht Ban in Paris. The "irmpected to rise.E. interest rates are e>pected to "all.&" interest rates "all the "irm is more liely to call the issue and re"inance at lo3er rates. This issimilar to an individual re"inancin) a home. The student has to thin throu)h each o" the reasons )iven and mae the connection bet3een "allin) rates and the motivation to re"inance. AACSB: AnalyticBloom's: RememberDifficulty: ChallengeTopic: Bonds 14-'1Chapter 14 - Bond Prices and Yields+-. 7hat is the relationship bet3een the price o" a strai)ht bond and the price o" a callable bondF A. The strai)ht bond;s price 3ill be hi)her than the callable bond;s price "or lo3 interest rates.B. The strai)ht bond;s price 3ill be lo3er than the callable bond;s price "or lo3 interest rates.C. The strai)ht bond;s price 3ill chan)e as interest rates chan)e. but the callable bond;s price 3ill stay the same.!. The strai)ht bond and the callable bond 3ill have the same price.#. There is no consistent relationship bet3een the t3o types o" bonds.9or lo3 interest rates. the price di""erence is due to the value o" the "irm;s option to call the bond at the call price. The "irm is more liely to call the issue at lo3 interest rates. so the option is valuable. At hi)her interest rates the "irm is less liely to call and this option loses value. The prices conver)e "or hi)h interest rates. A )raphical representation is sho3n in 9i)ure 14.4. AACSB: AnalyticBloom's: RememberDifficulty: IntermediateTopic: Bonds 14-'+Chapter 14 - Bond Prices and Yields+1. Three years a)o you purchased a bond "or *+'4./+. The bond had three years to maturity. a coupon rate o" 1(. paid annually. and a "ace value o" *1.---. #ach year you reinvested all coupon interest at the prevailin) reinvestment rate sho3n in the table belo3. Today is the bond;s maturity date. 7hat is your realiAed compound yield on the bondF

A. /.40(B. '.+/(C. 1.%0(. 1.+'(#. +.10(The investment )ro3s to a total "uture value o" *1-N?1.-'%@N?1.-+4@ O *1-N?1.-+4@ O *1.-1- M *1.%/1.04 over the three year period. The realiAed compound yield is the yield that 3ill compound the ori)inal investment to yield the same "uture valueD *+'4./+N?1Orcy@0 M *1.%/1.04. ?1 O rcy@0 M 1.%+4-+. 1 O rcy M 1.-1+'. rcy M 1.+'(. AACSB: AnalyticBloom's: ApplyDifficulty: ChallengeTopic: Bonds +%. 7hich o" the "ollo3in) is not a type o" international bondF A. 5amurai bondsB. Yanee bondsC. bulldo) bonds. #lton bonds#. All o" these are correct.5amurai bonds. Yanee bonds. and bulldo) bonds are mentioned in the te>tboo. AACSB: AnalyticBloom's: RememberDifficulty: BasicTopic: Bonds 14-1-Chapter 14 - Bond Prices and Yields+0. A coupon bond that pays interest annually has a par value o" *1.---. matures in / years. and has a yield to maturity o" 11(. The intrinsic value o" the bond today 3ill be ______ i" thecoupon rate is '.,(. A. *'1%.++B. *1,1.+0C. *1.1%0.-1!. *11/.%1#. *1.---.--9J M 1---. P6T M ',. n M /. i M 11. PJ M 1,1.+0. AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds +4. A coupon bond that pays interest annually has a par value o" *1.---. matures in 1 years. and has a yield to maturity o" +(. The intrinsic value o" the bond today 3ill be ______ i" the coupon rate is /(. A. *100.+/B. */%-.+%C. *1.1%0.-1!. *11/.%1#. *1.---.--9J M 1---. P6T M /-. n M 1. i M +. PJ M 100.+/ AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 14-11Chapter 14 - Bond Prices and Yields+,. A coupon bond that pays interest semi-annually has a par value o" *1.---. matures in / years. and has a yield to maturity o" +(. The intrinsic value o" the bond today 3ill be __________ i" the coupon rate is +(. A. *+%%.'1B. *+%4.1/C. *1.-',.1-. *1.---.--#. $one o" these is correct.9J M 1---. P6T M 4,. n M 1%. i M 4.,. PJ M 1---.-- AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds +/. A coupon bond that pays interest semi-annually has a par value o" *1.---. matures in ' years. and has a yield to maturity o" 11(. The intrinsic value o" the bond today 3ill be __________ i" the coupon rate is 1.1(. A. *+%%.'1B. *1+4.,1C. *1.-',.1-!. *1.-''.%-#. $one o" these is correct.9J M 1---. P6T M 44. n M 14. i M ,.,. PJ M 1+4.,1 AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 14-1%Chapter 14 - Bond Prices and Yields+'. A coupon bond that pays interest o" *+- annually has a par value o" *1.---. matures in + years. and is sellin) today at a *// discount "rom par value. The yield to maturity on this bondis __________. A. +.--(B. 1-.1,(C. 11.%,(!. 1%.0%(#. $one o" these is correct.9J M 1---. P6T M +-. n M +. PJ M +04. i M 1-.1,( AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds +1. A coupon bond that pays interest o" *4- semi annually has a par value o" *1.---. matures in 4 years. and is sellin) today at a *0/ discount "rom par value. The yield to maturity on this bond is __________. A. 1./+(B. +.-+(C. 1-.40(!. +.'/(#. $one o" these is correct.9J M 1---. P6T M 4-. n M 1. PJ M +/4. i M +.-+( AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 14-10Chapter 14 - Bond Prices and Yields++. You purchased an annual interest coupon bond one year a)o that no3 has 11 years remainin) until maturity. The coupon rate o" interest 3as 11( and par value 3as *1.---. At the time you purchased the bond. the yield to maturity 3as 1-(. The amount you paid "or thisbond one year a)o 3as A. *1.-,'.,-B. *1.-',.,-C. *1.-10./,!. *1.-+%.4/#. *1.1-4.109J M 1---. P6T M 11-. n M 1+. i M 1-. PJ M 1.-10./, AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 1--. You purchased an annual interest coupon bond one year a)o that had + years remainin) to maturity at that time. The coupon interest rate 3as 1-( and the par value 3as *1.---. At the time you purchased the bond. the yield to maturity 3as 1(. &" you sold the bond a"ter receivin) the "irst interest payment and the yield to maturity continued to be 1(. your annual total rate o" return on holdin) the bond "or that year 3ould have been _________. A. 1.--(B. '.1%(C. '.--(!. 11.+,(#. $one o" these is correct.9J M 1---. P6T M 1--. n M +. i M 1. PJ M 11%4.+4B 9J M 1---. P6T M 1--. n M 1. i M 1. PJ M 1114.+0B KPH M ?1114.+0 11%4.+4 O 1--@=11%4.+4 M 1( AACSB: AnalyticBloom's: ApplyDifficulty: ChallengeTopic: Bonds 14-14Chapter 14 - Bond Prices and Yields1-1. Consider t3o bonds. 9 and I. Both bonds presently are sellin) at their par value o" *1.---. #ach pays interest o" *+- annually. Bond 9 3ill mature in 1, years 3hile bond I 3ill mature in %/ years. &" the yields to maturity on the t3o bonds chan)e "rom +( to 1-(. ____________. A. both bonds 3ill increase in value. but bond 9 3ill increase more than bond IB. both bonds 3ill increase in value. but bond I 3ill increase more than bond 9C. both bonds 3ill decrease in value. but bond 9 3ill decrease more than bond I. both bonds 3ill decrease in value. but bond I 3ill decrease more than bond 9#. $one o" these is correct.The lon)er the maturity. the )reater the price chan)e 3hen interest rates chan)e. AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 1-%. A Aero-coupon bond has a yield to maturity o" 1%( and a par value o" *1.---. &" the bond matures in 11 years. the bond should sell "or a price o" _______ today. A. 4%%.41B. *,-1.1'C. *,10.1/. *10-.-4#. $one o" these is correct.*1.---=?1.1%@11 M *10-.-4 AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 14-1,Chapter 14 - Bond Prices and Yields1-0. A Aero-coupon bond has a yield to maturity o" 11( and a par value o" *1.---. &" the bondmatures in %' years. the bond should sell "or a price o" _______ today. A. *,+.'4B. *,-1.1'C. *,10.1/!. *410.4+#. $one o" these is correct.*1.---=?1.11@%' M *,+.'4 AACSB: AnalyticBloom's: ApplyDifficulty: IntermediateTopic: Bonds 1-4. You have ation rami"ications o" Aero coupon bonds. Ko3 has this ta>ation procedure chan)ed over the yearsF Ko3 has this chan)e a""ected the demand "or these bondsF The only return on a Aero coupon bond is the capital )ain realiAed 3hen the bond is sold. &nitially. the investor 3as required to pay capital )ains ta> only 3hen the bond 3as sold. Ko3ever. the &H5 later decided that part o" this capital )ain each year 3as really imputed interest and thus no3 one must pay ta> on this imputed interest income ?income that the investor has not yet received@. As a result. Aero coupon bonds are no lon)er particularly attractive "or individual investors and institutional investors sub. Ko3ever. Aeros remain attractive to institutional investors not subes. such as pension plans and endo3ments.9eedbacD This question tests the depth o" the student;s understandin) o" the ta> rami"ication o" Aero-coupon bonds. AACSB: Reflectie Thin!ingBloom's: UnderstandDifficulty: IntermediateTopic: Bonds 14-+1Chapter 14 - Bond Prices and Yields1%1. 7hy are many bonds callableF 7hat is the disadvanta)e to the investor o" a callable bondF 7hat does the investor receive in e>chan)e "or a bond bein) callableF Ko3 are bond valuation calculations a""ected i" bonds are callableF 6any bonds are callable to )ive the issuer the option o" callin) the bond in and re"undin) ?reissuin)@ the bond i" interest rates decline. Bonds issued in a hi)h interest rate environment 3ill have the call "eature. &nterest rates must decline enou)h to o""set the cost o" "loatin) a ne3 issue. The disadvanta)e to the investor is that the investor 3ill not receive that lon) stream o" constant income that the bondholder 3ould have received 3ith a noncallable bond. &n return. the yields on callable bonds are usually sli)htly hi)her than the yields on noncallable bonds o" equivalent ris. 7hen the bond is called. the investor receives the call price ?an amount )reater than par value@. The bond valuation calculation should include the call price rather than the par value as the "inal amount receivedB also. only the cash "lo3s untilthe "irst call should be discounted. The result is that the investor should be looin) at yield to "irst call. not yield to maturity. "or callable bonds.9eedbacD This question tests the student;s understandin) o" callable bonds. AACSB: Reflectie Thin!ingBloom's: UnderstandDifficulty: IntermediateTopic: Bonds 14-++Chapter 14 - Bond Prices and Yields1%+. You purchased a Aero-coupon bond that has a "ace value o" *1.---. "ive years to maturity. and a yield to maturity o" '.0(. &t is one year later and similar bonds are o""erin) a yield to maturity o" 1.1(. You 3ill sell the bond no3. You have a ta> rate o" 4-( on re)ular income and 1,( on capital )ains. Calculate the "ollo3in) "or this bond. the purchase price o" the bond the current price o" the bond the imputed interest income the capital )ain ?or loss@ on the bond the be"ore-ta> rate o" return on this investment the a"ter-ta> rate o" return on this investment Calculations are sho3n in the table belo3. 9eedbacD This question tests the depth o" the student;s understandin) o" the concepts and mechanics o" Aero-coupon bonds. AACSB: Reflectie Thin!ingBloom's: ApplyDifficulty: ChallengeTopic: Bonds 14-1--