1、Chapter 14 Bond Prices and Yields 297Multiple Choice Questions1. The current yield on a bond is equal to _. A) annual interest divided by the current market price B) the yield to maturity C) annual interest divided by the par value D) the internal rate of return E) none of the above Answer: A Diffic
2、ulty: Easy Rationale: A is current yield and is quoted as such in the financial press.2. If a 7% coupon bond is trading for $975.00, it has a current yield of _ percent. A) 7.00 B) 6.53 C) 7.24 D) 8.53 E) 7.18 Answer: E Difficulty: Easy Rationale: 70/975 = 7.18.3. If a 6% coupon bond is trading for
3、$950.00, it has a current yield of _ percent. A) 6.5 B) 6.3 C) 6.1 D) 6.0 E) 6.6 Answer: B Difficulty: Easy Rationale: 60/950 = 6.3.Chapter 14 Bond Prices and Yields 2984. If an 8% coupon bond is trading for $1025.00, it has a current yield of _ percent. A) 7.8 B) 8.7 C) 7.6 D) 7.9 E) 8.1 Answer: A
4、Difficulty: Easy Rationale: 80/1025 = 7.8.5. If a 7.5% coupon bond is trading for $1050.00, it has a current yield of _ percent. A) 7.0 B) 7.4 C) 7.1 D) 6.9 E) 6.7 Answer: C Difficulty: Easy Rationale: 75/1050 = 7.1.6. A coupon bond pays annual interest, has a par value of $1,000, matures in 4 years
5、, has a coupon rate of 10%, and has a yield to maturity of 12%. The current yield on this bond is _. A) 10.65% B) 10.45% C) 10.95% D) 10.52% E) none of the above Answer: A Difficulty: Moderate Rationale: FV = 1000, n = 4, PMT = 100, i = 12, PV= 939.25; $100 / $939.25 = 10.65%.Chapter 14 Bond Prices
6、and Yields 2997. A coupon bond pays annual interest, has a par value of $1,000, matures in 12 years, has a coupon rate of 11%, and has a yield to maturity of 12%. The current yield on this bond is _. A) 10.39% B) 10.43% C) 10.58% D) 10.66% E) none of the above Answer: D Difficulty: Moderate Rational
7、e: FV = 1000, n = 12, PMT = 110, i = 12, PV= 938.06; $100 / $938.06 = 10.66%.8. Of the following four investments, _ is considered the safest. A) commercial paper B) corporate bonds C) U. S. Agency issues D) Treasury bonds E) Treasury bills Answer: E Difficulty: Easy Rationale: Only Treasury issues
8、are insured by the U. S. government; the shorter-term the instrument, the safer the instrument.9. To earn a high rating from the bond rating agencies, a firm should have A) a low times interest earned ratio B) a low debt to equity ratio C) a high quick ratio D) B and C E) A and C Answer: D Difficult
9、y: Easy Rationale: High values for the times interest and quick ratios and a low debt to equity ratio are desirable indicators of safety.Chapter 14 Bond Prices and Yields 30010. At issue, coupon bonds typically sell _. A) above par value B) below par C) at or near par value D) at a value unrelated t
10、o par E) none of the above Answer: C Difficulty: Easy Rationale: If the investment banker has appraised the market and the quality of the bond correctly, the bond will sell at or near par (unless interest rates have changed very dramatically and very quickly around the time of issuance).11. Accrued
11、interest A) is quoted in the bond price in the financial press. B) must be paid by the buyer of the bond and remitted to the seller of the bond. C) must be paid to the broker for the inconvenience of selling bonds between maturity dates. D) A and B. E) A and C. Answer: B Difficulty: Moderate Rationa
12、le: Accrued interest must be paid by the buyer, but is not included in the quotations page price.12. The invoice price of a bond that a buyer would pay is equal to A) the asked price plus accrued interest. B) the asked price less accrued interest. C) the bid price plus accrued interest. D) the bid p
13、rice less accrued interest. E) the bid price. Answer: A Difficulty: Easy Rationale: The buyer of a bond will buy at the asked price and will also be invoiced for any accrued interest due to the seller.Chapter 14 Bond Prices and Yields 30113. An 8% coupon U. S. Treasury note pays interest on May 30 a
14、nd November 30 and is traded for settlement on August 15. The accrued interest on the $100,000 face value of this note is _. A) $491.80 B) $800.00 C) $983.61 D) $1,661.20 E) none of the above Answer: D Difficulty: Moderate Rationale: 76/183($4,000) = $1,661.20. Approximation: .08/12*100,000=666.67 p
15、er month. 666.67/month * 2.5 months = 1.666.67.14. A coupon bond is reported as having an ask price of 113% of the $1,000 par value in the Wall Street Journal. If the last interest payment was made two months ago and the coupon rate is 12%, the invoice price of the bond will be _. A) $1,100 B) $1,11
16、0 C) $1,150 D) $1,160 E) none of the above Answer: C Difficulty: Moderate Rationale: $1,130 + $20 (accrued interest) = $1,150.15. The bonds of Ford Motor Company have received a rating of “D“ by Moodys. The “D“ rating indicates A) the bonds are insured B) the bonds are junk bonds C) the bonds are re
17、ferred to as “high yield“ bonds D) A and B E) B and C Answer: E Difficulty: Easy Rationale: D ratings are risky bonds, often called junk bonds (or high yield bonds by those marketing such bonds).Chapter 14 Bond Prices and Yields 30216. The bond market A) can be quite “thin“. B) primarily consists of
18、 a network of bond dealers in the over the counter market. C) consists of many investors on any given day. D) A and B. E) B and C. Answer: D Difficulty: Easy Rationale: The bond market, unlike the stock market, can be a very thinly traded market. In addition, most bonds are traded by dealers.17. Cet
19、eris paribus, the price and yield on a bond areA) positively related. B) negatively related. C) sometimes positively and sometimes negatively related. E) not related. E) indefinitely related. Answer: B Difficulty: Easy Rationale: Bond prices and yields are inversely related.18. The _ is a measure of
20、 the average rate of return an investor will earn if the investor buys the bond now and holds until maturity. A) current yield B) dividend yield C) P/E ratio D) yield to maturity E) discount yield Answer: D Difficulty: Easy Rationale: The current yield is the annual interest as a percent of current
21、market price; the other choices do not apply to bonds.Chapter 14 Bond Prices and Yields 30319. The _ gives the number of shares for which each convertible bond can be exchanged. A) conversion ratio B) current ratio C) P/E ratio D) conversion premium E) convertible floor Answer: A Difficulty: Easy Ra
22、tionale: The conversion premium is the amount for which the bond sells above conversion value; the price of bond as a straight bond provides the floor. The other terms are not specifically relevant to convertible bonds.20. A coupon bond is a bond that _. A) pays interest on a regular basis (typicall
23、y every six months) B) does not pay interest on a regular basis but pays a lump sum at maturity C) can always be converted into a specific number of shares of common stock in the issuing company D) always sells at par E) none of the above Answer: A Difficulty: Easy Rationale: A coupon bond will pay
24、the coupon rate of interest on a semiannual basis unless the firm defaults on the bond. Convertible bonds are specific types of bonds.21. A _ bond is a bond where the bondholder has the right to cash in the bond before maturity at a specified price after a specific date. A) callable B) coupon C) put
25、 D) Treasury E) zero-coupon Answer: C Difficulty: Easy Rationale: Any bond may be redeemed prior to maturity, but all bonds other than put bonds are redeemed at a price determined by the prevailing interest rates.Chapter 14 Bond Prices and Yields 30422. Callable bonds A) are called when interest rat
26、es decline appreciably. B) have a call price that declines as time passes. C) are called when interest rates increase appreciably. D) A and B. E) B and C. Answer: D Difficulty: Easy Rationale: Callable bonds often are refunded (called) when interest rates decline appreciably. The call price of the b
27、ond (approximately par and one years coupon payment) declines to par as time passes and maturity is reached.23. A Treasury bond due in one year has a yield of 5.7%; a Treasury bond due in 5 years has a yield of 6.2%. A bond issued by Ford Motor Company due in 5 years has a yield of 7.5%; a bond issu
28、ed by Shell Oil due in one year has a yield of 6.5%. The default risk premiums on the bonds issued by Shell and Ford, respectively, are A) 1.0% and 1.2% B) 0.7% and 1.5% C) 1.2% and 1.0% D) 0.8% and 1.3% E) none of the above Answer: D Difficulty: Moderate Rationale: Shell: 6.5% - 5.7% = .8%; Ford: 7
29、.5% - 6.2% = 1.3%.24. A Treasury bond due in one year has a yield of 4.6%; a Treasury bond due in 5 years has a yield of 5.6%. A bond issued by Lucent Technologies due in 5 years has a yield of 8.9%; a bond issued by Mobil due in one year has a yield of 6.2%. The default risk premiums on the bonds i
30、ssued by Mobil and Lucent Technologies, respectively, are: A) 1.6% and 3.3% B) 0.5% and .7% C) 3.3% and 1.6% D) 0.7% and 0.5% E) none of the above Answer: A Difficulty: Moderate Rationale: Mobil: 6.2% - 4.6% = 1.6%; Lucent Technologies: 8.9% - 5.6% = 3.3%.Chapter 14 Bond Prices and Yields 30525. A T
31、reasury bond due in one year has a yield of 6.2%; a Treasury bond due in 5 years has a yield of 6.7%. A bond issued by Xerox due in 5 years has a yield of 7.9%; a bond issued by Exxon due in one year has a yield of 7.2%. The default risk premiums on the bonds issued by Exxon and Xerox, respectively,
32、 are A) 1.0% and 1.2% B) 0.5% and .7% C) 1.2% and 1.0% D) 0.7% and 0.5% E) none of the above Answer: A Difficulty: Moderate Rationale: Exxon: 7.2% - 6.2% = 1.0%; Xerox: 7. 9% - 6.7% = 1.2%.26. Floating-rate bonds are designed to _ while convertible bonds are designed to _. A) minimize the holders in
33、terest rate risk; give the investor the ability to share in the price appreciation of the companys stock B) maximize the holders interest rate risk; give the investor the ability to share in the price appreciation of the companys stock C) minimize the holders interest rate risk; give the investor th
34、e ability to benefit from interest rate changes D) maximize the holders interest rate risk; give investor the ability to share in the profits of the issuing company E) none of the above Answer: A Difficulty: Moderate Rationale: Floating rate bonds allow the investor to earn a rate of interest income
35、 tied to current interest rates, thus negating one of the major disadvantages of fixed income investments. Convertible bonds allow the investor to benefit from the appreciation of the stock price, either by converting to stock or holding the bond, which will increase in price as the stock price incr
36、eases.27. A coupon bond that pays interest annually is selling at par value of $1,000, matures in 5 years, and has a coupon rate of 9%. The yield to maturity on this bond is: A) 8.0% B) 8.3% C) 9.0% D) 10.0% E) none of the above Answer: C Difficulty: Easy Rationale: When a bond sells at par value, t
37、he coupon rate is equal to the yield to maturity.Chapter 14 Bond Prices and Yields 30628. A coupon bond that pays interest annually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be _ if the coupon rate is 7%. A) $712.99
38、B) $620.92 C) $1,123.01 D) $886.28 E) $1,000.00 Answer: D Difficulty: Moderate Rationale: FV = 1000, PMT = 70, n = 5, i = 10, PV = 886.28.29. A coupon bond that pays interest annually, has a par value of $1,000, matures in 5 years, and has a yield to maturity of 10%. The intrinsic value of the bond
39、today will be _ if the coupon rate is 12%. A) $922.77 B) $924.16 C) $1,075.82 D) $1,077.20 E) none of the above Answer: C Difficulty: Moderate Rationale: FV = 1000, PMT = 120, n = 5, i = 10, PV = 1075.8230. A coupon bond that pays interest semi-annually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be _ if the coupon rate is 8%. A) $922.78 B) $924.16 C) $1,075.80 D) $1,077.20 E) none of the above Answer: A Difficulty: Moderate Rationale: FV = 1000, PMT = 40, n = 10, i = 5, PV = 922.78
