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Question 1 of 25
1.0 Points
The rate of return required by investors for owning a bond to its maturity is called the
A. coupon rate.
B. current yield.
C. par rate.
D. yield to maturity.
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Question 2 of 25
1.0 Points
Which of the following statements regarding bond terminologies is INCORRECT?
A.
The written, legally binding agreement between the corporate borrower and
the lender detailing the terms of a bond issue is called the indenture.
B. The unsecured long-term debts of a firm are commonly called debentures.
C.
A special account that sets aside periodic payments for bond redemption is
called a sinking fund.
D.
An agreement giving the bond issuer the option to repurchase the bond at a
specified price prior to maturity is called the zero provision.
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Question 3 of 25
1.0 Points
Which of the following statements regarding bond trading is INCORRECT?
A. The long-term bonds issued by the U.S. government are called Treasury Bills.
B. The long-term bonds issued by state and local governments in the United
States are called municipal bonds.
C. A bond that makes no coupon payments (and thus is initially priced at a deep
discount) is called a zero coupon bond.
D. The price a dealer is willing to pay for a security is called the bid price.
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Question 4 of 25
1.0 Points
Which bond would most likely possess the least degree of interest rate risk?
A. 8% coupon rate, 15 years to maturity
B. 10% coupon rate, 10 years to maturity
C. 12% coupon rate, 8 years to maturity
D. 8% coupon rate, 12 years to maturity
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Question 5 of 25
1.0 Points
What is the value of a bond that will pay a total of 50 semiannual coupons of $80 each over the remainder of its life? The yield to maturity is 12%, p.a. Note: B = C [{1 1/(1+y)t}/y] + F /(1+y)t. Be careful about specifying t and y for this semiannual bond.
A. $ 734.86
B. $ 942.26
C. $1,135.90
D. $1,315.24
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Question 6 of 25
1.0 Points
Dizzy Corporations 10-year semiannual bond bearing a coupon rate of 12% is currently selling for $950. Given this information, which of the following is the correct valuation equation for this bond? Note: PVIFA(r,t) = [{1-1/(1+r)t}/r] and PVIF(r,t) = 1/(1+r)t.
A. B = 120 [PVIFA(12%, 10)] + 1,000 [PVIF(12%, 10)]
B. $950 = 120 [PVIFA(r, 10)] + 1,000 [PVIF(r, 10)]
C. $950 = 60 [PVIFA(r/2, 20)] + 1,000 [PVIF(r/2, 20)]
D. B = 60 [PVIFA(6%, 20)] + 1,000 [PVIF(6%, 20)]
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Question 7 of 25
1.0 Points
To find the yield-to-maturity of the bond in Question #6 by trial and error, which of the following numbers should you pick as your first try?
A. 13%
B. 12%
C. 11%
D.
Any number (like one of your favorite lotto numbers).
Question 1 of 25
1.0 Points
The rate of return required by investors for owning a bond to its maturity is called the
A. coupon rate.
B. current yield.
C. par rate.
D. yield to maturity.
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Question 2 of 25
1.0 Points
Which of the following statements regarding bond terminologies is INCORRECT?
A.
The written, legally binding agreement between the corporate borrower and
the lender detailing the terms of a bond issue is called the indenture.
B. The unsecured long-term debts of a firm are commonly called debentures.
C.
A special account that sets aside periodic payments for bond redemption is
called a sinking fund.
D.
An agreement giving the bond issuer the option to repurchase the bond at a
specified price prior to maturity is called the zero provision.
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Question 3 of 25
1.0 Points
Which of the following statements regarding bond trading is INCORRECT?
A. The long-term bonds issued by the U.S. government are called Treasury Bills.
B. The long-term bonds issued by state and local governments in the United
States are called municipal bonds.
C. A bond that makes no coupon payments (and thus is initially priced at a deep
discount) is called a zero coupon bond.
D. The price a dealer is willing to pay for a security is called the bid price.
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Question 4 of 25
1.0 Points
Which bond would most likely possess the least degree of interest rate risk?
A. 8% coupon rate, 15 years to maturity
B. 10% coupon rate, 10 years to maturity
C. 12% coupon rate, 8 years to maturity
D. 8% coupon rate, 12 years to maturity
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Question 5 of 25
1.0 Points
What is the value of a bond that will pay a total of 50 semiannual coupons of $80 each over the remainder of its life? The yield to maturity is 12%, p.a. Note: B = C [{1 1/(1+y)t}/y] + F /(1+y)t. Be careful about specifying t and y for this semiannual bond.
A. $ 734.86
B. $ 942.26
C. $1,135.90
D. $1,315.24
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Question 6 of 25
1.0 Points
Dizzy Corporations 10-year semiannual bond bearing a coupon rate of 12% is currently selling for $950. Given this information, which of the following is the correct valuation equation for this bond? Note: PVIFA(r,t) = [{1-1/(1+r)t}/r] and PVIF(r,t) = 1/(1+r)t.
A. B = 120 [PVIFA(12%, 10)] + 1,000 [PVIF(12%, 10)]
B. $950 = 120 [PVIFA(r, 10)] + 1,000 [PVIF(r, 10)]
C. $950 = 60 [PVIFA(r/2, 20)] + 1,000 [PVIF(r/2, 20)]
D. B = 60 [PVIFA(6%, 20)] + 1,000 [PVIF(6%, 20)]
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Question 7 of 25
1.0 Points
To find the yield-to-maturity of the bond in Question #6 by trial and error, which of the following numbers should you pick as your first try?
A. 13%
B. 12%
C. 11%
D.
Any number (like one of your favorite lotto numbers).
Explanation / Answer
Answer-1:
Yield to maturity rate of return required by investors for owning a bond to its maturity. Hence the correct answer is :
D. yield to maturity.
Answer-2:
Following statements are correct regarding bond terminologies:
A. The written, legally binding agreement between the corporate borrower and the lender detailing the terms of a bond issue is called the indenture.
B. The unsecured long-term debts of a firm are commonly called debentures.
C. A special account that sets aside periodic payments for bond redemption is called a sinking fund.
An agreement giving the bond issuer the option to repurchase the bond at a specified price prior to maturity is called the Redemption provision and such bonds are called as redeemable bonds.
So the Incorrect one shall shall be :
D. An agreement giving the bond issuer the option to repurchase the bond at a
specified price prior to maturity is called the zero provision.
Answer-3:
Following statements are correct regarding bond trading:
A. The long-term bonds issued by the U.S. government are called Treasury Bills.
C. A bond that makes no coupon payments (and thus is initially priced at a deep
discount) is called a zero coupon bond.
D. The price a dealer is willing to pay for a security is called the bid price.
The long-term bonds issued by state and local governments in the United States are not called municipal bonds.
Hence the incorrect one shall be :
B. The long-term bonds issued by state and local governments in the United States are called municipal bonds.
Answer-4:
The interest rate risk increase with increase in the years to maturity and it decrease with decrease in years to maturity:
Hence the least degree of interest rate risk shall be in case of lowest years to maturity:
So the correct answer is :
C. 12% coupon rate, 8 years to maturity
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