Need A Tutor?    |   Need Homework Help?                                                                             Help and Support     | Join or Cancel

The price at which a dealer will purchase a bond is referred to as the _____ price.
 
A) bid
B) call
C) put
D) face
E) asked
   
Healthy Foods just paid its annual dividend of $1.62 a share. The firm recently announced that all future dividends will
be increased by 2.1 percent annually. What is one share of this stock worth to you if you require a rate of return of 15.7 percent?
 
A) $12.95
B) $13.07
C) $10.54
D) $11.91
E) $12.16
 
P0 = (1.62 × 1.021) / (0.157 - 0.021) = 12.16
   
The common stock of GT Enterprises is selling for $63.09 a share.
The company pays a constant annual dividend and has a total return of 11.64 percent.
What is the amount of the dividend?
 
A) $6.81
B) $7.70
C) $4.04
D) $7.34
E) $5.02
 
D = 0.1164 × 63.09 = 7.34
   
For the past six years, the price of Slippery Rock stock has been increasing at a rate of 8.21 percent a year.
Currently, the stock is priced at $43.40 a share and has a required return of 11.65 percent.
What is the dividend yield?
 
A) 2.75 percent
B) 3.44 percent
C) 3.20 percent
D) 4.28 percent
E) 3.69 percent
 
Dividend yield = .1165 -.0821 = .0344, or 3.44 percent
   
What is the principal amount of a bond that is repaid at the end of the loan term called?
 
A) Face value
B) Dirty price
C) Coupon
D) Market price
E) Accrued price
   
Last year, you earned a rate of return of 6.42 percent on your bond investments.
During that time, the inflation rate was 1.6 percent. What was your real rate of return?
 
A) 4.80 percent
B) 4.74 percent
C) 4.69 percent
D) 4.83 percent
E) 4.71 percent
   
You purchase a bond with a coupon rate of 6.15 percent, semiannual coupons, and a clean price of $998.40.
If the next coupon payment is due in two months, what is the invoice price?
 
A) $1,001.60
B) $1,018.90
C) $1,004.33
D) $1,019.36
E) $1,027.67
 
   
The common stock of Sweet Treats has a total return of 11.62 percent, a stock price of $48.20, and recently paid an
annual dividend of $2.38. What is the capital gains rate if the company maintains a constant dividend?
 
A) 6.68 percent
B) 16.56 percent
C) 8.34 percent
D) 4.59 percent
E) 11.17 percent
   
The inflation premium:
 
A) remains constant over time.
B) is inversely related to the time to maturity.
C) compensates investors for expected price increases.
D) rewards investors for accepting interest rate risk.
E) increases the real return.
   
What is the price of a $1,000 face value bond if the quoted price is 102.1?
 
A) $102.10
B) $1,020.01
C) $1,021.00
D) $1,020.10
E) $1,002.10
   
A bond trader just purchased and resold a bond.
The amount of profit earned by the trader from this purchase and resale is referred to as the:
 
A) bond premium.
B) market yield.
C) current yield.
D) bid-ask spread.
E) yield-to-call.
   
Breakfast Hut pays a constant annual dividend of $1.39 per share. How much are you willing to pay for one share
if you require a rate of return of 14.6 percent?
 
A) $9.52
B) $14.72
C) $2.52
D) $11.87
E) $1.59
 
1.39 /.146 = 9.52
   
Which one of the following is the quoted price of a bond?
 
A) Dirty price
B) Discount price
C) Par value
D) Face value
E) Clean price
   
TMS just paid an annual dividend of $2.84 per share on its stock. The dividends are expected to grow at a constant rate of 1.85
percent per year. If investors require a rate of return of 10.4 percent, what will be the stock price be in Year 11?
 
A) $41.71
B) $41.39
C) $35.75
D) $40.64
E) $42.57
 
 (2.84 × 1.018512) / (.104 - .0185) = 41.39
   
River Rock, Inc., just paid an annual dividend of $2.80. The company has increased its dividend by 2.5 percent a
year for the past 10 years and expects to continue doing so. What will a share of this stock be worth 6 years
from now if the required return is 16 percent?
 
A) $25.50
B) $26.90
C) $23.60
D) $25.08
E) $24.65
E) $24.65
 
 (2.80 × 1.0257) / (.16 - .025) = 24.65
   
A real rate of return is defined as a rate that has been adjusted for which one of the following?
 
A) Default risk
B) Interest rate risk
C) Taxes
D) Inflation
E) Liquidity
   
Sweet Treats pays a constant annual dividend of $2.38 a share and currently sells for $52.60 a share. What is the rate of return?
 
A) 5.39 percent
B) 4.56 percent
C) 4.52 percent
D) 4.83 percent
E) 5.91 percent
 
2.38 / 52.60 = .0452, or 4.52 percent
   
What term is used to describe an account that a bond trustee manages for the sole purpose of redeeming bonds early?
 
A) Premium fund
B) Call account
C) Bearer account
D) Sinking fund
E) Registered account
   
The relationship between nominal returns, real returns, and inflation is referred to as the:
 
A) current yield.
B) call premium.
C) conversion ratio.
D) spread.
E) Fisher effect.
   
The term structure of interest rates is primarily based on which three of the following?
 
I. Interest rate risk premium
II. Real rate of interest
III. Default risk premium
IV. Inflation premium
V. Liquidity premium
 
A) I, II, and V
B) I, III, and V
C) II, IV, and V
D) I, II, and IV
E) II, III, and IV
   
The next dividend payment by S&S will be $1.38 per share. The dividends are anticipated to maintain a 2.5 percent
growth rate, forever. If the stock currently sells for $26.90 per share, what is the required return?
 
A) 7.82 percent
B) 8.74 percent
C) 7.63 percent
D) 8.03 percent
E) 9.02 percent
 
 (1.38 /$26.90) + .025 = .0763 or 7.63 percent
   
If inflation is expected to steadily decrease in the future, the term structure of interest rates will most likely be:
 
A) downward sloping.
B) upward sloping.
C) double-humped.
D) flat.
E) humped.
   
Best Ever Toys just paid its annual dividend of $1.78 per share. The required return is 10.6 percent and the dividend
growth rate is 1.23 percent. What is the expected value of this stock five years from now?
 
A) $22.06
B) $18.45
C) $19.78
D) $20.19
E) $20.44
 
P5 = [1.78 ×(1 + .0123)6]/(.106-.0123) = 20.44
   
Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value?
 
A) Default risk premium
B) Interest rate risk premium
C) Taxability premium
D) Inflation premium
E) Liquidity premium
   
What condition must exist if a bond’s coupon rate is to equal both the bond’s current yield and its yield to maturity?
Assume the market rate of interest for this bond is positive.
 
There is no condition under which this can occur.
The bond must be priced at par
The bond must be a zero coupon bond and mature in exactly one year.
The clean price of the bond must equal the bond’s dirty price.
The market price must exceed the par value by the value of one year’s interest.
   
The $1,000 face value bonds of Galaxies International have coupon of 6.45 percent and pay interest semiannually.
Currently, the bonds are quoted at 103.4 and mature in 4 years. What is the yield to maturity?
 
6.79 percent
6.02 percent
5.49 percent
4.88 percent
7.18 percent
   
Which one of the following terms applies to a junk bond that was originally issued with a bond rating of AA?
 
Sinking ship
Trust deed
Debenture
Fallen angel
Covenant
   
Which one of the following statements concerning sinking funds is correct?
 
Sinking funds must include at least one "balloon payment."
Sinking funds may be used to purchase bonds in the open market
Bond issuers must fund a sinking fund at the time the bonds are issued.
Sinking funds must be funded annually, starting on the issue date.
Sinking funds can be used only to call bonds.
   
AB Builders has 15-year bonds outstanding with a face value of $1,000 and a market price of $974.
The bonds pay interest annually and have a yield to maturity of 4.03 percent. What is the coupon rate?
 
4.20 percent
3.75 percent
3.95 percent
4.25 percent
3.80 percent
   
Which one of the following types of bonds permits its issuer to forego paying interest payments if certain natural events cause significant losses?
 
LIBOR
PUT
CAT
PINES
PETS
   
The lowest rating a bond can receive from Standard and Poor's and still be classified as an investment-quality bond is:
 
Ba.
B.
BB.
BBB
A.
   
The written agreement that contains the specific details related to a bond issue is called the bond:
 
indenture
issue paper.
registration statement.
document.
debenture.
   
New Markets has $1,000 face value bonds outstanding that pay interest semiannually, mature in 14.5 years, and have a 4.5 percent coupon.
The current price is quoted at 97.6. What is the yield to maturity?
 
5.27 percent
5.32 percent
4.73 percent
4.92 percent
5.13 percent
   
A bond's indenture agreement generally includes all of the following except the:
 
terms of repayment.
names of registered shareholders
total amount of the bond issue.
details of protective covenants.
description of property used as security.
   
What condition must exist if a bond's coupon rate is to equal both the bond's current yield and its yield to maturity?
Assume the market rate of interest for this bond is positive.
 
The bond must be priced at par.
   
What is the principal amount of a bond that is repaid at the end of the loan term called?
 
Face value
   
A bond's annual interest divided by its face value is referred to as the:
 
coupon rate.
   
If a $1000 par value bond is trading at a discount, it means that the market value of the bond is _____________ than $1000.
 
Less
   
If a bond is selling at a discount from its par value, the YTM must be ___________ the coupon rate. (equal to, greater than, or less than?)
 
greater than
   
The written agreement that contains the specific details related to a bond issue is called the bond:
 
indenture.
   
Miller Farm Products is issuing a 15-year, unsecured bond. Based on this information, you know that this debt can be described as a:
 
debenture.
   
A call provision grants the bond issuer the:
 
option of repurchasing the bonds prior to maturity at a prespecified price.
   
The price at which a dealer will purchase a bond is referred to as the _____ price.
 
bid
   
The price at which an investor can purchase in the bond market is called the _____ price.
 
asked
   
A bond trader just purchased and resold a bond. The amount of profit earned by the trader from this purchase and resale is referred to as the:
 
bid-ask spread.
   
Which one of the following is the quoted price of a bond?
 
Clean price
   
Which one of the following is the price that an investor pays to purchase an outstanding bond?
 
Dirty price
   
A real rate of return is defined as a rate that has been adjusted for which one of the following?
 
Inflation
   
The rate of return an investor earns on a bond prior to adjusting for inflation is called the:
 
nominal rate.
   
The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of those securities.
 
maturity
   
Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value?
 
Liquidity premium
   
When a bond's yield to maturity is less than the bond's coupon rate, the bond:
 
is selling at a premium.
   
The yield to maturity on a discount bond is:
 
greater than both the current yield and the coupon rate.
   
All else held constant, the present value of a bond increases when the:
 
yield to maturity decreases.
   
Generally speaking, bonds issued in the U.S. pay interest on a(n) _____ basis.
 
semiannual
   
A bond's indenture agreement generally includes all of the following except the:
 
names of registered shareholders.
   
A debenture is:
 
an unsecured bond.
   
The primary purpose of bond covenants is to:
 
protect the bondholders.
   
The primary purpose of protective covenants is to help:
 
protect bondholders from issuer actions.
   
Bond ratings classify bonds based on:
 
default risk only.
   
What is the price of a $1,000 face value bond if the quoted price is 102.1?
 
$1,021.00
   
When interest rates rise, the PV of the bond's remaining cash flows ____________, and the bond is worth _____________.
 
declines; less
   
A bond dealer sells at the _____ price and buys at the _____ price.
 
asked; bid
   
If inflation is expected to steadily decrease in the future, the term structure of interest rates will most likely be:
 
downward sloping.
   
Which one of the following bonds is most apt to have the smallest liquidity premium?
 
Treasury bill
   
When interest rates fall, the bond is worth ______________.
 
more
   
Whitts BBQ would like to issue some 10-year, semiannual coupon bonds at par. Comparable bonds have a current yield of 9.16 percent,
an effective annual yield of 9.68 percent, and a yield to maturity of 9.50 percent.
What coupon rate should Whitts BBQ set on its bonds?
 
To sell bonds at par, the coupon rate must be set equal to the yield to maturity on comparable bonds, which in this case is 9.50 percent.
   
Suppose that a small, rural city in the countryside of North Dakota plans to issue $150,000 worth of 10-year bonds. Which one of the following components of the bond's yield will be affected by the fact that no active secondary market is expected for these bonds?
 
liquidity premium
   
Which bond is most apt to have the smallest liquidity premium?
 
treasury bill
   
A bond has a 1,000 face value, a market price of 1,036, and pays interest payments of $70 every year. What is the coupon rate?
 
7.00%

70/1,000
   
All other things being equal, the longer the time to maturity, the _________________ the interest rate risk.
 
Greater
   
All other things being equal, the lower the coupon rate, the ________________ the interest rate risk.
 
Greater
   
the interest rate represents the _____ of money
 
price
   
A $1,000 face value bond is currently quoted at 101.2. the bond pays semiannual payments of $27.50 each and matures in 6 years.
What is the coupon rate?
 
5.50%

(27.50 x 2) / 1,000
   
A 6% bond has a YTM of 6.5%. The bond matures in 7 years, has a face value of 1,000 and pays semi annual interest payments.
What is the amount of each coupon payment?
 
$30

(1,000 x 0.06) / 2
   
A bond has a par value of 1,000 a current yield of 7.606 percent, and semi-annual interest payments.
The bond quote is 98.6. What is the amount of each coupon payment?
 
37.50

[0.07606 x (0.986 x 1,000)] / 2
   
A 5.5 % $1,000 bond matures in 7 years, pays interest semiannually and has a ytm of 6.23 %.
What is the current market price of the bond?
 
959.09
   
A $1,000 face value bond currently has a yield to maturity of 6.69 percent. The bond matures in 3 years and pays interest annually.
The coupon rate is 7 percent. What is the current price of this bond?
 
1,008.18
   
Red Mountain, Inc. bonds have a face value of $1,000. The bonds carry a 7 percent coupon, pay interest semiannually,
and mature in 13.5 years. What is the current price of these bonds if the yield to maturity is 6.82 percent?
 
1,015.72
   
A 6-year, semiannual coupon bond is selling for $991.38. The bond has a face value of $1,000 and a yield to maturity of 9.19 percent.
What is the coupon rate?
 
9.00%
   
A 12-year, semiannual coupon bond is priced at $1,102.60. The bond has a $1,000 face value and a yield to maturity of 5.33 percent.
What is the coupon rate?
 
6.50%
   
AB Builders, Inc. has 12-year bonds outstanding with a face value of $1,000 and a market price of $974.
The bonds pay interest annually and have a yield to maturity of 4.03 percent. What is the coupon rate?
 
3.75%
   
The 7 percent annual coupon bonds of TPO, Inc. are selling for $1,021. The bonds have a face value of $1,000 and mature in 6.5 years.
What is the yield to maturity?
 
6.59%
   
Best Lodging has $1,000 face value bonds outstanding. These bonds pay interest semiannually, mature in 5 years,
and have a 6 percent coupon. The current price is quoted at 101. What is the yield to maturity?
 
5.77%
   
The $1,000 face value bonds of Jasper International have a 7.5 percent coupon and pay interest annually.
Currently, the bonds are quoted at 98.27 and mature in 3.5 years. What is the yield to maturity?
 
8.09%
   
Global Trade, Inc. has $1,000 face value bonds outstanding with a market price of $1,013.
The bonds pay interest annually, mature in 11 years, and have a yield to maturity of 5.34 percent. What is the current yield?
 
5.43
   
The 8 percent, $1,000 face value bonds of Glenmore Foods are currently selling at $1,027. These bonds have 16 years left until maturity.
What is the current yield?
 
7.79%
 
 (0.08 × 1,000) / 1,027 x 100
   
A bond has a yield to maturity of 9.38 percent, a 7.5 percent annual coupon, a $1,000 face value, and a maturity date 21 years from today.
What is the current yield?
 
9.04%
 
75 / 830.07 x 100
   
The 6 percent coupon bonds of Precision Engineering are selling for 98 percent of par value.
The bonds mature in 8 years and pay interest semiannually.
These bonds have current yield of _____ percent, a yield to maturity of _____ percent, and an effective annual yield of _____ percent.
 
6.12; 6.32; 6.42
   
A bond has a 7 percent coupon rate, a face value of $1,000, semiannual payments, and sells at par.
The current yield is _____ percent and the effective annual yield is _____ percent.
 
7%

(1 + .07 / 2)² -1
   
The Road House would like to issue some semiannual coupon bonds at par.
Comparable bonds have a current yield of 8.16 percent, an effective annual yield of 8.68 percent, and a yield to maturity of 8.50 percent.
What coupon rate should The Road House set on its bonds?
 
8.50
   
One year ago, Alpha Supply issued 15-year bonds at par. The bonds have a coupon rate of 6.5 percent and pay interest annually.
Today, the market rate of interest on these bonds is 7.2 percent. How does the price of these bonds today compare to the issue price?
 
-6.05%
   
One year ago, you purchased a 7.5 percent annual coupon bond for a clean price of $980.
The bond now has 7 years remaining until maturity. Today, the yield to maturity on this bond is 6.87 percent.
How does today's clean price of this bond compare to your purchase price?
 
5.52% higher
   
You own two bonds. Both bonds pay annual interest, have 6 percent annual coupons, $1,000 face values,
and currently have 6 percent yields to maturity. Bond A has 12 years to maturity and Bond B has 4 years to maturity.
If the market rate of interest rises unexpectedly to 7 percent, Bond _____ will be the most volatile with a price decrease of _____ percent
 
A; 7.94
   
Kurt's Forest Products is currently issuing both 5-year and 10-year bonds at par.
The bonds each pay 6.5 percent annual interest and have face values of $1,000. You decide to purchase one of each of these bonds.
Assume the yield to maturity on each of these bonds is 7.4 percent one year from now. Given this, you will realize _____ percent price
 depreciation on the 5-year bond and _____ percent price depreciation on the 10-year bond.
 
3.02; 5.77
   
A corporate bond pays 8.5 percent interest. You are in the 15 percent tax bracket. What is your after-tax yield on this bond?
 
7.23%

0.085 x (1-0.15) x 100
   
A corporate bond pays 7 percent interest. How much would a municipal bond have to pay to be equivalent to this on
an after-tax basis if you are in the 28 percent tax bracket?
 
5.04%

0.07 × (1 - 0.28) x 100
   
The Outlet needs to raise $3.2 million for an expansion project.
The firm wants to raise this money by selling zero coupon bonds with a par value of $1,000 that mature in 20 years.
The market yield on similar bonds is 7.8 percent. How many bonds must The Outlet sell to raise the money it needs?
(Assume semi-annual compounding.)
 
14,783 bonds


Deltona Motors just issued 225,000 zero coupon bonds. These bonds mature in 20 years, have a par value of $1,000, and have a yield to maturity of 7.45 percent. What is the approximate total amount of money the company raised from issuing these bonds? (Assume semi-annual compounding)
 
$52.10 million


231.56 x 225000
   
Today, you are buying a $1,000 face value bond at an invoice price of $987. The bond has a 6 percent coupon and pays interest semiannually. There are 2 months until the next coupon date. What is the clean price of this bond?
 
$967
   
You are buying a bond at a clean price of $1,140. The bond has a face value of $1,000, an 8 percent coupon, and pays interest semiannually. The next coupon payment is 1 month from now. What is the dirty price of this bond?
 
1,173.33
   
A bond yielded a real rate of return of 3.87 percent for a time period when the inflation rate was 4.75 percent.
What was the actual nominal rate of return?
 
8.80%

(1 + 0.0387) (1 + 0.0475) - 1 = 8.80
   
Jeffries, Inc. has 6 percent coupon bonds on the market that have 11 years left to maturity.
The bonds make annual payments. If the YTM on these bonds is 7.4 percent, what is the current bond price?
 
897.08

---