63. You purchased an annual interest coupon bond one year ago with 6 years remaining to maturity at the time of purchase. The coupon interest rate is 10% and par value is $1,000. At the time you purchased the bond, the yield to maturity was 8%. If you sold the bond after receiving the fist interest payment {and the bond's yield to maturity had changed to 7%, your annual total rate of return on holding the bond for that year would have been 7.00% 8. 8.00% ©. 9.95% D.11.95% E.none of the above FY = 1000, PMT = 100, n=6,i=8, PV= 1092.46; FV (2123.01 - 1092.46 + 100) / 1092.46 = 11.95%. 64, The Is used to calculate the present value of a bond, ‘A. nominal yield B. current yield G yield to maturity D. yield to call E. none of the above Yield to maturity isthe discount rate used in the bond valuation formula. For callable bonds, yield to call Is sometimes the more appropriate calculation for the investor (i interest rates are expected to decrease) 665. The yield to maturity on a bond is ‘A. below the coupon rate when the bond sells at a discount, and equal to the coupon rate when the bond sells at a premium. B, the discount rate that will set the present value of the payments equal to the bond price. C. based on the assumption that any payments received are reinvested at the coupon rate. D. none of the above, E.A,B,and ¢. ‘The reverse of Ais true; for C to be true payments must be reinvested at the yield to maturity. 666. A bond will sell at a discount when ‘A. the coupon rate is greater than the current yield and the current yield is greater than yield to maturity 8. the coupon rate is greater than yield to maturity C. the coupon rate is ess than the current yield and the current yield is greater than the yield to maturity D. the coupon rate is less than the current yield and the current yield is less than yield to maturity E. none of the above are true In order for the investor to earn more than the current yield the bond must be selling for a discount. Yield to maturity will be greater than current yield as investor will have purchased the bond at discount and will be receiving the coupon payments over the life of the bond,667. Consider a 5-year bond with a 10% coupon that has a present yield to maturity of 8%. If interest rates remain constant, one year from now the price of this bond will be A. higher Blower C.the same D. cannot be determined $1,000 This bond is @ premium bond as interest rates have declined since the bond was issued. if interest rates remain constant, the price of a premium bond declines as the bond approaches maturity. 68. A bond has a par value of $1,000, a time to maturity of 20 years, a coupon rate of 10% with interest paid annually, a current price of $850 and a yield to maturity of 12%. Intuitively and without the use calculations, if interest payments are reinvested at 10%, the realized compound yield on this bond must be A, 10.00% 10.9% 12.0% 0. 12.4% E.none of the above In order to earn yield to maturity, the coupons must be reinvested at the yield to maturity. However, as the bond is selling at discount the yield must be higher than the coupon rate. Therefore, Bis the only possible answer, 69. A bond with a 12% coupon, 10 years to maturity and selling at 88 has a yield to maturity of A.over 14% 8. between 13% and 14% . between 1236 and 13% D. between 10% and 12% E less than 12% YIM = 14.33%. 70, Using semiannual compounding, a 15-year zero coupon bond that has a par value of $1,000 and @ required return of 8% would be priced at approximately 4.308 8. $315, c. $464 0. $555 E.none of the above FV = 1000, n= 30, 1= 4, PV = 308.32‘71. The yield to maturity of a 20-year zero coupon bond that is selling for $372.50 with a value at maturity of $2,000 is A51% 5.88% c. 10.8% 2.13.4%6 E.none of the above [61,000/1$372.50]* - 1 = 5.1%. 72. Which one of the following statements about convertibles is true? |A. The longer the call protection on a convertible, the less the security is worth, B. The more volatile the underlying stock, the greater the value of the conversion feature. C. The smaller the spread between the dividend yield on the stock and the yield-to-maturity on the bond, the more the convertible is worth . The collateral that is used to secure a convertible bond is one reason convertibles are more attractive ‘than the underlying stock. E. Convertibles are not callable. ‘The longer the call protection the more attractive the bond. The smaller the spread (c), the less the bond is worth. Convertibles are debentures (unsecured bonds). All convertibles are callable at the option of the issuer. 73. Which one of the following statements about convertibles i false? ‘A. The longer the call protection on a convertible, the less the security is worth. 8, The more volatile the underlying stock, the greater the value of the conversion feature. C. The smaller the spread between the dividend yield on the stock and the yield-to-maturity on the bond, the more the convertible is worth . The collateral that is used to secure a convertible bond is one reason convertibles are more attractive than the underlying stock. ELA, Cand. ‘The longer the call protection the more attractive the bond. The smaller the spread (c), the less the bond is worth. Convertibles are debentures (unsecured bonds). All convertibles are callable at the option of the issuer. 74. Consider a $1,000 par value 20-year zero coupon bond issued at a yield to maturity of 10%. If you buy that bond when iti issued and continue to hold the bond as yields decline to 9%, the imputed Interest income for the first year of that bond is A810, B.$1497. $45.85, 0.$7.44, E. none of the above. $1,000/(1.10)" = $148.64; $1,000/(1.10)” = $163.51; $194.49- $148.6475. The bond indenture includes ‘A the coupon rate of the bond. 8. the par value of the bond the maturity date of the bond. Daall of the above. E. none of the above. The bond indenture includes the coupon rate, par value and maturity date of the bond as well as any other contractual features. 76. A Treasury bond quoted at 107:16 107:18 hasa bid price of. A. $107.16, $107.18 8. $1,071.60, $1,071.80 €. $1,075.00, $1,075.63 D. $1,071.80, $1,071.60 E.$1,070.50, $1,070.56 and an asked price of __. Treasury bonds are quoted as a percentage of par value ($1,000) with the number after the colon representing the fractions of a pointin 32nds. The bid price is quoted first and is the lower of the two. 177. Bearer bonds are |. bonds traded without any record of ownership. 8. helpful to tax authorities in the enforcement of tax collection. rare in the United States today. Dall of the above. E.both and C. Bearer bonds are not registered so there is no record of ownership. They are rare in the Unit today. Tax authorities find registered bonds helpful in tax enforcement but not bearer bonds. States 78. Most corporate bonds are traded ‘on a formal exchange operated by the New York Stock Exchange. 8. by the issuing corporation, . over the counter by bond dealers linked by a computer quotation system, D. ona formal exchange operated by the American Stock Exchange. E.on a formal exchange operated by the Philadelphia Stock Exchange. Most corporate bonds are traded in a loosely organized network of bond dealers linked by a computer {quote system. Only a small proportion is traded on the New York Exchange. 179. The process of retiring high-coupon debt and issuing new bonds at a lower coupon to reduce interest payments is called A. deferral 8. reissue. repurchase. De refunding, E.none of the above. The process of refunding refers to calling high-coupon bonds and issuing new, lower coupon debt.80. Convertible bonds | give their holders the ability to share in price appreciation of the underlying stock. 8. offer lower coupon rates than similar nonconvertible bonds. C. offer higher coupon rates than similar nonconvertible bonds. D.both A and B are true. E. both Aand Care true, Convertible bonds offer appreciation potential through the ability to share in price appreciation of the underlying stock but offer a lower coupon and yield than similar nonconvertible bonds. 81. TIPS are A. Securities formed from the coupon payments only of government bonds. 8. securities formed from the principal payments only of government bonds. government bonds with par value linked to the general level of prices. D. government bonds with coupon rate linked to the general level of prices. E. zero-coupon government bonds. Treasury Inflation Protected Securities (TIPS) are bonds whose par value adjusts according to the general level of prices. This changes coupon payments, but not the stated coupon rate. 82. Altman's Z scores are assigned based on a firm's financial characteristics and are used to predict, | required coupon rates for new bond issues. B.bankruptey risk, CC. the likelihood of a firm becoming a takeover target. D. the probability of a bond issue being called. E. none of the above. Z-scores are used to predict significant bankruptey risk, '83. When a bond indenture includes a sinking fund provision | firms must establish a cash fund for future bond redemption. 8. bondholders always benefit, because principal repayment on the scheduled maturity date is ‘guaranteed, . bondholders may lose because their bonds can be repurchased by the corporation at below-market, prices. 0. both A and Bare true. E.none of the above are true. A sinking fund provisions requires the firm to redeem bonds over several years, either by open market purchase or at a special cal price from bondholders. This can result in repurchase in advance of scheduled maturity at below-market prices.