Verified Test Bank Ch6 Interest Rates And Bond Valuation

Chapter 06

Interest Rates and Bond Valuation

Test Bank - Static Key

1. 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.

A. The clean price of the bond must equal the bond’s dirty price.

B. The bond must be a zero coupon bond and mature in exactly one year.

C. The market price must exceed the par value by the value of one year’s interest.

D. The bond must be priced at par.

E. There is no condition under which this can occur.

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond yields and returns

2. What is the principal amount of a bond that is repaid at the end of the loan term called?

A. Coupon

B. Market price

C. Accrued price

D. Dirty price

E. Face value

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond types

3. A bond’s annual interest divided by its face value is referred to as the:

A. market rate.

B. call rate.

C. coupon rate.

D. current yield.

E. yield-to-maturity.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond coupons

4. On which one of the following dates is the principal amount of a semiannual coupon bond repaid?

A. A portion of the principal is repaid on each coupon date.

B. The entire bond is repaid on the issue date.

C. Half of the principal is repaid evenly over each coupon period with the remainder paid on the issue date.

D. The entire bond is repaid on the maturity date.

E. Half of the principal is repaid evenly over each coupon period with the remainder paid on the maturity date.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond types

5. The market-required rate of return on a bond that is held for its entire life is called the:

A. coupon rate.

B. yield to maturity.

C. dirty yield.

D. call premium.

E. current yield.

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond yields and returns

6. The current yield on a bond is equal to the annual interest divided by the:

A. issue price.

B. maturity value.

C. face amount.

D. current market price.

E. current par value.

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond yields and returns

7. The written agreement that contains the specific details related to a bond issue is called the bond:

A. indenture.

B. debenture.

C. document.

D. registration statement.

E. issue paper.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.2 More on Bond Features

Topic: Indenture provisions

8. A registered-form bond is defined as a bond that:

A. is a bearer bond.

B. is held in street name.

C. pays coupon payments directly to the owner of record.

D. is listed with the Securities and Exchange Commission (SEC).

E. is unsecured.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.2 More on Bond Features

Topic: Bond types

9. This morning, Jeff found an aged bond certificate lying on the street. He picked it up and noticed that it was a 50-year bond that matured today. He presented the bond to the bank teller at his local bank and received payment for both the entire principal and the final interest payment. The bond that Jeff found must have been which one of the following?

A. Debenture

B. Note

C. Registered-form bond

D. Bearer-form bond

E. Callable bond

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.2 More on Bond Features

Topic: Bond types

10. Miller Farm Products is issuing a 15-year, unsecured bond. Based on this information, you know that this debt can be described as a:

A. note.

B. bearer form bond.

C. debenture.

D. registered form bond.

E. call protected bond.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.2 More on Bond Features

Topic: Bond types

11. What term is used to describe an account that a bond trustee manages for the sole purpose of redeeming bonds early?

A. Registered account

B. Bearer account

C. Call account

D. Sinking fund

E. Premium fund

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.2 More on Bond Features

Topic: Indenture provisions

12. A call provision grants the bond issuer the:

A. right to contact each bondholder to determine if he or she would like to extend the term of his or her bonds.

B. option to exchange the bonds for equity securities.

C. right to automatically extend the bond's maturity date.

D. right to repurchase the bonds on the open market prior to maturity.

E. option of repurchasing the bonds prior to maturity at a prespecified price.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.2 More on Bond Features

Topic: Indenture provisions

13. The call premium is the amount by which the:

A. market price exceeds the par value.

B. market price exceeds the call price.

C. face value exceeds the market price.

D. call price exceeds the par value.

E. call price exceeds the market price.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.2 More on Bond Features

Topic: Indenture provisions

14. Russell’s has a bond issue outstanding. The issue's indenture provision prohibits the firm from redeeming the bonds during the first five years following issuance. This provision is referred to as the _____ provision.

A. safeguard

B. market

C. liquidity

D. deferred call

E. sinking fund

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.2 More on Bond Features

Topic: Indenture provisions

15. Travis recently purchased a callable bond. However, that bond cannot be currently redeemed by the issuer. Thus, the bond must currently be:

A. subject to a sinking fund provision.

B. a debenture.

C. a "fallen angel."

D. call protected.

E. unrated.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.2 More on Bond Features

Topic: Indenture provisions

16. A protective covenant:

A. protects the borrower from unscrupulous practices by the lender.

B. guarantees the interest and principal payments will be paid in full on a timely basis.

C. prevents a bond from being called.

D. limits the actions of the borrower.

E. guarantees the market price of a bond will never be less than par value.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.2 More on Bond Features

Topic: Indenture provisions

17. A company originally issued bonds that were rated investment grade. These bonds have now been downgraded to junk status. These bonds are referred to as:

A. called bonds.

B. converted bonds.

C. unprotected bonds.

D. fallen angels.

E. floaters.

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Learning Objective: 06-03 Discuss bond ratings and what they mean.

Section: 6.3 Bond Ratings

Topic: Bond types

18. Which one of the following terms applies to a bond that initially sells at a deep discount and only makes one payment to bondholders?

A. Callable

B. Income

C. Zero coupon

D. Convertible

E. Tax-free

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.4 Some Different Types of Bonds

Topic: Bond types

19. The price at which a dealer will purchase a bond is referred to as the _____ price.

A. asked

B. face

C. call

D. put

E. bid

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.5 Bond Markets

Topic: Bond valuation

20. The price at which an investor can purchase in the bond market is called the _____ price.

A. asked

B. coupon

C. call

D. face

E. bid

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.5 Bond Markets

Topic: Bond valuation

21. 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. market yield.

B. yield-to-call.

C. bid-ask spread.

D. current yield.

E. bond premium.

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.5 Bond Markets

Topic: Bond valuation

22. Which one of the following is the quoted price of a bond?

A. Par value

B. Discount price

C. Face value

D. Dirty price

E. Clean price

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.5 Bond Markets

Topic: Bond valuation

23. Which one of the following is the price that an investor pays to purchase an outstanding bond?

A. Dirty price

B. Face value

C. Call price

D. Bid price

E. Clean price

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.5 Bond Markets

Topic: Bond valuation

24. A real rate of return is defined as a rate that has been adjusted for which one of the following?

A. Inflation

B. Interest rate risk

C. Taxes

D. Liquidity

E. Default risk

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Learning Objective: 06-04 Evaluate the impact of inflation on interest rates.

Section: 6.6 Inflation and Interest Rates

Topic: Nominal and real rates

25. The rate of return an investor earns on a bond prior to adjusting for inflation is called the:

A. nominal rate.

B. real rate.

C. dirty rate.

D. coupon rate.

E. clean rate.

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Learning Objective: 06-04 Evaluate the impact of inflation on interest rates.

Section: 6.6 Inflation and Interest Rates

Topic: Nominal and real rates

26. The relationship between nominal returns, real returns, and inflation is referred to as the:

A. call premium.

B. Fisher effect.

C. conversion ratio.

D. spread.

E. current yield.

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Learning Objective: 06-04 Evaluate the impact of inflation on interest rates.

Section: 6.6 Inflation and Interest Rates

Topic: Fisher effect

27. The term structure of interest rates represents the relationship between which of the following?

A. Nominal rates on risk-free and risky bonds

B. Real rates on risk-free and risky bonds

C. Nominal and real rates on default-free, pure discount bonds

D. Market and coupon rates on default-free, pure discount bonds

E. Nominal rates on default-free, pure discount bonds and time to maturity

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Learning Objective: 06-05 Explain the term structure of interest rates and the determinants of bond yields.

Section: 6.7 Determinants of Bond Yields

Topic: Term structure of interest rates

28. The inflation premium:

A. increases the real return.

B. is inversely related to the time to maturity.

C. remains constant over time.

D. rewards investors for accepting interest rate risk.

E. compensates investors for expected price increases.

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Learning Objective: 06-05 Explain the term structure of interest rates and the determinants of bond yields.

Section: 6.7 Determinants of Bond Yields

Topic: Term structure of interest rates

29. Changes in interest rates affect bond prices. Which one of the following compensates bond investors for this risk?

A. Taxability risk premium

B. Default risk premium

C. Interest rate risk premium

D. Real rate of return

E. Bond premium

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Learning Objective: 06-05 Explain the term structure of interest rates and the determinants of bond yields.

Section: 6.7 Determinants of Bond Yields

Topic: Term structure of interest rates

30. The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of those securities.

A. face value

B. market price

C. maturity

D. coupon rate

E. issue date

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Learning Objective: 06-05 Explain the term structure of interest rates and the determinants of bond yields.

Section: 6.7 Determinants of Bond Yields

Topic: Treasury yield curve

31. Which one of the following represents additional compensation provided to bondholders to offset the possibility that the bond issuer might not pay the interest and/or principal payments as expected?

A. Interest rate risk premium

B. Inflation premium

C. Liquidity premium

D. Taxability premium

E. Default risk premium

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Learning Objective: 06-05 Explain the term structure of interest rates and the determinants of bond yields.

Section: 6.7 Determinants of Bond Yields

Topic: Term structure of interest rates

32. Which one of the following premiums is paid on a corporate bond due to its tax status?

A. Interest rate risk premium

B. Inflation premium

C. Liquidity premium

D. Taxability premium

E. Default risk premium

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Learning Objective: 06-05 Explain the term structure of interest rates and the determinants of bond yields.

Section: 6.7 Determinants of Bond Yields

Topic: Term structure of interest rates

33. Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value?

A. Interest rate risk premium

B. Inflation premium

C. Liquidity premium

D. Taxability premium

E. Default risk premium

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Learning Objective: 06-05 Explain the term structure of interest rates and the determinants of bond yields.

Section: 6.7 Determinants of Bond Yields

Topic: Term structure of interest rates

34. When a bond's yield to maturity is less than the bond's coupon rate, the bond:

A. had to be recently issued.

B. is selling at a premium.

C. has reached its maturity date.

D. is priced at par.

E. is selling at a discount.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond yields and returns

35. The yield to maturity on a discount bond is:

A. equal to both the coupon rate and the current yield.

B. equal to the current yield but greater than the coupon rate.

C. greater than both the current yield and the coupon rate.

D. less than the current yield but greater than the coupon rate.

E. less than both the current yield and the coupon rate.

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond yields and returns

36. Which one of the following statements is true?

A. The current yield on a par value bond will exceed the bond's yield to maturity.

B. The yield to maturity on a premium bond exceeds the bond's coupon rate.

C. The current yield on a premium bond is equal to the bond's coupon rate.

D. A premium bond has a current yield that exceeds the bond's coupon rate.

E. A discount bond has a coupon rate that is less than the bond's yield to maturity.

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond yields and returns

37. All else held constant, the present value of a bond increases when the:

A. coupon rate decreases.

B. yield to maturity decreases.

C. current yield increases.

D. time to maturity of a premium bond decreases.

E. time to maturity of a zero coupon bond increases.

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond valuation

38. Generally speaking, bonds issued in the U.S. pay interest on a(n) _____ basis.

A. annual

B. semiannual

C. quarterly

D. monthly

E. daily

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond yields and returns

39. Which one of the following bonds is the most sensitive to changes in market interest rates?

A. 5-year, zero coupon

B. 5-year, 5 percent coupon

C. 5-year, 8 percent coupon

D. 10-year, zero coupon

E. 10-year, 5 percent coupon

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Interest rate risk

40. An unexpected decrease in market interest rates will cause a:

A. coupon bond's current yield to increase.

B. zero coupon bond's price to decrease.

C. fixed-rate bond's coupon rate to decrease.

D. zero coupon bond's current yield to decrease.

E. coupon bond's yield to maturity to decrease.

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Interest rate risk

41. Of these choices, a risk-adverse investor who prefers to minimize interest rate risk is most apt to invest in:

A. 5-year, 7 percent coupon bonds.

B. 20-year, 6 percent coupon bonds.

C. 20-year, zero coupon bonds.

D. 2-year, 7 percent coupon bonds.

E. 3-year, zero coupon bonds.

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Interest rate risk

42. Which statement is true?

A. Bonds are generally called at par value.

B. A current list of all bondholders is maintained whenever a firm issues bearer bonds.

C. An indenture is a contract between a bond's issuer and its holders.

D. Collateralized bonds are called debentures.

E. A bondholder has the right to determine when his or her bond is called.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.2 More on Bond Features

Topic: Indenture provisions

43. A bond's indenture agreement generally includes all of the following except the:

A. terms of repayment.

B. details of protective covenants.

C. total amount of the bond issue.

D. names of registered shareholders.

E. description of property used as security.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.2 More on Bond Features

Topic: Indenture provisions

44. Which one of the following might be included in a bond's list of negative covenants?

A. Maintain a current ratio of 1.2 or more

B. Maintain a minimum cash balance of $1.2 million

C. Limit cash dividends to $1 per share or less

D. Maintain a times interest earned ratio of 2 or more

E. Provide audited financial statements in a timely manner

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.2 More on Bond Features

Topic: Indenture provisions

45. A debenture is:

A. an unsecured bond.

B. a bearer form bond.

C. a bond with a call provision.

D. a bond with a sinking fund provision.

E. a bond secured by a blanket mortgage.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.2 More on Bond Features

Topic: Bond types

46. The purpose of a bond sinking fund is to:

A. accumulate funds needed to pay the tax liability on the bond proceeds.

B. accumulate funds to pay the regular interest payments.

C. hold the bond proceeds until the funds need disbursed.

D. repay bonds early either through purchases or calls.

E. repay bondholders from a trust fund if the issuer defaults.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.2 More on Bond Features

Topic: Indenture provisions

47. Which one of the following statements concerning sinking funds is correct?

A. Bond issuers must fund a sinking fund at the time the bonds are issued.

B. Sinking funds must include at least one "balloon payment."

C. Sinking funds must be funded annually, starting on the issue date.

D. Sinking funds may be used to purchase bonds in the open market.

E. Sinking funds can be used only to call bonds.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.2 More on Bond Features

Topic: Indenture provisions

48. A callable bond:

A. is generally call protected during the entire term of the bond issue.

B. generally will have a call protection period during the final three years prior to maturity.

C. may be structured to pay bondholders the current value of the bond on the date of call.

D. is prohibited from having a sinking fund also.

E. is frequently called at a price that is less than par value.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.2 More on Bond Features

Topic: Indenture provisions

49. A bond has a make-whole call provision. Given this, you know that the:

A. bond will always sell at par.

B. call premium must equal the annual coupon payment.

C. call price is directly related to the market rate of interest.

D. call price is inversely related to the market rate of interest.

E. bond must be a zero coupon bond.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.2 More on Bond Features

Topic: Indenture provisions

50. The primary purpose of bond covenants is to:

A. meet regulatory requirements.

B. define the bond’s repayment terms.

C. protect the bondholders.

D. identify the bond's rating.

E. protect the bond issuer from lawsuits.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.2 More on Bond Features

Topic: Indenture provisions

51. The primary purpose of protective covenants is to help:

A. reduce interest rate risk.

B. the issuer in case of default.

C. protect bondholders from issuer actions.

D. bondholders whose bonds are called.

E. convert bearer bonds into registered form.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.2 More on Bond Features

Topic: Indenture provisions

52. The lowest rating a bond can receive from Standard and Poor's and still be classified as an investment-quality bond is:

A. BB.

B. B.

C. B.

D. Ba.

E. BBB.

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Learning Objective: 06-03 Discuss bond ratings and what they mean.

Section: 6.3 Bond Ratings

Topic: Bond ratings and credit risk

53. In relation to bonds, which one of the following terms has the same meaning as the term "crossover"?

A. Speculative

B. 5B

C. Fallen angel

D. Junk

E. Triple A

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Learning Objective: 06-03 Discuss bond ratings and what they mean.

Section: 6.3 Bond Ratings

Topic: Bond ratings and credit risk

54. Which one of the following terms applies to a junk bond that was originally issued with a bond rating of AA?

A. Debenture

B. Covenant

C. Fallen angel

D. Sinking ship

E. Trust deed

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.3 Bond Ratings

Topic: Bond ratings and credit risk

55. Bond ratings classify bonds based on:

A. liquidity, market, and default risk.

B. liquidity, interest rate, and default risk.

C. default risk only.

D. interest rate, inflation rate, and default risk.

E. default and liquidity risks.

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Learning Objective: 06-03 Discuss bond ratings and what they mean.

Section: 6.3 Bond Ratings

Topic: Bond ratings and credit risk

56. Municipal bonds are:

A. generally purchased by tax-exempt investors.

B. risk-free.

C. issued by federal, state, and local governmental bodies.

D. zero coupon bonds.

E. generally callable.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.4 Some Different Types of Bonds

Topic: Bond types

57. Which one of the following individuals is most apt to purchase a municipal bond?

A. Minimum-wage employee

B. Retired individual with minimal current income

C. Recent college graduate

D. Tax-exempt organization

E. Highly compensated business owner

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.4 Some Different Types of Bonds

Topic: Bond features

58. Zero coupon bonds:

A. are valued using simple interest.

B. are issued only by the U.S. Treasury.

C. create a tax deduction for the issuer only at maturity.

D. are issued at a premium.

E. create annual taxable income to individual bondholders.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.4 Some Different Types of Bonds

Topic: Bond features

59. A floating-rate bond frequently has a:

A. flexible deferred call period.

B. fixed yield to maturity but a flexible coupon payment.

C. government guarantee.

D. fixed-dollar obligation.

E. put provision.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.4 Some Different Types of Bonds

Topic: Bond types

60. Which one of the following is a unique characteristic of an income bond?

A. Interest income is tax-free.

B. Interest income is paid at the time of issuance.

C. Coupon payments are dependent on the issuer's income.

D. Coupon payments are paid on a regular monthly basis.

E. Coupon payments can be converted into equity shares.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.4 Some Different Types of Bonds

Topic: Bond features

61. Which one of the following types of bonds should an investor purchase if he or she is primarily concerned about ensuring that bond ownership will increase his or her purchasing power?

A. OTC

B. Death

C. CAT

D. PETS

E. TIPS

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.4 Some Different Types of Bonds

Topic: Bond types

62. Which one of the following types of bonds permits its issuer to forego paying interest payments if certain natural events cause significant losses?

A. PETS

B. PUT

C. CAT

D. PINES

E. LIBOR

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.4 Some Different Types of Bonds

Topic: Bond types

63. Which statement is correct?

A. Bond markets have less daily trading volume than equity markets.

B. There are fewer bond issues outstanding than there are equity issues.

C. Municipal bond prices are highly transparent.

D. Bond markets are dealer based.

E. Most bond trades occur on the NYSE.

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.5 Bond Markets

Topic: Bond features

64. What is the price of a $1,000 face value bond if the quoted price is 102.1?

A. $102.10

B. $1,002.10

C. $1,020.01

D. $1,020.10

E. $1,021.00

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.5 Bond Markets

Topic: Bond valuation

65. A bond dealer sells at the _____ price and buys at the _____ price.

A. clean; dirty

B. dirty; clean

C. bid; asked

D. asked; bid

E. asked; asked

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Section: 6.5 Bond Markets

Topic: Bond valuation

66. The R in the Fisher effect formula represents the:

A. current yield.

B. real return.

C. coupon rate.

D. inflation rate.

E. nominal return.

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Learning Objective: 06-04 Evaluate the impact of inflation on interest rates.

Section: 6.6 Inflation and Interest Rates

Topic: Fisher effect

67. An upward-sloping term structure of interest rates indicates:

A. the real rate of return is lower for short-term bonds than for long-term bonds.

B. there is an indirect relationship between real interest rates and time to maturity.

C. there is an indirect relationship between nominal interest rates and time to maturity.

D. the nominal rate is declining as the real rate rises as the time to maturity increases.

E. the nominal rate is increasing even though the real rate is constant as the time to maturity increases.

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Learning Objective: 06-05 Explain the term structure of interest rates and the determinants of bond yields.

Section: 6.7 Determinants of Bond Yields

Topic: Term structure of interest rates

68. If inflation is expected to steadily decrease in the future, the term structure of interest rates will most likely be:

A. upward sloping.

B. flat.

C. humped.

D. downward sloping.

E. double-humped.

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Learning Objective: 06-05 Explain the term structure of interest rates and the determinants of bond yields.

Section: 6.7 Determinants of Bond Yields

Topic: Term structure of interest rates

69. If intermediate-term, default-free, pure discount bonds have a higher rate of return than either the comparable shorter-term or longer-term bonds, the term structure of interest rates will be:

A. upward sloping.

B. flat.

C. humped.

D. downward sloping.

E. double-humped.

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Learning Objective: 06-05 Explain the term structure of interest rates and the determinants of bond yields.

Section: 6.7 Determinants of Bond Yields

Topic: Term structure of interest rates

70. 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, III, and IV

D. I, II, and IV

E. II, IV, and V

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Section: 6.7 Determinants of Bond Yields

Topic: Term structure of interest rates

71. 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?

A. Real rate

B. Liquidity premium

C. Interest rate risk premium

D. Inflation premium

E. Taxability premium

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Learning Objective: 06-05 Explain the term structure of interest rates and the determinants of bond yields.

Section: 6.7 Determinants of Bond Yields

Topic: Term structure of interest rates

72. Which one of the following bonds is most apt to have the smallest liquidity premium?

A. Treasury bill

B. Corporate bond issued by a new firm

C. Municipal bond issued by the State of New York

D. Municipal bond issued by a rural city in Alaska

E. Corporate bond issued by General Motors (GM)

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Section: 6.7 Determinants of Bond Yields

Topic: Term structure of interest rates

73. A bond has a $1,000 face value, a market price of $989, and pays interest payments of $69.50 every year. What is the coupon rate?

A. 6.76 percent

B. 7.00 percent

C. 7.03 percent

D. 6.95 percent

E. 8.14 percent

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Section: 6.1 Bonds and Bond Valuation

Topic: Bond coupons

74. A $1,000 face value bond is currently quoted at 100.8. The bond pays semiannual payments of $22.50 each and matures in six years. What is the coupon rate?

A. 2.72 percent

B. 2.85 percent

C. 4.46 percent

D. 2.25 percent

E. 4.50 percent

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Section: 6.1 Bonds and Bond Valuation

Topic: Bond coupons

75. The 7.2 percent bond of Blackford, Inc. has a yield to maturity of 7.3 percent. The bond matures in seven years, has a face value of $1,000, and pays semiannual interest payments. What is the amount of each coupon payment?

A. $30.00

B. $36.00

C. $72.00

D. $34.10

E. $65.00

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Section: 6.1 Bonds and Bond Valuation

Topic: Bond coupons

76. A bond has a par value of $1,000, a current yield of 6.25 percent, and semiannual interest payments. The bond quote is 100.8. What is the amount of each coupon payment?

A. $63.00

B. $31.50

C. $37.50

D. $62.50

E. $31.25

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Section: 6.1 Bonds and Bond Valuation

Topic: Bond coupons

77. The 5.3 percent bond of Dominic Cyle Parts has a face value of $1,000, a maturity of 12 years, semiannual interest payments, and a yield to maturity of 6.12 percent. What is the current market price of the bond?

A. $945.08

B. $ 959.33

C. $ 931.01

D. $1,072.13

E. $912.40

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Section: 6.1 Bonds and Bond Valuation

Topic: Bond valuation

78. A $1,000 face value bond currently has a yield to maturity of 6.03 percent. The bond matures in thirteen years and pays interest semiannually. The coupon rate is6.25percent. What is the current price of this bond?

A. $ 987.42

B. $980.02

C. $1,005.26

D. $1,019.63

E. $1,011.69

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond valuation

79. Lake Industries bonds have a face value of $1,000, a coupon rate of 7.2 percent, semiannual interest payments, and mature in 15 years. What is the current price of these bonds if the yield to maturity is 6.98 percent?

A. $988.39

B. $1,000.00

C. $1,020.26

D. $1,012.78

E. $1,010.68

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond valuation

80. A fourteen-year, semiannual coupon bond is selling for $ 898.56. The bond has a face value of $1,000 and a yield to maturity of 6.03 percent. What is the coupon rate?

A. 9.54 percent

B. 4.23 percent

C. 6.03 percent

D. 4.95 percent

E. 10.54 percent

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond coupons

81. A 15-year, annual coupon bond is priced at $984.56. The bond has a $1,000 face value and a yield to maturity of 6.5 percent. What is the coupon rate?

A. 3.17 percent

B. 2.50 percent

C. 6.74 percent

D. 6.38 percent

E. 6.34 percent

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond coupons

82. 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?

A. 3.80 percent

B. 4.20 percent

C. 4.25 percent

D. 3.75 percent

E. 3.95 percent

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond coupons

83. The 7 percent semiannual coupon bonds of Over The Counter, Inc., are selling for $1,102.25. The bonds have a face value of $1,000 and mature in 18 years. What is the yield to maturity?

A. 5.54 percent

B. 6.06 percent

C. 12.55 percent

D. 6.27 percent

E. 12.1 percent

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond yields and returns

84. New Markets has $1,000 face value bonds outstanding that pay interest semiannually, mature in 20 years, and have a 5.8 percent coupon. The current price is quoted at 103.25. What is the yield to maturity?

A. 5.38 percent

B. 5.53 percent

C. 11.19 percent

D. 11.05 percent

E. 5.27 percent

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond yields and returns

85. The $1,000 face value bonds of Galaxies International have coupon of 5.5 percent and pay interest semiannually. Currently, the bonds are quoted at 98.02 and mature in 12 years. What is the yield to maturity?

A. 5.90 percent

B. 6.16 percent

C. 7.32 percent

D. 6.93 percent

E. 5.73 percent

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond yields and returns

86. American Hat has $1,000 face value bonds outstanding with a market price of $1,150. The bonds pay interest semiannually, mature in 8 years, and have a yield to maturity of 5.98 percent. What is the current yield?

A. 7.06 percent

B 7.28 percent

C. 6.15 percent

D 7.28 percent

E. 6.44 percent

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond yields and returns

87. The 6.75 percent, $1,000 face value bonds of Mahalo Pineapples are currently selling at $989.50. These bonds have 12 years left until maturity. What is the current yield?

A. 6.58percent

B. 6.82 percent

C. 6.75 percent

D. 7.59 percent

E. 7.62percent

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Section: 6.1 Bonds and Bond Valuation

Topic: Bond yields and returns

88. A bond has a yield to maturity of 9.38 percent, a coupon of 7.5 percent paid semiannually, a $1,000 face value, and a maturity date 21 years from today. What is the current yield?

A. 7.91 percent

B. 8.47 percent

C. 9.05 percent

D. 9.38 percent

E. 9.46 percent

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Section: 6.1 Bonds and Bond Valuation

Topic: Bond yields and returns

89. The 6.3 percent, semi-annual coupon bonds of PE Engineers mature in 13 years and have a price quote of 99.2. These bonds have a current yield of _____ percent, a yield to maturity of _____ percent, and an effective annual yield of _____ percent.

A. 6.35; 6.32; 6.29

B. 6.35; 6.39; 6.49

C. 6.12; 6.36; 6.42

D. 6.23; 6.20; 6.16

E. 6.23; 6.36; 6.42

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond yields and returns

90. A bond has a coupon rate of 5.65 percent, a face value of $1,000, semiannual payments, and sells at par. The current yield is _____ percent and the effective annual yield is _____ percent.

A. 5.73; 5.81

B. 5.73; 5.65

C. 5.73; 5.73

D. 5.65; 5.73

E. 5.65; 5.81

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Section: 6.1 Bonds and Bond Valuation

Topic: Bond yields and returns

91. Warson Motors wants to raise $2 million by selling 20-year coupon bonds at par. Comparable bonds in the market have a coupon rate of 6.3 percent, semiannual payments, 20 years to maturity, and are selling at 96.5 percent of par. What coupon rate should Warson Motors set on its bonds?

A. 6.25 percent

B. 6.40 percent

C. 3.31 percent

D. 6.79 percent

E. 6.62 percent

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Section: 6.1 Bonds and Bond Valuation

Topic: Bond coupons

92. 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?

A. 9.00 percent

B. 9.16 percent

C. 9.50 percent

D. 9.68 percent

E. 10.00 percent

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Section: 6.1 Bonds and Bond Valuation

Topic: Bond coupons

93. One year ago, Alpha Supply issued 15-year bonds at par. The bonds have a coupon rate of 6.5 percent, paid semiannually, and a face value of $1,000. Today, the market yield on these bonds is 7.2 percent. What is the percentage change in the bond price over the past year?

A. 5.94 percent

B. 5.38 percent

C. -6.11 percent

D. -5.87 percent

E. The bond price did not change.

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Interest rate risk

94. One year ago, you purchased a $1,000 face value bond for a clean price of $980. The bond currently has seven years remaining until maturity, pays a coupon payment of $45 every six months, and has a yield to maturity of 6.87 percent. What is the percentage change in the bond price over the past year?

A. -6.24 percent

B. -14.70 percent

C. 15.48 percent

D. 13.96 percent

E. 6.61 percent

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Interest rate risk

95. You own two bonds, each of which currently pays semiannual interest, has a coupon rate of 6 percent, a $1,000 face value, and 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. A; 5.73

B. A; 3.44

C. A; 8.03

D. B; 7.97

E. B; 4.51

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Interest rate risk

96. Last year, Forest Products issued both 5-year and 10-year bonds at par. The bonds each have a coupon rate of 5.5 percent, paid semiannually, and a face value of $1,000. Assume the yield to maturity on each of these bonds is now 7.4 percent. What is the percentage change in the price of the 5-year bond since it was issued? The 10-year bond?

A. -3.39; -6.08

B. -6.08; -6.33

C. -6.48; -12.33

D. -6.48; -10.87

E. -3.39; -5.77

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Section: 6.1 Bonds and Bond Valuation

Topic: Interest rate risk

97. A U.S. Treasury bond pays 2.80 percent interest. You are in the 27 percent marginal tax bracket. What is your after tax yield on this bond?

A. 2.89 percent

B. 2.14 percent

C. 2.04 percent

D. 1.97 percent

E. 2.22 percent

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.4 Some Different Types of Bonds

Topic: Bond yields and returns

98. A corporate bond pays 6.25 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 marginal percent tax bracket?

A. 7.82 percent

B. 5.79 percent

C. 4.50 percent

D. 7.26 percent

E. 8.38 percent

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Learning Objective: 06-01 Identify important bond features and types of bonds.

Section: 6.4 Some Different Types of Bonds

Topic: Bond yields and returns

99. The App Store needs to raise $2.8 million for expansion. The firm wants to raise this money by selling 20-year, zero-coupon bonds with a par value of $1,000. The market yield on similar bonds is 6.49 percent. How many bonds must the company sell to raise the money it needs? Assume semiannual compounding.

A. 2,800 bonds

B. 9,450 bonds

C. 11,508 bonds

D. 10,315 bonds

E. 10,044 bonds

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Section: 6.4 Some Different Types of Bonds

Topic: Bond valuation

100. Variance Logistics wants to issue 20-year, zero-coupon bonds that yield 6.2 percent. What price should it charge for these bonds if the face value is $1,000? Assume semiannual compounding.

A. $ 288.15

B. $ 294.89

C. $ 543.03

D. $ 562.03

E. $ 326.45

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Section: 6.4 Some Different Types of Bonds

Topic: Bond valuation

101. Deltona Motors just issued 230,000 zero-coupon bonds. These bonds mature in 18 years, have a par value of $1,000, and have a yield to maturity of 5.9 percent. What is the approximate total amount of money the company raised from issuing these bonds? Assume semiannual compounding.

A. $88.20 million

B. $80.76 million

C. $75.14 million

D. $62.08 million

E. $91.84 million

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Section: 6.4 Some Different Types of Bonds

Topic: Bond valuation

102. Today, you are buying a $1,000 face value bond at an invoice price of $987. The bond has a coupon rate of 6 percent and pays interest semiannually. There are two months until the next coupon date. What is the clean price of this bond?

A. $947

B. $957

C. $967

D. $977

E. $987

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Section: 6.5 Bond Markets

Topic: Accrued and implicit interest

103. You are buying a bond at a clean price of $1,140. The bond has a face value of $1,000, a coupon rate of 3.8 percent, and pays interest semiannually. The next coupon payment is one month from now. What is the dirty price of this bond?

A. $1,000.00

B. $1,146.67

C. $1,155.83

D. $1,176.67

E. $1,180.00

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Section: 6.5 Bond Markets

Topic: Accrued and implicit interest

104. Last year, you earned a rate of return of 5.89 percent on your bond investments. During that time, the inflation rate was 1.2 percent. What was your real rate of return?

A. 4.58 percent

B. 4.69 percent

C. 4.72 percent

D. 4.63 percent

E. 4.60 percent

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Learning Objective: 06-04 Evaluate the impact of inflation on interest rates.

Section: 6.6 Inflation and Interest Rates

Topic: Fisher effect

105. A bond yielded a real rate of return of 3.87 percent for a time period when the inflation rate was 3.75 percent. What was the actual nominal rate of return?

A. 87.58 percent

B. 7.62 percent

C. 7.77 percent

D. 8.28 percent

E. .36 percent

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Learning Objective: 06-04 Evaluate the impact of inflation on interest rates.

Section: 6.6 Inflation and Interest Rates

Topic: Fisher effect

106. If your nominal rate of return is 8.68 percent and your real rate of return is 2.05 percent, what is the inflation rate?

A. 5.32 percent

B. 6.50 percent

C. 6.29 percent

D. 6.63 percent

E. 16.77 percent

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Learning Objective: 06-04 Evaluate the impact of inflation on interest rates.

Section: 6.6 Inflation and Interest Rates

Topic: Fisher effect

107. Jeffries, Inc., has semiannual, 6 percent coupon bonds on the market that currently have 11 years left to maturity. If the market rate of return for this bond is 7.13 percent three years from now, what will be the bond’s clean price at that time?

A. $925.88

B. $932.00

C. $903.14

D. $921.42

E. $933.33

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond valuation

108. Clock and Cane Company. has 6.8 percent, semiannual coupon bonds on the market with twelve years left to maturity. If the bond currently sells for $989.45, what is its YTM?

A. 8.02 percent

B. 7.90 percent

C. 8.10 percent

D. 6.93 percent

E. 6.78 percent

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond yields and returns

109. Smiley Industrial Goods has $1,000 face value bonds on the market with semiannual interest payments, 13.5 years to maturity, and a market price of $1,023. At this price, the bonds yield 6.4 percent. What must be the coupon rate on these bonds?

A. 3.33 percent

B. 3.75 percent

C. 7.33 percent

D. 6.66 percent

E. 7.50 percent

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond coupons

110. If Treasury bills are currently paying 3.05 percent and the inflation rate is 1.89 percent, what is the approximate real rate of interest? The exact real rate?

A. 1.16 percent; 1.14 percent

B. 1.21 percent; 1.14 percent

C. 1.20 percent; 1.21 percent

D. 1.19 percent; 1.16 percent

E. 1.19 percent; 1.21 percent

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Learning Objective: 06-04 Evaluate the impact of inflation on interest rates.

Section: 6.6 Inflation and Interest Rates

Topic: Fisher effect

111. Keyser Materials has 6.5 percent coupon bonds on the market with 15 years to maturity. The bonds make semiannual payments and currently sell for 102 percent of par. What is the current yield? The YTM? The effective annual yield?

A. 6.37 percent; 6.29 percent; 6.39 percent

B. 7.84 percent; 7.92 percent; 7.95 percent

C. 7.84 percent; 7.92 percent; 7.97 percent

D. 7.80 percent; 7.84 percent; 7.92 percent

E. 7.80 percent; 7.92 percent; 6.39 percent

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond yields and returns

112. GN Supply wants to issue new 10-year, $1,000 face value bonds at par. The company currently has 6.35 percent coupon bonds on the market that sell for $983.20, make semiannual interest payments, and mature in 10 years. What coupon rate should the company set on its new bonds?

A. 6.38 percent

B. 6.37 percent

C. 6.50 percent

D. 6.47 percent

E. 6.58 percent

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Blooms: Analyze

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond coupons

113. You purchase a bond with an invoice price of $1,108.48. The bond has a coupon rate of 5.5 percent, semiannual coupons, and there are two months to the next coupon date. What is the clean price of the bond?

A. $1,086.35

B. $1,090.15

C. $1,050.20

D. $998.50

E. $1,057.50

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Blooms: Analyze

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.5 Bond Markets

Topic: Accrued and implicit interest

114. 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. $1,018.90

B. $1,019.36

C. $1,001.60

D. $1,027.67

E. $1,004.33

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.5 Bond Markets

Topic: Accrued and implicit interest

115. A company needs to raise $22 million and plans to issue 20-year bonds for this purpose. The required rate of return is7.6 percent in the current market. The company has two issue alternatives: a 7.6 percent coupon and a zero coupon bond. The company’s tax rate is 34 percent. At bond maturity, how much will the company need to pay to its bondholders if it issues the coupon bonds? What if it issue the zeros? Assume semiannual compounding for both bond issues. (For simplicity’s sake, assume the company can issue a partial bond.)

A. $21.407 million; $102.12 million

B. $23.672 million; $97.795.51 million

C. $22.836 million; $102.12 million

D. $22.836 million; $97.795 million

E. $23.672 million; $102.12 million

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Blooms: Analyze

Difficulty: 3 Hard

Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.4 Some Different Types of Bonds

Topic: Bond valuation

116. A semiannual 5.4 percent coupon bond currently sells for par value. What is the maturity on this bond?

A. The bond must mature in one year.

B. The bond could have any maturity date.

C. The bond must be maturing today.

D. The bond must mature in 10 years.

E. The bond must be a perpetual security.

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond valuation

New Questions

117. A bond has a $1,000 face value, a market price of $1,023.32, and pays interest payments of $54.00 every year. What is the coupon rate?

A. 6.76 percent

B. 4.50 percent

C. 5.27 percent

D. 5.40 percent

E. 5.35 percent

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Blooms: Analyze

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond coupons

118. The 6.4 percent bond of Berberich, Inc. has a yield to maturity of 6.9 percent. The bond matures in eleven years, has a face value of $1,000, and pays semiannual interest payments. What is the amount of each coupon payment?

A. $30.00

B. $32.00

C. $34.50

D. $69.00

E. $64.00

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond coupons

119. The 6.9 percent bond of Peters Pickles has a face value of $1,000, a maturity of 15 years, semiannual interest payments, and a yield to maturity of 7.11 percent. What is the current market price of the bond?

A. $990.80

B. $987.95

C. $980.82

D. $1,081.28

E. $952.60

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Blooms: Analyze

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond valuation

120. A $1,000 face value bond currently has a yield to maturity of 7.14 percent. The bond matures in sixteen years and pays interest semiannually. The coupon rate is 6.95 percent. What is the current price of this bond?

A. $987.42

B. $988.57

C. $1,001.52

D. $982.05

E. $1,138.63

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond valuation

121. Phili Manufacturing, Inc. bonds have a face value of $1,000, a coupon rate of 6.5 percent, semiannual interest payments, and mature in 19 years. What is the current price of these bonds if the yield to maturity is 6.65 percent?

A. $972.46

B. $989.56

C. $983.95

D. $639.17

E. $1,001.28

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond valuation

122. A seventeen-year, semiannual coupon bond is selling for $1,030. The bond has a face value of $1,000 and a yield to maturity of 5.95 percent. What is the coupon rate?

A. 2.65 percent

B. 5.95 percent

C. 6.40 percent

D. 6.23 percent

E. 3.12 percent

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Blooms: Analyze

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond coupons

123. A 25-year, annual coupon bond is priced at $1,105.63. The bond has a $1,000 face value and a yield to maturity of 7.28 percent. What is the coupon rate?

A. 7.28 percent

B. 4.10 percent

C. 8.54 percent

D. 8.35 percent

E. 8.21 percent

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Blooms: Analyze

Difficulty: 3 Hard

Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond coupons

124. The 5 percent semiannual coupon bonds of Under The Counter, Inc., are selling for $995.25. The bonds have a face value of $1,000 and mature in 12 years. What is the yield to maturity?

A. 5.09 percent

B. 5.05 percent

C. 10.07 percent

D. 5.26 percent

E. 11.1 percent

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Blooms: Analyze

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond yields and returns

125. Old World Markets has $1,000 face value bonds outstanding that pay interest semiannually, mature in 13 years, and have a 5.3 percent coupon. The current price is quoted at 98.25. What is the yield to maturity?

A. 5.34 percent

B. 5.49 percent

C. 11.15percent

D. 11.01 percent

E. 5.23 percent

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Blooms: Analyze

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Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond yields and returns

126. The $1,000 face value bonds of Universe International have coupon of 6.8 percent and pay interest semiannually. Currently, the bonds are quoted at 103.5 and mature in 16 years. What is the yield to maturity?

A. 5.75 percent

B. 6.24 percent

C. 12.89 percent

D. 6.92 percent

E. 6.45 percent

AACSB: Analytical Thinking

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Blooms: Analyze

Difficulty: 3 Hard

Learning Objective: 06-02 Describe bond values and why they fluctuate.

Section: 6.1 Bonds and Bond Valuation

Topic: Bond yields and returns