15) Bond ratings directly afect a bond’s
A) spread over the Treasury yield.
B) coupon rate.
C) maturity date.
D) call provisions.
Question Status: New question
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
16) The discount rate used to value a bond is
A) the coupon interest rate.
B) determined by the issuing company.
C) ixed for the life of the bond.
D) the market rate of interest.
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
17) As interest rates, and consequently investors’ required rates of return, change over
time, the ________ of outstanding bonds will also change.
A) maturity date
B) coupon interest payment
C) par value
D) price
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
11
18) Mango Company bonds pay a semiannual coupon rate of 6.4%. They have eight years to
maturity and face value, or par, of $1,000. Compute the value of Mango bonds if investors’
required rate of return is 5%.
A) $1,090.48
B) $883.66
C) $1,006.83
D) $950.00
Question Status: New question
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
19) Terminator Bug Company bonds have a 14% coupon rate. Interest is paid semiannually.
The bonds have a par value of $1,000 and will mature 10 years from now. Compute the
value of Terminator bonds if investors’ required rate of return is 12%.
A) $1,114.70
B) $1,149.39
C) $894.06
D) $1,000.00
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
20) Brookline, Inc. just sold an issue of 30-year bonds for $1,107.20. Investors require a
rate of return on these bonds of 7.75%. The bonds pay interest semiannually. What is the
coupon rate of the bonds?
A) 7.750%
B) 11.072%
C) 9.375%
D) 8.675%
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
12
21) Applebee sold an issue of 30-year, $1,000 par value bonds to the public. The coupon
rate of 8.75% is payable annually. It is now ive years later, and the current market rate of
interest is 7.25%. What is the current market price (intrinsic value) of the bonds? Round of
to the nearest $1.
A) $715
B) $1,171
C) $1,225
D) $697
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
22) Six years ago, Colt, Inc. sold an issue of 30-year, $1,000 par value bonds. The coupon
rate of 5.25% is payable annually. Investors presently require a rate of return of 8.375%.
What is the current market price (intrinsic value) of the bonds? Round of to the nearest $1.
A) $1,050
B) $932
C) $681
D) $1,111
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
23) Blue’s Chips Inc. has a $1,000 par value bond that is currently selling for $1,300. It has
an annual coupon rate of 7%, paid semiannually, and has nine years remaining until
maturity. What is the annual yield to maturity on the bond? (Round to the nearest whole
percentage.)
A) 3.15%
B) 1.57%
C) 3.12%
D) 6.24%
Question Status: Revised
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
13
24) You are considering the purchase of Hytec bonds that were issued 14 years ago. When
the bonds were originally sold, they had a 30-year maturity and a 14.375% coupon interest
rate that is payable semiannually. The bond is currently selling for $1,508.72. What is the
yield to maturity on the bonds?
A) 8.50%
B) 14.38%
C) 11.11%
D) 7.67%
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
25) Aurand, Inc. has outstanding bonds with an 8% annual coupon rate paid semiannually.
The bonds have a par value of $1,000, a current price of $904, and will mature in 14 years.
What is the annual yield to maturity on the bond?
A) 15.80%
B) 10.47%
C) 9.24%
D) 7.90%
E) 4.62%
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
26) Marshall Manufacturing has a bond outstanding that was issued 20 years ago at a
coupon rate of 9%. The $1,000 par value bond pays interest semiannually and was
originally issued with a term of 30 years. If today’s interest rate is 14%, what is the value of
the bond today?
A) $654.98
B) $735.15
C) $814.42
D) $941.87
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
14
27) A $1,000 par value bond is currently listed as selling at 92 1/8. This means
A) that you can buy the bond for $92.125.
B) that you can buy the bond for $921.25.
C) that if you purchase the bond today, you will receive $921.25 when the bond matures.
D) none of the above.
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
28) You paid $865.50 for a corporate bond that has a 6.75% coupon rate. What is the
bond’s current yield?
A) 8.375%
B) 7.800%
C) 15.001%
D) 6.667%
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
29) A $1,000 par value bond with a 12% coupon rate currently selling for $825 has a
current yield of
A) 14.55%.
B) 12.44%.
C) 7.27%.
D) 5.61%.
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
30) When a bond’s coupon rate is higher than the required rate of return, the bond
A) will sell at a discount from par.
B) will sell at a premium over par.
C) may sell at either a discount or a premium.
D) will sell at par value.
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
31) Miller Motorworks has a $1,000 par value, 8% annual coupon bond with interest
payable semiannually with a remaining term of 15 years. The annual market yield on
similar bonds is 6%. This bond will at a discount from par.
Question Status: Revised
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
32) Lambda Co. has bonds outstanding that mature in 10 years. The bonds have $1,000 par
value, pay interest annually at a rate of 9%, and have a current selling price of $1,125. The
yield to maturity on the bonds is less than 9%.
Question Status: Revised
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
33) Generic, Inc. has bonds outstanding that mature in 20 years. The bonds have $1,000
par value, pay interest annually at a rate of 10%, and have a current selling price of
$875.25. The current yield on the bonds is 11.63%.
Question Status: Revised
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
34) A basis point is equal to one hundredth of a percentage point.
Question Status: New question
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
35) A bond’s “spread” refers to the diference between it’s Moody’s rating and its Standard
& Poors rating.
Question Status: New question
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
16
36) A bond issued by Pomme Computers has a coupon rate of #5 paid semi-annually. If the
market’s required rate of return on this bond is also 3%, the bond will sell at par value.
Question Status: New question
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
37) Dry Seal plans to issue bonds to expand operations. The bonds will have a par value of
$1,000, a 10-year maturity, and a coupon interest rate of 9%, paid semiannually. Current
market conditions are such that the bonds will be sold to net $937.79. The yield-to-
maturity of these bonds is 10%.
Question Status: New question
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
38) You purchased Photon, Inc. bonds exactly one year ago today for $875. During the
latest year, you received $65 in interest on the bonds. The current yield on these bonds is
6.5%.
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
39) A AAA rated bond’s yield to maturity will be very close to it’s expected yield.
Question Status: New question
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
40) The longer the time to maturity, the more sensitive a bond’s price to changes in market
interest rates.
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
17
41) A bond’s value equals the present value of interest and principal the owner will receive.
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
42) The higher the bond rating, the more default risk associated with the bond.
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
43) Bond ratings measure the interest rate risk of a given bond issue.
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
44) When referring to bonds, expected rate of return and yield to maturity are often used
interchangeably.
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
45) Investment grade bonds are rated BB or lower.
Question Status: Revised
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
18
46) The current yield of a bond will equal its coupon rate when the bond is selling at par
value.
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
47) The better the bond rating, the lower the rate of return demanded in the capital
markets.
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
48) The sensitivity of a bond’s value to changing interest rates depends on both the bond’s
time to maturity and its pattern of cash lows.
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
49) Compare and contrast current yield and yield to maturity.
Question Status: Previous edition
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
50) BCD’s $1,000 par value bonds currently sell for $798.50. The coupon rate is 10%, paid
semiannually. If the bonds have ive years before maturity, what is the yield to maturity or
expected rate of return?
Question Status: Revised
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
51) If you are willing to pay $1,392.05 for a 15-year, $1,000 par value bond that pays 10%
interest semiannually, what is your expected rate of return?
19
Question Status: Revised
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
52) DAH, Inc. has issued a 12% bond that is to mature in nine years. The bond had a
$1,000 par value, and interest is due to be paid semiannually. If your required rate of
return is 10%, what price would you be willing to pay for the bond?
Question Status: Revised
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
53) The market price of a 20-year, $1,000 bond that pays 9% interest semiannually is
$774.31. What is the bond’s yield to maturity?
Question Status: Revised
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
54) Calculate the value of a bond that is expected to mature in 13 years with a $1,000 face
value. The interest coupon rate is 8%, and the required rate of return is 10%. Interest is
paid annually.
Question Status: Revised
Objective: 9.2 Calculate the value of a bond and relate it to the yield to maturity on the bond.
Keywords: bond pricing
Principles: Principle 1: Money Has a Time Value
20