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18) The Sisyphean Company has a bond outstanding with a face value of $1000 that
reaches maturity in ive years. The bond certiicate indicates that the stated coupon rate
for this bond is 8.5% and that the coupon payments are to be made semiannually. Assuming
that this bond trades for $1081.73, then the YTM for this bond is closest to ________.
A) 5.2%
B) 7.87%
C) 6.56%
D) 9.18%
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
19) The Sisyphean Company has a bond outstanding with a face value of $5000 that
reaches maturity in 8 years. The bond certiicate indicates that the stated coupon rate for
this bond is 8.2% and that the coupon payments are to be made semiannually. Assuming
that this bond trades for $4541.53, then the YTM for this bond is closest to ________.
A) 7.9%
B) 11.9%
C) 13.8%
D) 9.9%
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
21
20) The following table summarizes prices of various default-free zero-coupon bonds
(expressed as a percentage of face value):
Maturity (years) 1 2 3 4 5
Price (per $100 face value) 94.52 89.68 85.40 81.65 78.35
The yield to maturity for the three-year zero-coupon bond is closest to ________.
A) 5.40%
B) 2.70%
C) 10.80%
D) 0.15%
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
21) The following table summarizes prices of various default-free zero-coupon bonds
(expressed as a percentage of face value):
Maturity (years) 1 2 3 4 5
Price (per $100 face
value) 94.52 89.68 85.40 81.65 78.35
Based upon the information provided in the table above, you can conclude ________.
A) that the yield curve is lat
B) nothing about the shape of the yield curve
C) that the yield curve is downward sloping
D) that the yield curve is upward sloping
AACSB Objective: Analytic Skills
Author: JN
Question Status: Previous Edition
22
Use the information for the question(s) below.
The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches
maturity in 15 years. The bond certiicate indicates that the stated coupon rate for this
bond is 8% and that the coupon payments are to be made semiannually.
22) How much are each of the semiannual coupon payments? Assuming the appropriate
YTM on the Sisyphean bond is 8.8%, then at what price should this bond trade for?
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
23) Assuming that this bond trades for $1,035.44, then the YTM for this bond is equal to
________.
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
24) What care, if any, should be taken regarding the sign of the cash lows while drawing
the timeline and associated cash lows of a coupon bond?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Revised
25) What care, if any, should be taken regarding the timing of the cash lows while drawing
the timeline and associated cash lows of a coupon bond?
Dif: 1 Var: 1
AACSB Objective: Analytic Skills
Author: SS
Question Status: Revised
26) How can the inancial calculator be used to calculate the price of a coupon bond from
its yield to maturity?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Revised
27) What issues should one be careful of when calculating the bond price from its yield to
maturity using the "time value of money" (TVM) keys of a inancial calculator?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Revised
28) What issues should one be careful of when calculating the bond price from its yield to
maturity using the "cash low" (CF) keys of a inancial calculator?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Revised
6.4 Why Bond Prices Change
1) Before it matures, the price of any bond is always less than its face value.
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
2) A bond will trade at a discount if its coupon rate is less than its yield to maturity.
Dif: 1 Var: 1
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
3) Which of the following bonds is trading at par?
A) a bond with a $2,000 face value trading at $1,987
B) a bond with a $1,000 face value trading at $999
C) a bond with a $1,000 face value trading at $1,000
D) a bond with a $2,000 face value trading at $2,012
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
4) A company releases a ive-year bond with a face value of $1000 and coupons paid
semiannually. If market interest rates imply a YTM of 6%, what should be the coupon rate
ofered if the bond is to trade at par?
A) 3%
B) 5%
C) 6%
D) 7%
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition
25
5) A company releases a ive-year bond with a face value of $1000 and coupons paid
semiannually. If market interest rates imply a YTM of 8%, which of the following coupon
rates will cause the bond to be issued at a premium?
A) 7%
B) 6%
C) 8%
D) 10%
AACSB Objective: Analytic Skills
Author: JP
Question Status: Revised
6) Which of the following bonds is trading at a premium?
A) a ive-year bond with a $2,000 face value whose yield to maturity is 7.0% and coupon
rate is 7.2% APR paid semiannually
B) a ten-year bond with a $4,000 face value whose yield to maturity is 6.0% and coupon
rate is 5.9% APR paid semiannually
C) a 15-year bond with a $10,000 face value whose yield to maturity is 8.0% and coupon
rate is 7.8% APR paid semiannually
D) a two-year bond with a $50,000 face value whose yield to maturity is 5.2% and coupon
rate is 5.2% APR paid monthly
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
7) Which of the following statements is true of bond prices?
A) A fall in bond prices causes interest rates to fall.
B) A fall in interest rates causes a fall in bond prices.
C) A rise in interest rates causes bond prices to fall.
D) Bond prices and interest rates are not connected.
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
26
8) A bond is currently trading below par. Which of the following must be true about that
bond?
A) The bond's yield to maturity is less than its coupon rate.
B) The bond is a zero-coupon bond.
C) The bond's yield to maturity is greater than its coupon rate.
D) B or C above
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
9) If the yield to maturity of all of the following bonds is 6%, which will trade at the
greatest premium per $100 face value?
A) a bond with a $10,000 face value, four years to maturity and 6.2% semiannual coupon
payments
B) a bond with a $500 face value, seven years to maturity and 5.2% annual coupon
payments
C) a bond with a $5,000 face value, seven years to maturity and 5.5% annual coupon
payments
D) a bond with a $1,000 face value, ive years to maturity and 6.3% annual coupon
payments
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
10) A bond has a $10,000 face value, ten years to maturity, and 8% semiannual coupon
payments. What would be the expected diference in this bond's price immediately before
and immediately after the next coupon payment?
A) $800
B) $400
C) $1200
D) $200
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
27
11) A ten-year, zero-coupon bond with a yield to maturity of 4% has a face value of $1000.
An investor purchases the bond when it is initially traded, and then sells it four years later.
What is the rate of return of this investment, assuming the yield to maturity does not
change?
A) 3.20%
B) 2.40%
C) 4.00%
D) 2.00%
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
12) Which of the following bonds will be most sensitive to a change in interest rates?
A) a ten-year bond with a $2,000 face value whose yield to maturity is 5.8% and coupon
rate is 5.8% APR paid semiannually
B) a 15-year bond with a $5,000 face value whose yield to maturity is 7.4% and coupon rate
is 6.2% APR paid annually
C) a 20-year bond with a $3,000 face value whose yield to maturity is 6.0% and coupon rate
is 5.4% APR paid semiannually
D) a 30-year bond with a $1,000 face value whose yield to maturity is 5.5% and coupon rate
is 6.4% APR paid annually
AACSB Objective: Relective Thinking Skills
Author: DS
Question Status: Revised
13) An investor purchases a 30-year, zero-coupon bond with a face value of $5000 and a
yield to maturity of 8.4%. He sells this bond ten years later. What is the rate of return on
his investment, assuming yield to maturity does not change?
A) 6.72%
B) 5.04%
C) 8.40%
D) 4.20%
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
28
14) Which of the following bonds will be least sensitive to a change in interest rates?
A) a ten-year bond with a $2,000 face value whose yield to maturity is 5.8% and coupon
rate is 5.8% APR paid semiannually
B) a 15-year bond with a $5,000 face value whose yield to maturity is 7.4% and coupon rate
is 6.2% APR paid annually
C) a 20-year bond with a $3,000 face value whose yield to maturity is 6.0% and coupon rate
is 5.4% APR paid semiannually
D) a 30-year bond with a $1,000 face value whose yield to maturity is 5.5% and coupon rate
is 6.4% APR paid annually
AACSB Objective: Relective Thinking Skills
Author: JP
Question Status: Revised
15) Which of the following bonds will be most sensitive to a change in interest rates if all
bonds have the same initial yield to maturity?
A) a ten-year bond with a $1,000 face value whose coupon rate is 5.8% APR paid
semiannually
B) a ten-year bond with a $1,000 face value whose coupon rate is 7.4% APR paid
semiannually
C) a 20-year bond with a $1,000 face value whose coupon rate is 5.8% APR paid
semiannually
D) a 20-year bond with a $1,000 face value whose coupon rate is 7.4% APR paid
semiannually
AACSB Objective: Relective Thinking Skills
Author: JP
Question Status: Revised
16) A company issues a ten-year $1,000 face value bond at par with a coupon rate of 6.1%
paid semiannually. The YTM at the beginning of the third year of the bond (8 years left to
maturity) is 8.1%. What is the new price of the bond?
A) $883.91
B) $1060.69
C) $1237.47
D) $1,000.00
AACSB Objective: Analytic Skills
Author: JP
Question Status: Revised
17) A company issues a ten-year $1,000 face value bond at par with a coupon rate of 6.7%
paid semiannually. The YTM at the beginning of the third year of the bond (8 years left to
maturity) is 8.1%. What was the percentage change in the price of the bond over the past
two years?
29
A) -6.50%
B) -9.75%
C) -8.13%
D) -11.38%
AACSB Objective: Analytic Skills
Author: JP
Question Status: Revised
18) What is the dirty price of a bond?
A) the bond's price based only on the bond's yield
B) the bond's actual cash price
C) the bond's price based only on coupon payments
D) the bond's price less an adjustment for changes in interest rates
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
19) A ive-year bond with a $1,000 face value has a yield to maturity is 5.0% and it's coupon
rate is 6.0% paid annually. The dirty price of this bond exactly 6 months after its second
coupon payment is closest to ________.
A) $1087.23
B) $1147.23
C) $1027.23
D) $1057.23
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
30
