978-0133507676 chapter 6 Part 3

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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

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

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

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

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

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

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?

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