53) Chocolate and More offers a bond with a coupon rate of 6 percent, semiannual payments,
and a yield to maturity of 7.73 percent. The bonds mature in 9 years. What is the market price of
a $1,000 face value bond?
A) $889.29
B) $963.88
C) $1,008.16
D) $924.26
E) $901.86
54) Westover’s has an outstanding bond with a coupon rate of 5.5 percent that matures in 12
years. The bond pays interest semiannually. What is the market price of one $1,000 face value
bond if the yield to maturity is 7.13 percent?
A) $934.59
B) $880.86
C) $870.01
D) $905.92
E) $947.87
55) Guggenheim offers a bond with annual payments and a coupon rate of 5 percent. The yield to
maturity is 5.62 percent and the maturity date is 9 years away. What is the market price of one
$1,000 face value bond?
A) $942.66
B) $868.67
C) $869.67
D) $957.12
E) $1,009.59
56) The Lo Sun Corporation offers a bond with a current market price of $1,029.75, a coupon
rate of 8 percent, and a yield to maturity of 7.52 percent. The face value is $1,000. Interest is
paid semiannually. How many years is it until this bond matures?
A) 8.5 years
B) 8.0 years
C) 9.0 years
D) 17 years
E) 16 years
57) Moon Lite Cafe has a semiannual, 5 percent coupon bond with a current market price of
$988.52. The bond has a par value of $1,000 and a yield to maturity of 5.68 percent. How many
years is it until this bond matures?
A) 1.5 years
B) 1.8 years
C) 2.1 years
D) 2.2 years
E) 1.6 years
58) A firm offers a zero coupon bond with a face value of $1,000 that matures in 10 years. What
is the current market price if the yield to maturity is 7.6 percent, given semiannual
compounding?
A) $474.30
B) $473.26
C) $835.56
D) $919.12
E) $1,088.00
59) TJ’s offers a $1,000 face value, zero coupon bond with a yield to maturity of 11.3 percent,
given annual compounding. The bond matures in 16 years. What is the current price?
A) $178.78
B) $180.33
C) $188.36
D) $190.09
E) $192.18
60) The zero coupon bonds of Mark Enterprises have a market price of $394.47, a face value of
$1,000, and a yield to maturity of 6.87 percent based on semiannual compounding. How many
years is it until this bond matures?
A) 11.08 years
B) 10.49 years
C) 13.77 years
D) 12.64 years
E) 15.42 years
61) A $1,000 face value coupon bond will pay 5 percent interest annually for 12 years. What is
the percentage change in the price of this bond if the market yield rises to 6 percent from the
current level of 5.5 percent?
A) −5.28 percent
B) −4.26 percent
C) −2.38 percent
D) 1.13 percent
E) 4.13 percent
62) Mason’s has 5-year, 8 percent annual coupon bonds outstanding with a par value of $1,000.
Dixon’s has 10-year, 8 percent annual coupon bonds outstanding with a par value of $1,000.
Both bonds currently have a yield to maturity of 8 percent. Which one of the following
statements is correct if the market rate decreases to 7 percent?
A) Both bonds will decrease in value by 4.10 percent.
B) Mason’s bond will increase in value by $52.10.
C) Dixon’s bond will increase in value by 4.61 percent.
D) Mason’s bond will increase in value by $41.
E) Dixon’s bond will increase in value by 6.87 percent.
63) A zero coupon bond with a face value of $1,000 is issued with an initial price of $430.84
based on semiannual compounding. The bond matures in 20 years. What is the implicit interest,
in dollars, for the first year of the bond’s life?
A) $19.08
B) $22.56
C) $18.53
D) $21.47
E) $25.25
64) Allison’s wants to raise $12.4 million to expand its business. To accomplish this, it plans to
sell 25-year, $1,000 face value, zero-coupon bonds. The bonds will be priced to yield 6.5
percent, with semiannual compounding. What is the minimum number of bonds the firm must
sell to raise the $12.4 million it needs?
A) 59,864
B) 52,667
C) 61,366
D) 60,107
E) 60,435
65) Jackson’s has $1,000 face value, zero-coupon bonds outstanding that mature in 13.5 years.
What is the current value of one of these bonds if the market rate of interest is 7.6 percent?
Assume semiannual compounding.
A) $365.32
B) $401.12
C) $360.49
D) $378.17
E) $384.07
66) A corporate bond with a face value of $1,000 matures in 4 years and has a coupon rate of
6.25 percent. The current price of the bond is $932 and interest is paid semiannually. What is the
yield to maturity?
A) 9.05 percent
B) 6.67 percent
C) 8.58 percent
D) 8.28 percent
E) 7.92 percent
67) A bond has a coupon rate of 8.2 percent, a $1,000 par value, matures in 11.5 years, has a
yield to maturity of 7.67 percent, and pays interest annually. What is the current yield?
A) 7.89 percent
B) 8.21 percent
C) 8.43 percent
D) 7.67 percent
E) 8.52 percent
68) Suzette owns a corporate bond with a yield to maturity of 7.45 percent. She is in the 12
percent tax bracket. What is her equivalent rate of return on a municipal bond? Ignore state taxes.
A) 6.17 percent
B) 5.89 percent
C) 6.56 percent
D) 8.26 percent
E) 8.47 percent
69) Currently, you own a municipal bond with a yield to maturity of 4.86 percent. If you are in
the 24 percent tax bracket, what is your equivalent corporate tax rate? Ignore state taxes.
A) 7.17 percent
B) 6.61 percent
C) 6.39 percent
D) 6.59 percent
E) 6.82 percent
70) A corporate bond has a coupon rate of 6 percent, a $1,000 face value, and matures two years
from today. The corporation is in a serious financial situation and has announced that no future
annual interest payments will be paid and that only 50 percent of the face value will be repaid but
that payment will be delayed by one year. What is the current value of this bond to a bondholder
with a required rate of return of 14 percent?
A) $374.31
B) $358.40
C) $299.02
D) $337.49
E) $325.08
71) A corporate bond has a coupon rate of 5.5 percent, a $1,000 face value, and matures three
years from today. The corporation is in a serious financial situation and has announced that no
future annual interest payments will be paid and that the probability the entire face value will be
repaid is only 75 percent. If the entire face value cannot be paid, then 60 percent of the face
value will be repaid. All payments will be made three years from now. What is the current value
of this bond at a discount rate of 15 percent?
A) $591.76
B) $603.10
C) $611.90
D) $617.48
E) $622.04
72) Aivree is buying a $1,000 face value bond at a quoted price of 99.486. The bond carries a
coupon rate of 5.6 percent, with interest paid semiannually. The next interest payment is four
months from today. What is the clean price of this bond?
A) $994.86
B) $1,004.19
C) $1,013.53
D) $987.21
E) $1,005.73
73) Nathan is buying a $1,000 face value bond at a quoted price of 101.364. The bond carries a
coupon rate of 7.75 percent, with interest paid semiannually. The next interest payment is two
months from today. What is the dirty price of this bond?
A) $1,039.47
B) $1,042.15
C) $1,056.02
D) $1,028.18
E) $1,026.56
74) Casey just purchased a $1,000 face value bond at an invoice price of $1,288.16. The bond
has a coupon rate of 6.2 percent, semiannual interest payments, and the next interest payment
occurs one month from today. Of the amount paid for the bond, what was the dollar amount of
the accrued interest?
A) $25.83
B) $5.17
C) $31.00
D) $27.39
E) $6.20
75) A corporate bond is currently quoted at 101.633. What is the market price of a bond with a
$1,000 face value?
A) $1,000.28
B) $1,002.77
C) $1,016.33
D) $1,102.77
E) $1,276.70
76) The 5-year bond of XYZ Corp. has a bid quote of 131.2891 and an asked quote of 131.3047.
Assume you purchase one of these bonds with a face value of $5,000 and a coupon rate of 7.4
percent, paid semiannually. The next interest payment will be paid two months from today. What
will be your invoice price for this purchase?
A) $7,220.01
B) $6,690.68
C) $6,809.47
D) $7,001.32
E) $6,549.30
77) Last year, a bond yielded a nominal return of 7.37 percent while inflation averaged 3.26
percent. What was the real rate of return?
A) 3.42 percent
B) 3.27 percent
C) 3.98 percent
D) 3.71 percent
E) 3.86 percent
78) A $1,000 par value bond carries a coupon rate of 6.5 percent and has a yield to maturity of
7.29 percent. The inflation rate is 3.13 percent. What is the bond’s real rate of return?
A) 3.27 percent
B) 4.03 percent
C) 3.37 percent
D) 4.42 percent
E) 3.86 percent
79) If a bond provides a real rate of return of 2.89 percent at a time when inflation is 3.21
percent, what is the nominal rate of return on the bond?
A) 6.10 percent
B) 6.13 percent
C) 6.16 percent
D) 6.19 percent
E) 6.22 percent
80) The nominal rate of return on a bond is 7.28 percent while the real rate is 3.09 percent. What
is the rate of inflation?
A) 4.06 percent
B) 4.28 percent
C) 4.09 percent
D) 4.13 percent
E) 4.17 percent
81) Stu wants to earn a real return of 3.4 percent on any bond he acquires. The inflation rate is
2.8 percent. He has determined that a particular bond he is considering should have an interest
rate risk premium of .27 percent, a liquidity premium of .08 percent, and a taxability premium of
1.69 percent. What nominal rate of return is Stu demanding from this particular bond?
A) 8.34 percent
B) 7.19 percent
C) 8.40 percent
D) 7.38 percent
E) 8.74 percent
82) Define what is meant by interest rate risk. Also, assume the manager of a $100 million
portfolio of corporate bonds predicts interest rates will rise in the near future. What adjustments
should be made to the portfolio assuming the market has not already adjusted for this prediction?
83) Interest rate risk is often explained by using the concept of a teeter-totter. Explain interest
rate risk and how it is related to the movements of a teeter-totter.
84) Why do corporations issue 100-year bonds, knowing that interest rate risk is highest for very
long-term bonds? How does the interest rate risk affect the issuer?
85) Normally, the Treasury yield curve is upward-sloping. Explain the conditions required for a
downward-sloping yield curve to exist.
86) Explain liquidity risk, default risk, and taxability risk. How does each of these risks affect the
yield of a bond?
87) Should investors be indifferent between two bonds which have equal market yields to
maturity as long as the bonds have the same bond rating? Can you think of any real-world factors
which might make a given investor prefer one of these bonds over the other?