49) Analysis of bond returns over a multiyear horizon based on forecasts of the bond’s yield to
maturity and reinvestment rate of coupons is called ________.
A) multiyear analysis
B) horizon analysis
C) maturity analysis
D) reinvestment analysis
51) $1,000 par value zero-coupon bonds (ignore liquidity premiums)
Bond
Years to Maturity
Yield to Maturity
A
1
6.00%
B
2
7.50%
C
3
7.99%
D
4
8.49%
E
5
10.70%
One year from now bond C should sell for ________ (to the nearest dollar).
A) $857
B) $894
C) $835
D) $821
23
52) $1,000 par value zero-coupon bonds (ignore liquidity premiums)
Bond
Years to Maturity
Yield to Maturity
A
1
6.00%
B
2
7.50%
C
3
7.99%
D
4
8.49%
E
5
10.70%
The expected 2-year interest rate 3 years from now should be ________.
A) 9.55%
B) 11.74%
C) 14.89%
D) 13.73%
53) The ________ of a bond is computed as the ratio of the annual coupon payment to the
market price.
A) nominal yield
B) current yield
C) yield to maturity
D) yield to call
24
54) A bond has a par value of $1,000, a time to maturity of 10 years, and a coupon rate of 8%
with interest paid annually. If the current market price is $750, what is the capital gain yield of
this bond over the next year?
A) .72%
B) 1.85%
C) 2.58%
D) 3.42%
25
55) Consider the following $1,000 par value zero-coupon bonds:
Bond
Years to Maturity
Yield to Maturity
A
1
6.00
%
B
2
7.50
%
C
3
8.00
%
D
4
8.50
%
E
5
10.25
%
The expected 1-year interest rate 2 years from now should be ________.
A) 7%
B) 8%
C) 9%
D) 10%
56) Which of the following bonds would most likely sell at the lowest yield?
A) a callable debenture
B) a puttable mortgage bond
C) a callable mortgage bond
D) a puttable debenture
26
57) A 1% decline in yield will have the least effect on the price of a bond with a ________.
A) 10-year maturity, selling at 80
B) 10-year maturity, selling at 100
C) 20-year maturity, selling at 80
D) 20-year maturity, selling at 100
58) Consider the following $1,000 par value zero-coupon bonds:
Bond
Years to Maturity
Yield to Maturity
A
1
6.00
%
B
2
7.00
%
C
3
8.32
%
D
4
8.49
%
E
5
10.70
%
The expected 1-year interest rate 3 years from now should be ________.
A) 7%
B) 8%
C) 9%
D) 10%
59) Consider the following $1,000 par value zero-coupon bonds:
Bond
Years to Maturity
Yield to Maturity
A
1
6.00
%
B
2
7.00
%
C
3
7.99
%
D
4
9.41
%
E
5
10.70
%
The expected 1-year interest rate 4 years from now should be ________.
A) 16%
B) 18%
C) 20%
D) 22%
60) You can be sure that a bond will sell at a premium to par when ________.
A) its coupon rate is greater than its yield to maturity
B) its coupon rate is less than its yield to maturity
C) its coupon rate is equal to its yield to maturity
D) its coupon rate is less than its conversion value
28
61) A corporate bond has a 10-year maturity and pays interest semiannually. The quoted coupon
rate is 6%, and the bond is priced at par. The bond is callable in 3 years at 110% of par. What is
the bond’s yield to call?
A) 6.72%
B) 9.17%
C) 4.49%
D) 8.98%
62) Consider a 7-year bond with a 9% coupon and a yield to maturity of 12%. If interest rates
remain constant, 1 year from now the price of this bond will be ________.
A) higher
B) lower
C) the same
D) indeterminate
29
63) Under the pure expectations hypothesis and constant real interest rates for different
maturities, an upward-sloping yield curve would indicate ________.
A) expected increases in inflation over time
B) expected decreases in inflation over time
C) the presence of a liquidity premium
D) that the equilibrium interest rate in the short-term part of the market is lower than the
equilibrium interest rate in the long-term part of the market
64) The yield to maturity on a bond is:
I. Above the coupon rate when the bond sells at a discount and below the coupon rate when the
bond sells at a premium
II. The discount rate that will set the present value of the payments equal to the bond price
III. Equal to the true compound return on investment only if all interest payments received are
reinvested at the yield to maturity
A) I only
B) II only
C) I and II only
D) I, II, and III
30
65) Yields on municipal bonds are generally lower than yields on similar corporate bonds
because of differences in ________.
A) marketability
B) risk
C) taxation
D) call protection
66) Assuming semiannual compounding, a 20-year zero coupon bond with a par value of $1,000
and a required return of 12% would be priced at ________.
A) $97.22
B) $104.49
C) $364.08
D) $732.14
31
67) A discount bond that pays interest semiannually will:
I. Have a lower price than an equivalent annual payment bond
II. Have a higher EAR than an equivalent annual payment bond
III. Sell for less than its conversion value
A) I and II only
B) I and III only
C) II and III only
D) I, II, and III
68) A 6% coupon U.S. Treasury note pays interest on May 31 and November 30 and is traded for
settlement on August 10. The accrued interest on the $100,000 face amount of this note is
________.
A) $581.97
B) $1,170.33
C) $2,327.87
D) $3,000
32
69) The yield to maturity of a 10-year zero-coupon bond with a par value of $1,000 and a market
price of $625 is ________.
A) 4.8%
B) 6.1%
C) 7.7%
D) 10.4%
33
70) Consider a newly issued TIPS bond with a 3-year maturity, par value of $1,000, and coupon
rate of 5%. Assume annual coupon payments.
Time
Inflation in
year just
ended
Par value
Coupon
payment
+
Principal
repayment
=
Total
payment
0
$
1000.00
1
3
%
$
1030.00
$
51.50
0
$
51.50
2
2
%
$
1050.60
$
52.53
0
$
52.53
3
4
%
$
1092.62
$
54.63
$
1092.62
$
1,147.25
What is the nominal rate of return on the TIPS bond in the first year?
A) 5%
B) 5.15%
C) 8.15%
D) 9%