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71) 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 real rate of return on the TIPS bond in the first year?
A) 5%
B) 8.15%
C) 7.15%
D) 4%
72) On May 1, 2007, Joe Hill is considering one of the following newly issued 10-year AAA
corporate bonds.
Description
Coupon
Price
Callable
Call Price
Wildwood, due May 1, 2015
5
%
100
noncallable
NA
Asbury, due May 1, 2015
5.4
%
100
currently callable
102
Suppose market interest rates decline by 100 basis points (i.e., 1%). The effect of this decline
would be ________.
A) the price of the Wildwood bond would decline by more than the price of the Asbury bond
B) the price of the Wildwood bond would decline by less than the price of the Asbury bond
C) the price of the Wildwood bond would increase by more than the price of the Asbury bond
D) the price of the Wildwood bond would increase by less than the price of the Asbury bond
73) On May 1, 2007, Joe Hill is considering one of the following newly issued 10-year AAA
corporate bonds.
Description
Coupon
Price
Callable
Call Price
Wildwood, due May 1, 2015
5
%
100
noncallable
NA
Asbury, due May 1, 2015
5.4
%
100
currently callable
102
If interest rates are expected to rise, then Joe Hill should ________.
A) prefer the Wildwood bond to the Asbury bond
B) prefer the Asbury bond to the Wildwood bond
C) be indifferent between the Wildwood bond and the Asbury bond
D) The answer cannot be determined from the information given.
74) On May 1, 2007, Joe Hill is considering one of the following newly issued 10-year AAA
corporate bonds.
Description
Coupon
Price
Callable
Call Price
Wildwood, due May 1, 2015
5
%
100
noncallable
NA
Asbury, due May 1, 2015
5.4
%
100
currently callable
102
If the volatility of interest rates is expected to increase, then Joe Hill should ________.
A) prefer the Wildwood bond to the Asbury bond
B) prefer the Asbury bond to the Wildwood bond
C) be indifferent between the Wildwood bond and the Asbury bond
D) The answer cannot be determined from the information given.
75) One-, two-, and three-year maturity, default-free, zero-coupon bonds have yields to maturity
of 7%, 8%, and 9%, respectively. What is the implied 1-year forward rate 1 year from today?
A) 2.07%
B) 8.03%
C) 9.01%
D) 11.12%
76) If the quote for a Treasury bond is listed in the newspaper as 98.2812 bid, 98.4062 ask, the
actual price at which you can purchase this bond given a $10,000 par value is ________.
A) $9,828.12
B) $9,809.38
C) $9,840.62
D) $9,813.42
77) If the price of a $10,000 par Treasury bond is $10,237.50, the quote would be listed in the
newspaper as ________.
A) 102.237
B) 102.102
C) 102.375
D) 102.750
78) A bond pays a semiannual coupon, and the last coupon was paid 61 days ago. If the annual
coupon payment is $75, what is the accrued interest? (Assume 182 days in the 6-month period.)
A) $13.21
B) $12.57
C) $15.44
D) $16.32
79) A bond has a flat price of $985, and it pays an annual coupon. The last coupon payment was
made 90 days ago. What is the invoice price if the annual coupon is $69?
A) $999.55
B) $1,002.01
C) $1,007.45
D) $1,012.13
80) If the quote for a Treasury bond is listed in the newspaper as 99.25 bid, 99.26 ask, the actual
price at which you can sell this bond given a $10,000 par value is ________.
A) $9,828.12
B) $9,925
C) $9,934.37
D) $9,955.43
81) A bond has a 5% coupon rate. The coupon is paid semiannually, and the last coupon was
paid 35 days ago. If the bond has a par value of $1,000, what is the accrued interest?
A) $4.81
B) $14.24
C) $25
D) $50
82) The price on a Treasury bond is 104.3625, with a yield to maturity of 3.45%. The price on a
comparable maturity corporate bond is 103.75, with a yield to maturity of 4.59%. What is the
approximate percentage value of the credit risk of the corporate bond?
A) 1.14%
B) 3.45%
C) 4.59%
D) 8.04%
83) You buy a bond with a $1,000 par value today for a price of $875. The bond has 6 years to
maturity and makes annual coupon payments of $75 per year. You hold the bond to maturity, but
you do not reinvest any of your coupons. What was your effective EAR over the holding period?
A) 10.4%
B) 9.57%
C) 7.45%
D) 8.78%
84) You buy an 8-year $1,000 par value bond today that has a 6% yield and a 6% annual
payment coupon. In 1 year promised yields have risen to 7%. Your 1-year holding-period return
was ________.
A) .61%
B) −5.39%
C) 1.28%
D) −3.25%
85) You buy a 10-year $1,000 par value zero-coupon bond priced to yield 6%. You do not sell
the bond. If you are in a 28% tax bracket, you will owe taxes on this investment after the first
year equal to ________.
A) $0
B) $4.27
C) $9.38
D) $33.51
86) You buy a 10-year $1,000 par value 4% annual-payment coupon bond priced to yield 6%.
You do not sell the bond at year-end. If you are in a 15% tax bracket, at year-end you will owe
taxes on this investment equal to ________.
A) $9.10
B) $4.25
C) $7.68
D) $5.20
87) An investor pays $989.40 for a bond. The bond has an annual coupon rate of 4.8%. What is
the current yield on this bond?
A) 4.8%
B) 4.85%
C) 9.6%
D) 9.7%
88) If the coupon rate on a bond is 4.5% and the bond is selling at a premium, which of the
following is the most likely yield to maturity on the bond?
A) 4.3%
B) 4.5%
C) 5.2%
D) 5.5%
89) The price of a bond (with par value of $1,000) at the beginning of a period is $980 and at the
end of the period is $975. What is the holding-period return if the annual coupon rate is 4.5%?
A) 4.08%
B) 4.5%
C) 5.1%
D) 5.6%
90) A bond was purchased at a premium and is now selling at a discount because of a change in
market interest rates. If the bond pays a 4% annual coupon, what is the likely impact on the
holding-period return if an investor decides to sell now?
A) increased
B) decreased
C) stayed the same
D) The answer cannot be determined from the information given.
91) The ________ is the document that defines the contract between the bond issuer and the
bondholder.
A) indenture
B) covenant agreement
C) trustee agreement
D) collateral statement
92) Which of the following rates represents a bond's annual interest payment per dollar of par
value?
A) holding period return
B) coupon rate
C) IRR
D) YTM
93) Which type of risk is most significant for bonds?
A) maturity risk
B) default risk
C) interest rate risk
D) reinvestment rate risk
94) Which of the following yield curves generally implies a normal healthy economy?
A) positive slope
B) negative slope
C) flat
D) hump-shaped curve
95) What is the lowest grade a bond can receive and still be considered investment grade?
A) AAA
B) A
C) BBB
D) BB
96) Which country experienced the largest-ever sovereign default in 2012?
A) Germany
B) Ireland
C) Greece
D) Portugal
