Author: DS
Question Status: Previous Edition
Use the information for the question(s) below.
Security: Treasury AAA Corporate BBB Corporate B Corporate
Yield (%): 5.2 5.4 6.2 6.9
93) The above table shows the yields to maturity on a number of one–year, zero–coupon securities. What is the
price per $100 of the face value of a one–year, zero–coupon corporate bond with a BBB rating?
A) $92.21
B) $93.54
C) $94.16
D) $94.87
94) The above table shows the yields to maturity on a number of one–year, zero–coupon securities. What is the
credit spread on a one–year, zero–coupon corporate bond with a B rating?
A) 0.7%
B) 1.7%
C) 1.8%
D) 6.9%
95) A firm issues ten–year bonds with a coupon rate of 6.5%, paid semiannually. The credit spread for this firm’s
ten–year debt is 0.8%. New ten–year Treasury notes are being issued at par with a coupon rate of 5%. What
should the price of the firm‘s outstanding ten–year bonds be per $100 of face value?
A) $97.28
B) $98.27
C) $100.86
D) $105.26
96) A firm issues 20–year bonds with a coupon rate of 4.8%, paid semiannually. The credit spread for this firm’s
20–year debt is 1.2%. New 20–year Treasury notes are being issued at par with a coupon rate of 4.6%. What
should the price of the firm‘s outstanding 20–year bonds be if their face value is $1000?
A) $882.53
B) $975.98
C) $977.48
D) $1000.86
97) Security: AAA Corporate AA Corporate A Corporate BBB Corporate BB Corporate
Yield (%): 5.6 5.7 5.9 6.4 7.0
A mining company needs to raise $100 million in order to begin open pit mining of a coal seam. The
company will fund this by issuing 30–year bonds with a face value of $1000 and a coupon rating of 6%, paid
annually. The above table shows the yield to maturity for similar 30–year corporate bonds of different
ratings. If the mining company’s bonds receive a A rating, what will be their selling price?
A) $947.22
B) $967.64
C) $1013.91
D) $1016.41
98) Security: AAA Corporate AA Corporate A Corporate BBB Corporate BB Corporate
Yield (%): 6.2 6.4 6.7 7.0 7.5
Consolidated Insurance wants to raise $35 million in order to build a new headquarters. The company will
fund this by issuing 10–year bonds with a face value of $1,000 and a coupon rating of 6.5%, paid
semiannually. The above table shows the yield to maturity for similar 10–year corporate bonds of different
ratings. Which of the following is closest to how many more bonds Consolidated Insurance would have to
sell to raise this money if their bonds received an A rating rather than an AA rating?
A) 686
B) 750
C) 765
D) 1156
99) Security: AAA Corporate AA Corporate A Corporate BBB Corporate BB Corporate
Yield (%): 5.7 5.8 6.0 6.6 6.9
Lloyd Industries raised $28 million in order to upgrade its roller kiln furnace for the production of ceramic
tile. The company funded this by issuing 15–year bonds with a face value of $1000 and a coupon rating of
6.2%, paid annually. The above table shows the yield to maturity for similar 15–year corporate bonds of
different ratings issued at the same time. When Lloyd Industries issued their bonds, they received a price of
$962.63. Which of the following is most likely to be the rating these bonds received?
A) AA
B) A
C) BBB
D) BB
100) A corporate bond which receives a BBB rating from Standard and Poor’s is considered
A) a junk bond.
B) an investment grade bond.
C) a defaulted bond.
D) a high–yield bond.
Use the table for the question(s) below.
Consider the following yields to maturity on various one–year zero–coupon securities:
Security
Yield (%)
Treasury
4.6
AAA corporate
4.8
BBB corporate
5.6
B Corporate
6.2
101) The price (expressed as a percentage of the face value) of a one–year, zero–coupon, corporate bond with a
BBB rating is closest to:
A) 95.60
B) 94.16
C) 95.42
D) 94.70
102) The price (expressed as a percentage of the face value) of a one–year, zero–coupon corporate bond with a
AAA rating is closest to:
A) 94.70
B) 95.60
C) 94.16
D) 95.42
103) The credit spread of the BBB corporate bond is closest to:
A) 1.0%
B) 5.6%
C) 1.6%
D) 0.8%
104) The credit spread of the B corporate bond is closest to:
A) 1.6%
B) 0.8%
C) 1.0%
D) 1.4%
similar ten–year corporate bonds of various credit ratings:
Rating
AAA
AA
A
BBB
BB
YTM
6.70%
6.80%
7.00%
7.40%
8.00%
105) Assuming that Luther’s bonds receive a AAA rating, the price of the bonds will be closest to:
A) $1021
B) $1014
C) $1000
D) $937
106) Assuming that Luther’s bonds receive a AAA rating, the number of bonds that Luther must issue to raise the
needed $25 million is closest to:
A) 24,655
B) 25,000
C) 24,477
D) 26,681
107) Assuming that Luther’s bonds receive a AA rating, the price of the bonds will be closest to:
A) $1021
B) $1014
C) $1000
D) $937
108) Assuming that Luther’s bonds receive a AA rating, the number of bonds that Luther must issue to raise the
needed $25 million is closest to:
A) 24,655
B) 25,000
C) 24,477
D) 26,681
109) What rating must Luther receive on these bonds if they want the bonds to be issued at par?
A) A
B) B
C) BBB
D) AA
110) Suppose that when these bonds were issued, Luther received a price of $972.42 for each bond. What is the
likely rating that Luther’s bonds received?
A) AA
B) BBB
C) B
D) A
