59.
Comparing Bond Yields A client in the 35 percent marginal tax bracket is comparing a
municipal bond that offers a 4.25 percent yield to maturity and a similar-risk corporate
bond that offers a 5.10 percent yield. Which bond will give the client more profit after
taxes?
60.
TIPS Total Return Reconsider a 3.25 percent TIPS that was issued with CPI reference of
186.7. The bond is purchased at the beginning of the year (after the interest payment),
when the CPI was 197.5. For the interest in the middle of the year, the CPI was 201.1.
Now, at the end of the year, the CPI is 202.4 and the interest payment has been made.
What is the total return of the TIPS in percentage terms for the year? (Assume semi–
annual interest payments and $1,000 par value.)
61.
Bond Prices and Interest Rate Changes A 6.75 percent coupon bond with 10 years left to
maturity is priced to offer a 6.5 percent yield to maturity. You believe that in one year, the
yield to maturity will be 6.65 percent. If this occurs, what would be the total return of the
bond in percent? (Assume semi-annual interest payments and $1,000 par value.)
62.
Bond Prices and Interest Rate Changes A 7.25 percent coupon bond with 25 years left to
maturity is priced to offer a 7 percent yield to maturity. You believe that in one year, the
yield to maturity will be 7.15 percent. If this occurs, what would be the total return of the
bond in percent? (Assume semi-annual interest payments and $1,000 par value.)
63.
Yields of a Bond A 3.25 percent coupon municipal bond has 12 years left to maturity and
has a price quote of 98.75. The bond can be called in five years. The call premium is one
year of coupon payments. What is the bond’s taxable equivalent yield for an investor in the
35 percent marginal tax bracket? (Assume interest payments are paid semi–annually and a
par value of $5,000.)
64.
Yields of a Bond A 4.5 percent coupon municipal bond has 10 years left to maturity and
has a price quote of 97.75. The bond can be called in four years. The call premium is one
year of coupon payments. What is the bond’s taxable equivalent yield for an investor in the
33 percent marginal tax bracket? (Assume interest payments are paid semi-annually and a
par value of $5,000.)
65.
Bond Ratings and Prices A corporate bond with a 5.75 percent coupon has 15 years left
to maturity. It has had a credit rating of BB and a yield to maturity of 6.25 percent. The
firm has recently gotten more financially stable and the rating agency is upgrading the
bonds to BBB. The new appropriate discount rate will be 6.00 percent. What will be the
change in the bond’s price in dollars? (Assume interest payments are paid semi-annually
and a par value of $1,000.)
66.
Which of the following was the catalyst for the recent financial crisis?
67.
Which of the following is NOT true about EE savings bonds?
68.
If Zeus Energy bonds are upgraded from BBB- to BBB+, which of the following statements
is true?
69.
A 6.5 percent coupon bond with 12 years left to maturity can be called in four years. The
call premium is one year of coupon payments. It is offered for sale at $1,190.25. What is
the yield to call of the bond? (Assume interest payments are paid semi-annually and par
value is $1,000.)
70.
A 7.5 percent coupon bond with 16 years left to maturity is offered for sale at $834.92.
What yield to maturity is the bond offering? (Assume interest payments are paid semi–
annually and par value is $1,000.)
71.
An 8 percent coupon bond with 15 years to maturity is priced to offer a 9 percent yield to
maturity. You believe that in one year, the yield to maturity will be 6.5 percent. What is the
change in price the bond will experience in dollars? (Assume annual interest payments
and par value is $1,000.)
72.
Calculate the price of a 6.5 percent coupon bond with 27 years left to maturity and a
market interest rate of 5 percent. (Assume interest payments are semiannual and par
value is $1,000.) Is this a discount or premium bond?
73.
Calculate the price of a 6.5% coupon bond with 17 years left to maturity and a market
interest rate of 10.5%. (Assume interest rates are semiannual and par value is $1,000.) Is
this a discount or premium bond?
74.
Calculate the price of a zero coupon bond that matures in 20 years if the market interest
rate is 8.5 percent. (Assume annual compounding and a par value of $1,000.)
75.
What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4
percent for an investor in the 28 percent tax bracket?
76.
Rank from lowest credit risk to highest credit risk the following bonds, with the same time
to maturity, by their yield to maturity: Treasury bond with yield of 5.55 percent, IBM bond
with yield of 7.95 percent, Trump Casino bond with a yield of 9.15 percent and Banc Ono
bond with a yield of 6.12 percent.
77.
Consider a 4.5 percent TIPS with an issue CPI reference of 187.2. At the beginning of this
year, the CPI was 199.5 and was 213.7 at the end of the year. What was the capital gain of
the TIPS in dollars?
78.
Rank from highest credit risk to lowest credit risk the following bonds, with the same time
to maturity, by their yield to maturity: Treasury bond with yield of 6.55 percent, IBM bond
with yield of 10.95 percent, Trump Casino bond with a yield of 9.15 percent, and Banc Ono
79.
Consider the following bond quote: a municipal bond quoted at 101.25. If the municipal
bond has a par value of $5,000, what is the price of the bond in dollars?
80.
A 3.75 percent TIPS has an original reference CPI of 183.9. If the current CPI is 214.7,
what is the current interest payment? (Assume semi-annual interest payments and a par
value of $1,000.)
81.
A 5.125 percent TIPS has an original reference CPI of 191.8. If the current CPI is 188.3,
what is the par value of the TIPS?
82.
A 7.5 percent coupon bond with nine years left to maturity is priced to offer a 10.4 percent
yield to maturity. You believe that in one year, the yield to maturity will be 8 percent. What
is the change in price the bond will experience in dollars? (Assume interest payments are
semiannual and par value is $1,000.)
83.
A 6.75 percent coupon bond with 13 years left to maturity can be called in two years. The
call premium is one year of coupon payments. It is offered for sale at $919.75. What is the
yield to call of the bond? Assume interest payments are paid semi-annually and par value
is $1,000.
84.
A 5.5 percent coupon municipal bond has 16 years left to maturity and has a price quote of
92.55. The bond can be called in nine years. The call premium is one year of coupon
payments. Compute the bond’s current yield. Assume interest payments are paid semi-
annually and a par value of $5,000.
85.
A 5.5 percent coupon municipal bond has 16 years left to maturity and has a price quote of
92.55. The bond can be called in nine years. The call premium is one year of coupon
payments. Compute the bond’s yield to maturity and yield to call. Assume interest
payments are paid semi-annually and a par value of $5,000.