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82. How much should you be prepared to pay for a 10-year bond with an annual coupon of
6% and a yield to maturity of 7.5%?
83. How much should you be prepared to pay for a 10-year bond with a 6% coupon,
semiannual payments, and a semiannually compounded yield of 7.5%?
84. The market price of a bond with 12 years until maturity and an annual coupon rate of 8%
increased yesterday. Which one of these may have caused this price increase?
85. An investor buys a 5-year, 9% coupon bond for $975, holds it for 1 year, and then sells the
bond for $985. What was the investor's rate of return?
86. An investor buys a 10-year, 7% coupon bond for $1,050, holds it for 1 year, and then sells
it for $1,040. What was the investor's rate of return?
87. Assume an investor purchased a fixed-coupon bond at a time when the bond's yield to
maturity was 6.9%. Further assume the investor sold the bond prior to maturity and realized a
total return of 7.1%. Which of these most likely occurred while the investor owned the bond?
88. A bond has an ask quote of 99.5625 and a bid quote of 99.5475. How much will the bond
dealer make on the purchase and resell of a $100,000 bond?
89. What are the conditions imposed on a debt issuer that are designed to protect
bondholders called?
90. The holder of which one of these securities has first claim on the assets of a firm?
91. When market interest rates exceed a bond's coupon rate, the bond will:
92. Which one of the following is most apt to be correct for a CCC-rated bond, compared to a
BBB-rated bond?
93. Which of these bond ratings is the lowest of Moody's investment-grade ratings?
94. If a bond offers an investor 11% in nominal return during a year in which the rate of
inflation is 4%, then the investor's real return is:
95. How much would an investor need to receive in nominal return if he desires a real return
of 4% and the rate of inflation is 5%?
96. If you purchase a 5-year, zero-coupon bond for $691.72, how much could it be sold for 3
years later if interest rates have remained stable?
97. If you purchase a 3-year, 9% annual coupon bond for $1,002.03, how much could it be
sold for 2 years later if interest rates have remained stable?
98. What causes bonds to sell for a premium?
99. The current yield tends to overstate a bond's total return when the bond sells for a
premium because:
100. The current yield tends to understate a bond's total return when the bond sells for a
discount because:
101. When comparing a highly liquid bond with a comparable but less liquid bond, the highly
liquid bond is most apt to have:
102. Which one of these statements is correct?
103. Describe the process for calculating a yield to maturity for a bond, and explain what could
cause the yield to maturity to change.
104. Assume you just purchased a 12% annual coupon bond for $1,100 that matures in 3
years. Determine the current yield, yield to maturity, and price of the bond as of the date of
purchase and on each anniversary date of its purchase until maturity.
105. You own two bonds: a 5-year and a 10-year bond, each with a 7% annual coupon. Both
bonds currently sell at par. How much will the price of each bond change if interest rates
increase to 8%? Why is there a difference in the price change?
106. Why are long-term bonds more sensitive to changes in interest rates than short-term
bonds?
107. Explain why bond prices fluctuate in response to changing interest rates. What adverse
effect might occur if bond prices remain fixed prior to their maturity?
108. Describe the shape of the normal yield curve. Why is that shape fairly typical?
109. Explain why bond investors may be interested in TIPS rather than traditional bonds. Why
have TIPS not been popular lately?
110. What is meant by "default risk" in bonds, and how do investors respond to it?
111. Why should many investors be cautious when relying on yield to maturity? Is it a
convenient measure of rate of return for investors who might not hold their bonds to maturity?
112. Why might a bond's current yield offer an incomplete idea of what return the investor is
receiving?
113. Why might an investor prefer a convertible bond over a regular bond?
114. What are the differences between a bond's coupon rate, its current yield, and its yield to
maturity?
115. How can one find the market price of a bond given its yield to maturity and find a bond's
yield given its price? Why do prices and yields vary inversely?
116. Describe two bond characteristics that increase a bond's price sensitivity to changes in
market rates of interest.
117. Why do investors pay attention to bond ratings and demand a higher interest rate for
bonds with low ratings?
118. What might cause investors to rationally stay away from long-term bonds even when the
yield curve is upward-sloping?
119. One-year Treasury bonds yield 5% while 2-year bonds yield 6%. You are quite confident
that one year from now 1-year bonds will yield 8%. Would the higher yield on 2-year bonds cause
you to prefer them?
