1) All of the following may serve to lower the risk and therefore reduce the coupon rate that would otherwise be require on a bond EXCEPT a... Select one:
A. restrictive covenant
B. call provision
C. change in the rating from Aa to Aaa
D. none of the above (all would reduce the required coupon rate)
2) A 15-year bond with a face value of $1,000 currently sells for $850. Which of the following statements is most correct? Select one:
A. the bond's yield to maturity is greater that its coupon rate
B. if the yield to maturity stays constant until the bond matures, its price will also remain at $850 until the bond matures
C. the bond?s current yield is equal to the bond's coupon rate D.
3) You intend to purchase a 10-year, $1,000 face value bond that pays interest of $60 every 6 months or $120 per year. If your required rate of return is 10 percent, how much should you pay for this bond? Select one:
A. $ 826.31
B. $ 957.50
C. $1,086.15
D. $1,124.62
4) A $1,000 par value bond has an 8% coupon and pays interest annually. There are 9 years remaining until maturity. The market rate for this and similar bonds is 10%. What is the CURRENT YIELD on this bond? Select one: A. 8.00% B. 8.84% C. 9.04% D. 10.00%.
5) The current price of a 10-year, $1,000 par value bond is $1,156.50. Interest on this bond is paid annually, and the yield is 14 percent. What is the annual coupon payment on this bond? Select one:
A. $210
B. $170
C. $140
D. $115
6) One of the outside articles in this week?s packet talked about the relationship between the way Virginia Tech handled the mass shooting on it?s campus and it?s bond rating. Which of the following is true according to the article? Select one:
A. Moody's Investors Service increased bond rating
B. Moody's Investors Service affirmed V-Tech's high bond rating
C. Moody's Investors Service lowered V-Tech's bond rating
D. None of the above statements are true
7) A 25-year bond with a par value of $1,000 sells for $990.92. The current market interest rate is 10%. How much coupon interest does the bond pay?
Select one:
A. $119.34
B. $98.99
C. $247.45
D. $100.00
8) You wish to buy a 10-year, $1,000 face value bond with a 6% coupon that pays interest semi-annually. If your required rate of return is 10%, how much would you be willing to pay for this bond?
Select one:
A. $404.05
B. $845.56
C. $750.76
D. $1,124.62
9) The longer the time until a bond?s maturity? Select one:
A. the greater the price increase from an increase in interest rates.
B. the less the price increase from an increase in interest rates.
C. the greater the price increase from a decrease in interest rates.
D. the less the price decrease from a decrease in interest rates.
10) You want to invest in corporate bonds but also want to restrict your interest rate risk and default risk associated with such an investment. Which of the following will best meet your investment criteria? Select one:
A. Aaa bond with 10 years to maturity.
B. Baa bond with10 years to maturity.
C. Aaa bond with 5 years to maturity.
D. Baa bond with 5 years to maturity.
11) A 10-year bond with a $1,000 par value currently sells for $1,200. The market rate for similar bonds is 12%. How much interest does the bond pay each year?
Select one:
A. $155
B. $120
C. $100
D. Not enough information to tell
12) When interest rates increase the price of a bond decreases. Select one: True False
13) A highly rated bond (AAA for example) will pay more interest than a lower rated bond Select one: True False