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Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value?


A) Interest rate risk premium
B) Inflation premium
C) Liquidity premium
D) Taxability premium
E) Default risk premium

F) B) and D)
G) D) and E)

Correct Answer

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The 6.9 percent bond of Peters Pickles has a face value of $1,000, a maturity of 15 years, semiannual interest payments, and a yield to maturity of 7.11 percent.What is the current market price of the bond?


A) $990.80
B) $987.95
C) $980.82
D) $1,081.28
E) $952.60

F) C) and D)
G) None of the above

Correct Answer

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A $1,000 face value bond currently has a yield to maturity of 7.14 percent.The bond matures in sixteen years and pays interest semiannually.The coupon rate is 6.95 percent.What is the current price of this bond?


A) $987.42
B) $988.57
C) $1,001.52
D) $982.05
E) $1,138.63

F) B) and E)
G) C) and D)

Correct Answer

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A semiannual 5.4 percent coupon bond currently sells for par value.What is the maturity on this bond?


A) The bond must mature in one year.
B) The bond could have any maturity date.
C) The bond must be maturing today.
D) The bond must mature in 10 years.
E) The bond must be a perpetual security.

F) B) and C)
G) C) and D)

Correct Answer

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Municipal bonds are:


A) generally purchased by tax-exempt investors.
B) risk-free.
C) issued by federal, state, and local governmental bodies.
D) zero coupon bonds.
E) generally callable.

F) A) and C)
G) A) and D)

Correct Answer

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The written agreement that contains the specific details related to a bond issue is called the bond:


A) indenture.
B) debenture.
C) document.
D) registration statement.
E) issue paper.

F) B) and C)
G) C) and D)

Correct Answer

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The App Store needs to raise $2.8 million for expansion.The firm wants to raise this money by selling 20-year, zero-coupon bonds with a par value of $1,000.The market yield on similar bonds is 6.49 percent.How many bonds must the company sell to raise the money it needs? Assume semiannual compounding.


A) 2,800 bonds
B) 9,450 bonds
C) 11,508 bonds
D) 10,315 bonds
E) 10,044 bonds

F) A) and D)
G) A) and C)

Correct Answer

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If your nominal rate of return is 8.68 percent and your real rate of return is 2.05 percent, what is the inflation rate?


A) 5.32 percent
B) 6.50 percent
C) 6.29 percent
D) 6.63 percent
E) 16.77 percent

F) B) and C)
G) None of the above

Correct Answer

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The 6.4 percent bond of Berberich, Inc.has a yield to maturity of 6.9 percent.The bond matures in eleven years, has a face value of $1,000, and pays semiannual interest payments.What is the amount of each coupon payment?


A) $30.00
B) $32.00
C) $34.50
D) $69.00
E) $64.00

F) None of the above
G) B) and C)

Correct Answer

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An unexpected decrease in market interest rates will cause a:


A) coupon bond's current yield to increase.
B) zero coupon bond's price to decrease.
C) fixed-rate bond's coupon rate to decrease.
D) zero coupon bond's current yield to decrease.
E) coupon bond's yield to maturity to decrease.

F) A) and D)
G) A) and C)

Correct Answer

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Clock and Cane Company.has 6.8 percent, semiannual coupon bonds on the market with twelve years left to maturity.If the bond currently sells for $989.45, what is its YTM?


A) 8.02 percent
B) 7.90 percent
C) 8.10 percent
D) 6.93 percent
E) 6.78 percent

F) D) and E)
G) B) and E)

Correct Answer

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The term structure of interest rates represents the relationship between which of the following?


A) Nominal rates on risk-free and risky bonds
B) Real rates on risk-free and risky bonds
C) Nominal and real rates on default-free, pure discount bonds
D) Market and coupon rates on default-free, pure discount bonds
E) Nominal rates on default-free, pure discount bonds and time to maturity

F) A) and E)
G) B) and E)

Correct Answer

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A floating-rate bond frequently has a:


A) flexible deferred call period.
B) fixed yield to maturity but a flexible coupon payment.
C) government guarantee.
D) fixed-dollar obligation.
E) put provision.

F) A) and E)
G) B) and C)

Correct Answer

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The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of those securities.


A) face value
B) market price
C) maturity
D) coupon rate
E) issue date

F) A) and E)
G) A) and C)

Correct Answer

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Phili Manufacturing, Inc.bonds have a face value of $1,000, a coupon rate of 6.5 percent, semiannual interest payments, and mature in 19 years.What is the current price of these bonds if the yield to maturity is 6.65 percent?


A) $972.46
B) $989.56
C) $983.95
D) $639.17
E) $1,001.28

F) B) and E)
G) A) and E)

Correct Answer

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A fourteen-year, semiannual coupon bond is selling for $ 898.56.The bond has a face value of $1,000 and a yield to maturity of 6.03 percent.What is the coupon rate?


A) 9.54 percent
B) 4.23 percent
C) 6.03 percent
D) 4.95 percent
E) 10.54 percent

F) B) and D)
G) C) and D)

Correct Answer

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Bond ratings classify bonds based on:


A) liquidity, market, and default risk.
B) liquidity, interest rate, and default risk.
C) default risk only.
D) interest rate, inflation rate, and default risk.
E) default and liquidity risks.

F) B) and E)
G) A) and B)

Correct Answer

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A bond trader just purchased and resold a bond.The amount of profit earned by the trader from this purchase and resale is referred to as the:


A) market yield.
B) yield-to-call.
C) bid-ask spread.
D) current yield.
E) bond premium.

F) A) and B)
G) A) and C)

Correct Answer

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Miller Farm Products is issuing a 15-year, unsecured bond.Based on this information, you know that this debt can be described as a:


A) note.
B) bearer form bond.
C) debenture.
D) registered form bond.
E) call protected bond.

F) B) and E)
G) C) and D)

Correct Answer

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A corporate bond pays 6.25 percent interest.How much would a municipal bond have to pay to be equivalent to this on an after tax basis if you are in the 28 marginal percent tax bracket?


A) 7.82 percent
B) 5.79 percent
C) 4.50 percent
D) 7.26 percent
E) 8.38 percent

F) A) and E)
G) D) and E)

Correct Answer

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