Question

Which one of the following is most likely for a CCC-rated bond, compared to a BBB-rated bond?

A) The CCC bond will have a shorter term.

B) The CCC bond will have a variable-coupon rate.

C) The CCC bond will offer a higher promised yield to maturity.

D) The CCC bond will have a higher price for the same term.

2) Periodic receipts of interest by the bondholder are known as:

A) principal payments.

B) coupon payments.

C) the default premium.

D) the coupon rate.

The existence of an upward-sloping yield curve suggests that:

A) bonds will not return as much as common stocks.

B) real interest rates will be increasing soon.

C) interest rates may be increasing in the future.

D) bonds should be selling at a discount to par value.

Which one of these statements is not correct?

A) When a foreign government borrows dollars, investors worry that in some future crisis the government will not have sufficient dollars to repay the debt.

B) When a Eurozone government borrows euros, investors worry that in some future crisis the government will not have sufficient euros to repay the debt.

C) When the U.S. government issues Treasury bonds, investors never need to worry that they will not be paid back.

D) When the Japanese government borrows yen, investors worry that in some future crisis the government will not have sufficient yen to repay the debt.

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?

A) $911.15

B) $848.12

C) $862.92

D) $923.50

Which of these bond ratings is the lowest of Moody's investment-grade ratings?

A) Aa

B) Baa

C) Ba

D) A

7) 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%?

A) $897.04

B) $895.78

C) $938.40

D) $1,312.66

Which one of the following is fixed for the life of a given bond?

A) Current yield

B) Yield to maturity

C) Coupon rate

D) Current price

9) What is the coupon rate for a bond with 3 years until maturity, a price of $1,053.46, and a yield to maturity of 6%? Interest is paid annually

A) 11 %

B) 8%

C) 10%

D) 6%

Answer 1

Which one of the following is most likely for a CCC-rated bond, compared to a BBB-rated bond?

C) The CCC bond will offer a higher promised yield to maturity.

2) Periodic receipts of interest by the bondholder are known as:

B) coupon payments.

3) The existence of an upward-sloping yield curve suggests that:

C) interest rates may be increasing in the future.

Which one of these statements is not correct?

B) When a Eurozone government borrows euros, investors worry that in some future crisis the government will not have sufficient euros to repay the debt.

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?

ytm=(1000/691.72)^(1/5)-1=7.65%

Price 3 years later=1000/1.0765^2=862.92

C) $862.92

Which of these bond ratings is the lowest of Moody's investment-grade ratings?

C) Ba

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%?

Price=(6%*1000/2)/(7.5%/2)*(1-1/1.0375^20)+1000/1.0375^20=895.78

B) $895.78

Which one of the following is fixed for the life of a given bond?

C) Coupon rate

9) What is the coupon rate for a bond with 3 years until maturity, a price of $1,053.46, and a yield to maturity of 6%? Interest is paid annually

1053.46=Coupon rate*1000/6%*(1-1/1.06^3)+1000/1.06^3

Coupon rate=8%

B) 8%