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Keyser Materials has 8 percent coupon bonds on the market with 19 years to maturity.The bonds make semiannual payments and currently sell for 102 percent of par.What is the current yield? The YTM? The effective annual yield?


A) 7.84 percent; 7.80 percent; 7.95 percent
B) 7.84 percent; 7.92 percent; 7.95 percent
C) 7.84 percent; 7.92 percent; 7.97 percent
D) 7.80 percent; 7.84 percent; 7.92 percent
E) 7.80 percent; 7.92 percent; 7.95 percent

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

Correct Answer

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Last year,Forest Products issued both 5-year and 10-year bonds at par.The bonds each have a coupon rate of 5.5 percent,paid semiannually,and a face value of $1,000.Assume the yield to maturity on each of these bonds is now 7.4 percent.What is the percentage change in the price of the 5-year bond since it was issued? The 10-year bond?


A) -3.39; -6.08
B) -6.08; -6.33
C) -6.48; -12.33
D) -6.48; -10.87
E) -3.39; -5.77

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

Correct Answer

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The primary purpose of protective covenants is to help:


A) reduce interest rate risk.
B) the issuer in case of default.
C) protect bondholders from issuer actions.
D) bondholders whose bonds are called.
E) convert bearer bonds into registered form.

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

Correct Answer

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A bond dealer sells at the _____ price and buys at the _____ price.


A) clean; dirty
B) dirty; clean
C) bid; asked
D) asked; bid
E) asked; asked

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

Correct Answer

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Which one of the following is a unique characteristic of an income bond?


A) Interest income is tax-free.
B) Interest income is paid at the time of issuance.
C) Coupon payments are dependent on the issuer's income.
D) Coupon payments are paid on a regular monthly basis.
E) Coupon payments can be converted into equity shares.

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

Correct Answer

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Which one of the following bonds is the most sensitive to changes in market interest rates?


A) 5-year, zero coupon
B) 5-year, 5 percent coupon
C) 5-year, 8 percent coupon
D) 10-year, zero coupon
E) 10-year, 5 percent coupon

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

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) C) and D)
G) A) and E)

Correct Answer

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A call provision grants the bond issuer the:


A) right to contact each bondholder to determine if he or she would like to extend the term of his or her bonds.
B) option to exchange the bonds for equity securities.
C) right to automatically extend the bond's maturity date.
D) right to repurchase the bonds on the open market prior to maturity.
E) option of repurchasing the bonds prior to maturity at a prespecified price.

F) B) and D)
G) A) and D)

Correct Answer

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Which one of the following represents additional compensation provided to bondholders to offset the possibility that the bond issuer might not pay the interest and/or principal payments as expected?


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

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

Correct Answer

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A 12-year,annual coupon bond is priced at $1,102.60.The bond has a $1,000 face value and a yield to maturity of 5.33 percent.What is the coupon rate?


A) 5.09 percent
B) 5.33 percent
C) 5.74 percent
D) 6.28 percent
E) 6.51 percent

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

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 D)
G) A) and E)

Correct Answer

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A bond has a yield to maturity of 9.38 percent,a coupon of 7.5 percent paid semiannually,a $1,000 face value,and a maturity date 21 years from today.What is the current yield?


A) 7.91 percent
B) 8.47 percent
C) 9.05 percent
D) 9.38 percent
E) 9.46 percent

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

Correct Answer

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The price at which an investor can purchase in the bond market is called the _____ price.


A) asked
B) coupon
C) call
D) face
E) bid

F) All of the above
G) C) and D)

Correct Answer

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A callable bond:


A) is generally call protected during the entire term of the bond issue.
B) generally will have a call protection period during the final three years prior to maturity.
C) may be structured to pay bondholders the current value of the bond on the date of call.
D) is prohibited from having a sinking fund also.
E) is frequently called at a price that is less than par value.

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

Correct Answer

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What term is used to describe an account that a bond trustee manages for the sole purpose of redeeming bonds early?


A) Registered account
B) Bearer account
C) Call account
D) Sinking fund
E) Premium fund

F) B) and D)
G) A) and D)

Correct Answer

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A six-year,semiannual coupon bond is selling for $991.38.The bond has a face value of $1,000 and a yield to maturity of 9.19 percent.What is the coupon rate?


A) 4.50 percent
B) 4.60 percent
C) 6.00 percent
D) 9.00 percent
E) 9.20 percent

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

Correct Answer

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Which one of the following premiums is paid on a corporate bond due to its tax status?


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

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

Correct Answer

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The rate of return an investor earns on a bond prior to adjusting for inflation is called the:


A) nominal rate.
B) real rate.
C) dirty rate.
D) coupon rate.
E) clean rate.

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

Correct Answer

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A protective covenant:


A) protects the borrower from unscrupulous practices by the lender.
B) guarantees the interest and principal payments will be paid in full on a timely basis.
C) prevents a bond from being called.
D) limits the actions of the borrower.
E) guarantees the market price of a bond will never be less than par value.

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

Correct Answer

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Which one of the following terms applies to a bond that initially sells at a deep discount and only makes one payment to bondholders?


A) Callable
B) Income
C) Zero coupon
D) Convertible
E) Tax-free

F) B) and D)
G) All of the above

Correct Answer

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