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Exam 9: Bond Prices and Yields

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Question 21

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You purchased a 5-year annual interest coupon bond one year ago. Its coupon interest rate was 6% and its par value was $1 000. At the time you purchased the bond, the yield to maturity was 4%. If you sold the bond after receiving the first interest payment and the bond's yield to maturity had changed to 3%, your annual total rate of return on holding the bond for that year would have been approximately ________.

A) 5.0%
B) 5.5%
C) 7.6%
D) 8.9% PV₀ = 60

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Question 22

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The invoice price of a bond is the ________.

A) stated or flat price in a quote sheet plus accrued interest
B) stated or flat price in a quote sheet minus accrued interest
C) bid price
D) average of the bid and ask price

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Question 23

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An investor pays $989.40 for a bond. The bond has an annual coupon rate of 4.8%. What is the current yield on this bond?

Which one of the following statements is correct?

A coupon bond which pays interest of 4% annually, has a par value of $1 000, matures in 5 years, and is selling today at $785. The actual yield to maturity on this bond is ________.

Yields on tax-exempt bonds are typically ________ yields on corporate bonds of similar risk and time to maturity.

A bond has a 5% coupon rate. The coupon is paid semi-annually and the last coupon was paid 35 days ago. If the bond has a par value of $1 000, what is the accrued interest?

A coupon bond which pays interest of $60 annually, has a par value of $1 000, matures in 5 years, and is selling today at a $75.25 discount from par value. The current yield on this bond is ________.

The bonds of Elbow Grease Dishwashing Company have received a rating of 'C' by Moody's. The 'C' rating indicates the bonds are ________.

A zero-coupon bond has a yield to maturity of 5% and a par value of $1 000. If the bond matures in 16 years, it should sell for a price of ________ today.

Which of the following bonds would most likely sell at the lowest yield?

A 1% decline in yield will have the least effect on the price of the bond with a ________.

Consider a newly issued TIPS bond with a three year maturity, par value of $1000, and a coupon rate of 5%. Assume annual coupon payments. What is the nominal rate of return on the TIPS bond in the first year?

Consider two bonds, A and B. Both bonds presently are selling at their par value of $1 000. Each pay interest of $120 annually. Bond A will mature in 5 years while Bond B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to 14%, ________.

Consider the following $1 000 par value zero-coupon bonds: The expected one-year interest rate four years from now should be ________.

TIPS are an example of ________.

A ________ bond is a bond where the issuer has an option to retire the bond before maturity at a specific price after a specific date.

A ________ bond is a bond where the bondholder has the right to cash in the bond before maturity at a specific price after a specific date.

Assuming semiannual compounding, a 20-year zero coupon bond with a par value of $1 000 and a required return of 12% would be priced at ________.

Everything else equal, ________ bonds will require a higher promised YTM than ________ bonds.