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Exam 8: Bond Valuation and the Structure of Interest Rates

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Question 41

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Convertible bonds can be converted into ordinary shares at some predetermined ratio at the discretion of the bondholder.

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Question 42

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Which one of the following statements is NOT true?

A) The realised yield is the return earned on a bond given the cash flows actually received by the investor.
B) The realised yield is equal to the yield to maturity even if the bond is sold prior to maturity.
C) It is the interest rate at which the present value of the actual cash flows generated by the investment equals the bond's price at the time of sale of the bond.
D) All of the above are true.

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Question 43

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If a market is strong-form market efficient, one would be able to beat the market with inside information.

Marketability is the ability of an investor

Yield to maturity: Jane Almeda is interested in a 10-year bond issued by Roberts Company that pays a coupon of 10 percent annually. The current price of this bond is $1,174.45. What is the yield that Jane would earn by buying it at this price and holding it to maturity? (Round to the closest answer.)

Realised yield: Jorge Cabrera paid $980 for a 15-year bond 10 years ago. The bond pays a coupon of 10 percent semiannually. Today, the bond is priced at $1,054.36. If he sold the bond today, what would be his realised yield? (Round to the nearest percent.)

Semi-strong market efficiency implies that only public information that is available to all investors is reflected in a security's market price.

Yield to maturity: Huan Zhang bought a 10-year bond that pays 8.25 percent semiannually for $911.10. What is the yield to maturity on this bond?

Vanilla bonds have coupon payments that are fixed for the life of the bond, with the principal being repaid at maturity.

Which one of the following statements is NOT true?

Which ONE of the following statements is true?

Zero coupon bonds: The Australian Treasury has issued 10-year zero coupon bonds with a face value of $1,000. Assume that coupon payments are normally semiannual. What will be the current market price of these bonds if the opportunity cost for similar investments in the market is 6.75 percent? (Round to the nearest dollar.)

If investors believe inflation will be increasing in the future, the prevailing yield will be downward sloping.

Prices in the corporate bond market tend to be more volatile than securities sold in markets with greater trading volumes.

Bond price: Giant Electronics is issuing 20-year bonds that will pay coupons semiannually. The coupon rate on this bond is 7.8 percent. If the market rate for such bonds is 7 percent, what will the bonds sell for today? (Round to the nearest dollar.)

If market prices reflect all relevant information about securities at a particular point in time, it is called operational efficiency.

Which ONE of the following statements is true?

All other things being equal, a given change in the interest rates will have a greater impact on the price of a low-coupon bond than a higher-coupon bond with the same maturity.

Which one of the following statements about bond price is NOT true?

Public share markets in developed countries like Australia have strong-form of market efficiency.