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____ 1. A 15-year 8% bond with a face value of $1000 is currently trading at $958. The yield to maturity of this bonda. must be less than 8%.
b. must be to 8%.
c. must be greater than 8%.
d. is unknown.
____ 2. Of the following bonds, which has the highest degree of interest rate risk?
a. 20 year 8% bond
b. 5 year 8% bond
c. 10 year 8% bond
d. There is not enough information to answer the question.
____ 3. Bavarian Sausage just issued a 10-year 7% coupon bond. The face value of the bond is $1000 and the bond makes annual coupon payments. If the required return on the bond is 10%, what is the bond’s price?
a. $815.66
b. $923.67
c. $1000.00
d. $1256.35
____ 4. Bavarian Sausage just issued a 10-year 7% coupon bond. The face value of the bond is $1000 and the bond makes semiannual coupon payments. If the required return on the bond is 10%, what is the bond’s price?
a. $815.66
b. $1000
c. $813.07
d. $1035.27
____ 5. What is the value of a 15-year 10% coupon bond with a face value of $1000. The required return on the bond is 12% and the bond makes semiannual payments.
a. $862.35
b. $1167.39
c. $925.76
d. $1000
____ 6. The value of any asset
a. is based upon the benefits provided by the asset in prior years.
b. is based upon the benefits that the asset will provide the owner of the asset this year.
c. equals the present value of future benefits accruing to the asset’s owner.
d. is based upon the cost of the asset in prior years.
____ 7. Which answer is false regarding bond prices and interest rates?
a. Bond prices and interest rates move in opposite directions.
b. The price of a bond is the present value of coupon payments and the face value.
c. The prices of short-term bonds display greater price sensitivity to interest rate changes than do the prices of long-term bonds.
d. Interest rate risk can be described as the changes in market interest rates that will cause fluctuations in the bond’s price.
____ 8. Which of these statements is/are correct?
Statement I: A change in a bond’s interest rate risk has a greater price impact on bonds with longer maturities.
Statement II: Government bonds have lower default risk than corporate bonds or government bonds.
Statement III: Trading volume is greater for corporate bonds than government bonds.
a. Statement I only
b. Statement II only
c. Statements I and II
d. Statements II and III
____ 9. A bond is trading on the secondary market and will mature in 10 years. The bond has a face value of $1000 that will be paid at maturity. Furthermore, the bond pays an annual coupon at 9% of face value. What should the trading price be for the bond if investors seek a 12% on their investment?
a. $1192.53
b. $830.49
c. $827.95
d. $508.52
____ 10. The greater the uncertainty about an asset’s future benefits,
a. the lower the discount rate investors will apply when discounting those benefits to the present.
b. the higher the discount rate investors will apply when discounting those benefits to the present.
c. the greater the present value of those benefits.
d. the lesser the present value of those benefits.
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