22 TEST LEVEL QUESTIONS ON FINANCE

Question 1

•   ABC’s Inc.’s bonds currently sell for $1,280 and have a par value of $1,000.  They pay a $135 annual coupon

  and have a 15-year maturity, but they can be called in 5 years at $1,050.  What is their yield to call (YTC)?Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 2

•   The yield to maturity

  on a Marshall Co. premium bond is 7.6 percent. This is the:Answer

 

  

  

  

  

.

  coupon

rate.

nominal rate.

effective rate.

real rate.

current yield

  

Question 3

•   The 14 percent, $1,000 face value

  bonds of Tim McKnight, Inc., are currently selling at $1,085.61. What is the current yield?Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box. 

Question 4

•   ABC Inc., has $1,000 face value bonds outstanding. These bonds mature in 3 years, and have a 6.5 percent coupon. The current price is quoted at 98.59 percent of par value. Assume semi-annual payments. What is the yield to maturity?Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box. 

Question 5

•   ABC wants to issue 17-year, zero coupon bonds that yield 8.87 percent. What price should they charge for these bonds if they have a par value of $1,000? That is, solve for PV. Assume annual compounding.Hint: zero coupon bonds means PMT = 0Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box. 

Question 6

•   A bond which sells for less than the face value is called a:Answer

 

  

  

  

  

  

perpetuity.

debenture.

par value bond.

discount bond.

premium bond.

  

Question 7

•   ABC has issued a bond with the following characteristics:Par: $1,000; Time to maturity: 19 years; Coupon rate: 4%;Assume semi-annual coupon payments. Calculate the price of this bond if the YTM is 7.76%Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.   

Question 8

•   You paid $1,167 for a corporate bond that has a 6.52% coupon rate

  .

  What is the current yield?Hint: if nothing is mentioned, then assume par value = $1,000Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.   

Question 9

•   A premium bond is a bond that:Answer

 

  

  

  

  

  

is callable within 12 months or less.

has a face value in excess of $1,000.

is selling for less than par value.

has a par value which exceeds the face value.

has a market price which exceeds the face value.

  

Question 10

•   ABC Corp. issued 15-year bonds 2 years ago at a coupon rate of 10.6%. The bonds make semi-annual payments. If these bonds currently sell for 97% of par value, what is the YTM?Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.   

Question 11

•   The 13 percent coupon bonds of the Peterson Co. are selling for 891.47 percent of par value. The bonds mature in 5 years and pay interest semi-annually. These bonds have current yield of _____ percent.  

Question 12

•   A firm’s bonds have maturity of 10 years with a $1000 face value, an 8% semi-annual coupon, are callable in 5 years, at $1,050, and currently sells at a price of $1,100. What is the yield to call (YTC)?Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.  

Question 13

•   ABC has issued a bond with the following characteristics:Par: $1,000; Time to maturity: 8 years; Coupon rate: 9%;Assume semi-annual coupon payments. Calculate the price of this bond if the YTM is 8.7%Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.  

Question 14

•   The principal amount of a bond that is repaid at the end of term is called the par value or the:Answer

 

  coupon

  

  

  face value  coupon rate

back-end amount

discount amount

  

Question 15

•   The rate required in the market on a bond is called the:Answer

 

  

  current yield

  yield to maturity  

  

call yield

risk premium

liquidity premium

  

Question 16

•   A discount bond has a yield to maturity that:Answer

 

  

  

  is equal to the

  

  

exceeds the coupon rate.

equals zero.

current yield.

is less than the coupon rate.

equals the bond’s coupon rate.

  

Question 17

•   Stealers Wheel Software has 10.4% coupon bonds on the market with nine years to maturity. The bonds make semi-annual payments and currently sell for 866.32% of par. What is the current yield?Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.Answer

  

Question 18

•   The 8 percent coupon bonds of the Peterson Co. are selling for 98 percent of par value. The bonds mature in 5 years and pay interest semi-annually. These bonds have a yield to maturity of _____ percent. 

Question 19

•   BCD’s $1,000 par value bonds currently sell for $798.40. The coupon rate is 10%, paid semi-annually. If the bonds have 5 years to maturity, what is the yield to maturity?Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.  

Question 20

•   ABC has issued a bond with the following characteristics:Par: $1,000; Time to maturity: 18 years; Coupon rate: 6%;Assume annual coupon payments. Calculate the price of this bond if the YTM is 7.82%Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.  

Question 21

•   ABC’s bonds have a 9.5 percent coupon and pay interest semi-annually. Currently, the bonds are quoted at 106.315 percent of par value. The bonds mature in 8 years. What is the yield to maturity?  

Question 22

•   Assume that you wish to purchase a 16-year bond that has a maturity value of $1,000 and a coupon interest rate of 6%, paid semiannually. If you require a 10.52% rate of return on this investment (YTM), what is the maximum price that you should be willing to pay for this bond? That is, solve for PV.Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.