mcq finance 2

Question 1

ABC has issued a bond with the following characteristics:

Par: $1,000; Time to maturity: 13 years; Coupon rate: 11%;Assume annual

coupon

payments. Calculate the price of this bond if the YTM is 10.44%

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 2 ABC wants to issue 8-year, zero coupon bonds that yield 6.94 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 3ABC’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 4ABC has issued a bond with the following characteristics:Par: $1,000; Time to maturity: 16 years; Coupon rate: 11%;Assume semi-annual coupon payments. Calculate the price of this bond if the YTM is 11.69%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 5BCD’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 6ABC 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 7You paid $1,183 for a corporate bond that has a 5.38% 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 8A premium bond is a bond that: is selling for less than par value. has a market price which exceeds the

face value

. has a par value which exceeds the face value. is callable within 12 months or less. has a face value in excess of $1,000.Question 9The 10.4 percent, $1,000 face value bonds of Tim McKnight, Inc., are currently selling at $1,001.77. 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 10The yield to maturity on a Marshall Co. premium bond is 7.6 percent. This is the: nominal rate. effective rate. real rate. current yield. coupon rate.Question 11A bond which sells for less than the face value is called a: par value bond. discount bond. debenture. premium bond. perpetuity.Question 12Stealers Wheel Software has 9.99% coupon bonds on the market with nine years to maturity. The bonds make semi-annual payments and currently sell for 104.68% 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.Question 13The 14.11 percent coupon bonds of the Peterson Co. are selling for $855.87. The bonds mature in 5 years and pay interest semi-annually. These bonds have current yield of _____ percent.Enter your answer in percentages rounded off to two decimal points.Question 14The 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 15ABC’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 16ABC 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?

Question 17

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.

Answer

 

Question 18

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

Answer

face value

coupon rate

coupon

back-end amount

discount amount

 

Question 19

ABC has issued a bond with the following characteristics:

Par: $1,000; Time to maturity: 11 years; Coupon rate: 11%;

Assume semi-annual coupon payments. Calculate the price of this bond if the YTM is 6.28%

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.Answer 

Question 20

Assume that you wish to purchase a 12-year bond that has a maturity value of $1,000 and a coupon interest rate of 8%, paid semiannually. If you require a 4.03% 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.Answer    

Question 21

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

Answer

current yield

yield to maturity

liquidity premium

risk premium

call yield

 

Question 22

A discount bond has a yield to maturity that:

Answer

exceeds the coupon rate.

equals zero.

is equal to the current yield.

is less than the coupon rate.

equals the bond’s coupon rate.