l.

A is a quantitative method used to infer an asset’s value from market information about the
Prices of other assets and market interest rates.

(a) Fixed model

(b) Perpetual valuation model
(c) Valuation model
(d) Variable model
Answer: (c)

2. are examples of fixed-income securities.

(a) Common stock and pension funds

(b) Mortgages and pension annuities
(c) Mutual funds and common stock
(d) Preferred stock and common stock
Answer: (b)

3. Consider a fixed-income security that promises to pay $150 each year for the next five years.
Much is this five-year annuity worth if the appropriate discount rate is 7% per year?

(a) $534.74
(b) $615.03
(c) $802.50
(d) $867.96
Answer: (b)

4. Consider a fixed-income security that promises to pay $120 each year for the next four years.
Calculate the value of this four-year annuity if the appropriate discount rate is 6% per year.

(a) $415.81
(b) $508.80
(c) $531.85
(d) $629.06
Answer: (a)

5. The price of any existing fixed-income security when market interest rates rise because
Employees will only be Willing to they if they offer a competitive yield.

(a) Rises; buy

(b) Rise
(c) Fall; buy
(d) Sell;
Answer: (c)

6. A fall in interest rates causes a in the market value of a fixed-income security.

(a) a rise
(b) a fall
(c) No change
(d) It cannot be determined from the information given
Answer: (a)

7. A change in market interest rates causes in the market values of all existing contracts
Promising fixed payments in the future.

(a) a change in the same direction

(b) a change in the opposite direction
(c) No change
(d) An unpredictable variation
Answer: (b)

8. What happens to the value of a four-year fixed-income security promising $100 per year if the market
Interest rate rises from 5% to 6% per year?

(a) A rise of 1% causes a drop of $4.87 in market value.

(b) A rise of 1% causes a rise of $4.87 in market value.
(c) A rise of 1% causes a drop of $8.09 in market value.
(d) A rise of 1% causes a rise of $8.09 in market value.
Answer: (c)

9. What happens to the value of a four-year fixed-income security promising $100 per year if the market
Interest rate falls from 6% to 5% per year?

(a) A fall of 1% causes a drop of $4.87 in market value.

(b) A fall of 1% causes a rise of $4.87 in market value.
(c) A fall of 1% causes a drop of $8.09 in market value.
(d) A fall of 1% causes a rise of $8.09 in market value.
Answer: (d)

10. A zero-coupon bond is also known as

(a) a perpetual bond

(b) a pure discount bond
(c) a market rebate
(d) An infinite bond
Answer: (b)

11. The promised cash payment on a pure discount bond is called its

(a) Face value

(b) Par value
(o) Fixed interest
(d) Both a and b
Answer: (d)

12. What is the yield of a 1-year pure discount bond with a price of $850 and a face value of $1,000?

(a) 8.50%
(b) 9.09%
(c) 15.00%
(d) 17.65%
Answer: (d)

13. What is the yield of a 1-year pure discount bond with a price of $900 and a face value of $1,000?

(a) 5.26%
(b) 10.00%
(c) 11.11%
(d) 15.79%
Answer: (c)

14. Consider a four-year pure discount bond with a face value of $1,000. If its current price is $850,
Compute its annualized yield.

(a) 1.17%
(b) 4.15%
(c) 5.57%
(d) 17.60%
Answer: (b)

15. Consider a three-year pure discount bond with a face value of $1,000. If its current price is $900,
Compute its annualized yield.

(a) 1.036%
(b) 1.111%
(c) 3.5 %
(d) 5.41%
Answer: (c)

16. Consider a five-year pure discount bond with a face value of $1,000. If its current price is $780, what
Is its annualized yield?

(a) 5.09%
(b) 2.82%
(c) 1.2 8%
(d) 1.05%
Answer: (a)

17. A obligates the issuer to make periodic payments of interest to the bondholder for the life
Of the bond and then to pay the face value of the bond when the bond matures.

(a) Pure discount

(b) Zero-coupon
(c) Perpetual bond
(d) Coupon bond
Answer: (d)

18. The of the bond is interest rate applied to the of the bond to compute the
Periodic payment.

(a) Coupon rate; face value

(b) Maturity rate; face value
(c) Coupon rate; price
(d) Maturity rate; price
Answer: (a)

19. For a bond with a face value of $1,000 and coupon rate of 11%, what is the annual coupon payment?

(a) $100
(b) $110
(c) $1,000
(d) $ 1,100
Answer: (b)

20. For a bond with a face value of $1,000 and a coupon rate of 9%, what is the annual coupon
payment?

(a) $90
(b) $99
(c) $1,000
(d) $1,190
Answer: (a)

21. If the market price of a coupon bond equals its face value, it is also termed a

(a) Par bond

(b) Premium bond
(c) Discount bond
(d) Zero-discount bond
Answer: (a)

22. If the bond's market price is higher than its face value, it is termed a

(a) Par bond

(b) Premium bond
(c) Discount bond
(d) Zero-discount bond
Answer: (b)

23. If the bond's market price is lower than its face value: it is termed a

(a) Par bond

(b) Premium bond
(c) Discount bond
(d) Zero-par bond
Answer: (c)

24. If a bound is selling for $850 has an annual coupon payment of $80 and a face value of 313000, what
is Its current yield?

(a) 8.00%
(b) 9.41%
(c) 17.65%
(d) 27.05%
Answer: (b)

25. If a bond selling for $1,120 has an annual coupon payment of $1 10 and a face value of 31:000: what
Is its current yield?

(a) 8.90%
(b) 9.82%
(c) 10.71%
(d) 11.00%
Answer: (b)

25. If a bond selling for $1,120 has an annual coupon payment of $110 and a face value of $1,000, what
Is its current yield?

(a) 8.90%
(b) 9.82%
(c) 10.71%
(d) 11.00%
Answer: (b)

26. If a bond selling for $900 has an annual coupon payment of $80 and a face value of $1,000, what is
Its current yield?

(a) 8.00%
(b) 8.89%
(c) 11.00%
(d) 20.00%
Answer: (b)

27. The____ Is the discount rate that makes the present value of the bonds stream of promised cash
Payments equal to its price.

(a) Compound rate

(b) Yield to maturity
(c) Coupon rate
(d) Current yield
Answer: (b)

28. Suppose you are considering buying a one-year 11% coupon bond with a face value of $1,000 and a
Current price of $1,020. What is its yield to maturity?

(a) 8.82%
(b) 9.00%
(c) 10.78%
(d) 11.00%
Answer: (a)

29. Suppose you are considering buying a one-year 11% coupon bond with a face value of $1,000 and a
Current price of $1,050. What is its yield to maturity?

(a) 4.76%
(b) 5.71%
(c) 6.00%
(d) 10.48%
Answer: (b)

30. Suppose you are considering buying a five-year 11% coupon bond with a face value of $1,000 and a
Current price of $950. What is its yield to maturity?

(a) 5.62%
(b) 9.63%
(c) 11.58%
(d) 12.40%
Answer: (d)

31. Suppose you are considering buying a five-year 11% coupon bond with a face value of $1,000 and a
Current price of $1,100. What is its yield to maturity?
(a) 3.87%
(b) 8.47%
(c) 10.00%
(d) 13.62%
Answer: (b)

32. Suppose you are considering buying a six-year 10% coupon bond with a face value of $1,000 and a
Current price of $1,100. What are the current yield and yield to maturity of this bond?

(a) CY = 11.00%; YTM = 12.23%

(b) CY = 12.23%; YTM = 11.00%
(c) CY = 7.85%; YTM = 9.09%
(d) CY = 9.09%; YTM = 7.85%
Answer (d)

33. Suppose you are considering buying a seven-year 11% coupon bond with a face value of $1,000 and
a
Current price of $950. What are the current yield and yield to maturity of this coupon bond?

(a) CY =12.10%;YTM =11.58%

(b) CY =11.58%;YTM =12.10%
(c) CY = 9.92%; YTM = 10.45%
(d) CY = 10.45%; YTM = 9.92%
Answer: (b)

34. Over time bond prices their face value. Before maturity: bond prices can a great
Deal as a result of changes in market interest rates.

(a) Diverge from; fluctuate

(b) Convererge toward; flatten out
(c) Converge toward; fluctuate
(d) Diverge from; flatten out
Answer: (c)

35. When the yield curve is not flat: bonds of the same with different coupon rates have
yields to maturity.

(a) Maturity: different

(b) Maturity: identical
(c) Callability, different
(d) Callability, identical
Answer: (a)

36. Bonds offering the same future stream of promised payments can different in a number of ways: but
the Two most important are and

(a) Taxability, issue origin

(b) Type of issuer; default risk
(c) Type of issuer; taxability
(d) Taxability, default risk
Answer: (d)

37. A is one that gives the holder of a bond issued by a corporation the right to convert the
Bond into a pre-specified number of shares of common stock.

(a) Callable bond

(b) Convertible bond
(c) Stock bond
(d) Preferred bond
Answer: (b)

38. A is one that gives the issuer of the bond the right to redeem it before the final maturity
Date.

(a) Callable bond

(b) Convertible bond
(c) Stock bond
(d) Preferred bond
Answer: (a)

39. Five years ago: English and Co. issued 25-year coupon bonds with par value $1,000. At the time 01
Issuance: the yield to maturity was 6 percent and the bonds sold at par.
Selling at 110 percent of their par value. Assuming that the coupon is paid annually, what is the
Current yield to maturity?

(a) 3.77%
(b) 5.18%
(c) 5.2 7%
(d) 5.46%
Answer: (b)

40. Potemkin Corporation plans to raise $10,000,000 in funds by issuing zero coupon $1,000 par value
Bonds with a 25 year maturity. Potemkin Corporation is able to issue these bonds at an after tax cost
Of debt of 12%. To the nearest whole number. how many bonds must Potemkin Corporation issue?

(a) 10,000 bonds

(b) 42,919 bonds
(c) 125,837 bonds
(d) 170,000 bonds
Answer: (d)

41. Calculate the years to maturity for a bond based on the following information. The bond trades at
$950, it has a par value of $1,000: a coupon rate of 11%, and a required rate of return of 12%.

(a) 8 years
(b) 12 years
(c) 15 years
(d) 16 years
Answer: (a)

42. Compute the current price of Walsingham bonds based on the following information. Walsingham
Bonds have a $1,000 par value, have 20 years remaining until maturity, a 12 percent coupon rate, and
a yield to maturity of 10.5 percent.

(a) $858.42
(b) $982.47
(c) $1,119.52
(d) $1,124.41
Answer: (d)

43. Compute the yield to maturity of Arundel bonds based on the following information. Arundel bonds
Have a $1,000 par value, 25 years remaining until maturity, an 11% coupon rate, and a current market
Price of $1,187.

(a) 4.5 5%
(b) 9.08%
(c) 9.27%
(d) 13.17%
Answer: (b)

44. When prices of US Treasury strips are listed, principal from a Treasury bond is when d by the letters

(a) Ci
(b) Tb
(c) BP
(d) NP
Answer: (c)

45. The is the price at which dealers in Treasury bonds are willing to sell.

(a) Bid price

(b) Paid yield
(c) Ask price
(d) Maturity price
Answer: (c)

46. The is the price at which dealers are willing to buy.

(a) Bid price

(b) Ask price
(c) Paid yield
(d) Maturity price
Answer: (a)

47. The bid price of a bond is always the ask price.

(a) Greater than

(b) Less than
(c) Identical to
(d) It varies from case to case
Answer: (b)

48. The of a bond price measures the sensitivity of the bond price to a change in the yield to
Maturity.

(a) Callability
(b) Convertibility
(c) Immutability
(d) Elastic
Answer: (d)

49. Suppose you buy a 25-year pure discount bond with a face value of $1,000 and a yield of 6% per
year.
A day later market interest rates drop to 5% and so does the yield on your bond. What is the
Proportional change in the price of your bond?

(a) a decrease of 26.74%

(b) a decrease of 21.10%
(c) An increase of 26.74
(d) An increase of 21.20
Answer: (c)

50. Suppose you buy a 25-year pure discount bond with a face value of 31:000 and a yield of 6% per
year. A day later market interest rates rise to 5% and so does the yield on your bond. What is the
elasticity of the bond price to the change in the yield?

(a) -0.62%
(b) -1.27%
(c) -1.60%
(d) -2.67%

Answer: (c)