The correct answer for each question is indicated by a .

1

Consider a bond with the following characteristics:

Face value:

$1,000

Coupon rate:

8%

Payment structure:

Semiannual

Maturity:

5 years

If the annual required rate of return is 6%, what is the bond's fair present value? (nearest dollar)

A)

$1,045

B)

$1,085

C)

$1,427

D)

$ 919

E)

$ 955

2

Bonds of ABC Corp. are currently priced at $932. The bonds have a face value of $1,000. Coupon payments occur twice per year. The bonds have 12 years left until maturity. These bonds are:

A)

premium bonds

B)

money market securities

C)

par bonds

D)

discount bonds

E)

(b) and (c)

3

Consider a bond having:

Face value

$1,000

Maturity

7 years

Coupon rate

8.0%

Payment structure

Annual (just one payment at the end of each year)

If the "required rate of return" is 10%, what is the bond's fair present value? (Nearest dollar)

A)

$ 903

B)

$1,104

C)

$1,054

D)

$1,162

E)

$ 854

4

Today, Maureen purchased a coupon bond for $1,020. It has a face value of $1,000 an 8% coupon rate (with coupons paid just once per year), and a maturity of 4 years. Maureen plans to hold the bond for just one year, and then sell it—and she expects to sell at a price of $1,060. What is Maureen's expected rate of return? (Nearest hundredth of a percent)

A)

3.92%

B)

7.80%

C)

8.00%

D)

14.00%

E)

11.76%

5

A coupon-paying bond has a current price of $945. Its face value is $1,000. Its $70 coupon is paid just once per year (at the end of each year). There are 2 years left until maturity. What is the bond's yield to maturity? (Nearest tenth of a percent)

A)

4.6%

B)

2.9%

C)

7.0%

D)

10.2%

E)

13.6%

6

A bond has three years to maturity. Its coupon rate is 6%--and it pays just once per year. Its face value is $1,000. At its yield to maturity of 5%, it is priced at $1,041. Compute the duration of this bond.

A)

1.9

B)

3.7

C)

3.0

D)

2.8

E)

2.9

7

Suppose we observe a bond currently priced at $1,066. Its face value is $1,000. We would refer to this as a:

A)

Par bond

B)

Premium bond

C)

Junk bond

D)

Discount bond

E)

Deluxe bond

8

A "zero coupon" bond:

A)

has zero sensitivity to interest rate changes

B)

always sells at a premium

C)

has no face value

D)

can never sell at a premium

E)

is a bond issued by a "discount" retailer, such as Wal-Mart.

9

Jackie owns a portfolio of Green & Gold Bonds. The bonds make their coupon payments just once per year. Right now, Jackie's bonds are worth a total of $28,500. The duration of the bonds is 6.0. Their yield to maturity is 9%. If the yield to maturity falls by 1 percentage point, the bonds' value will:

A)

rise by about $1,569.

B)

rise by about $2,420.

C)

fall by about $261.

D)

fall by about $1,569.

E)

fall by about $2,420.

10

Stan intends to buy bonds, but he wants bonds that will show little price change as market interest rates change. Stan will most likely want:

A)

Bonds having low duration

B)

Zero coupon bonds

C)

Premium bonds

D)

Bonds with long maturities

E)

Bonds with lower coupon rates

11

The relationship between bond price and yield to maturity is not linear (i.e., not a "straight-line"). The technical term for this is:

A)

Duration

B)

Modified duration

C)

Convexity

D)

Sensitivity

E)

Required return

12

For semiannually paying bonds: suppose we divide the Macaulay duration by one plus one-half of the bond's yield to maturity. The result is called:

A)

Required rate of return

B)

Convexity

C)

Price sensitivity

D)

Modified duration

E)

Par value

13

The interest rate used to find the "fair present value" of a security is called the:

A)

coupon interest rate

B)

required rate of return

C)

realized rate of return

D)

effective annual rate

E)

expected rate of return

14

Consider a bond that pays coupons semiannually. The face value is $1,000. The current bond price is $1,087. The coupon interest rate is 9%. The bond has 5 years left until maturity. What is this bond's yield to maturity? (Nearest hundredth of a percent)

A)

3.46%

B)

8.98%

C)

6.91%

D)

1.74%

E)

10.37%

15

Consider a bond with: $1,000 face value; yield to maturity of 8.0%; coupon interest rate of 9.0% with annual, end-of-year payments; maturity of 2 years. What is this bond's duration? (Nearest hundredth)

A)

1.46

B)

1.00

C)

1.92

D)

2.00

E)

2.13

16

Mary bought a coupon-paying bond at a price of $1,025. The bond pays one coupon per year, at the end of year. One year after Mary's purchase, she received a coupon of $80; she also sold the bond for $1,010. What was Mary's realized rate of return? (Nearest tenth of a percent)

A)

7.8%

B)

6.3%

C)

8.0%

D)

1.5%

E)

9.3%

17

Consider a zero-coupon bond with face value of $1,000 and 5 years to maturity. The bond's yield to maturity is 9%. What is its duration?

A)

9.00

B)

1.09

C)

1.90

D)

5.00

E)

1.00

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