Question

QUESTION 4

IBM's bonds currently sell for $1,040 and have a par value of $1,000. They pay $65 annual coupon and have a 15 year maturity, but may be called in 5 years at $1,000. What is their Yield to Maturity (YTM)?

		5.78%
		6.39%
		6.71%
		6.09%

QUESTION 5

Bob's corporation's bonds make an annual payment of 7.35%. The bonds have a par value of $1,000, a current price of $1,130, and mature in 12 years. What is the yield to maturity on these bonds?

		5.8
		6.11
		6.41
		6.73

QUESTION 6

Which of the following events would make it more likely that a company would call its outstanding callable bonds?

		Market interest rates decline sharply
		Market interest rates increase sharply
		Inflation increases
		The bonds ratings are downgraded

QUESTION 7

A bond that had a 20 year original maturity with 1 year left to maturity has more price risk than a 10 year original maturity bond with 1 year left to maturity. (assume that the bonds are non-callable, have equal coupon rates, and equal default risk).

		True
		False
		All of the above
		None of the above

QUESTION 8

There is an inverse relationship between bonds' quality rating and rate of return. Thus the required rate of return is lowest for AAA-rated bonds and required rates of return increase as the ratings get lower.

		True
		False
		Can't tell from this information
		Depends on other factors generally

QUESTION 9

A company that issues a bond with a set interest rate

		Can change the coupon under certain circumstances
		Can vary the coupon at will
		Can not change the coupon
		None of the above

QUESTION 10

Because short-term interest rates are much more volatile than long-term rates, you would, in the real world, generally be subject to much more price risk if you purchased a 30-day bond than if you bought a 30-year bond.

		True
		False

10 points   

QUESTION 11

A 15 year bond with a face value of $1,000 currently sells for $850. Which statement is correct below?

		The bond's coupon rate will exceed it's current yield
		The bond's current yield exceeds it's YTM
		The bond's YTM is greater than it's coupon rate
		None of the above.

Answer 1

	QUESTION 4
	Current Price	$1,040
	Annual Coupon	$65
	Number of years to maturity	15
	Terminal payment at end of 15 years	$1,000
	Yield to maturuty =Internal rate of return
	Yield to maturuty	6.09%	(Using RATE function of excel with Nper=15,Pmt=65, PV=-1040, FV=1000)
	ANSWER: 6.09%
	QUESTION5
	Current Price	$1,130
	Annual Coupon	$73.5	(1000*0.0735)
	Number of years to maturity	12
	Terminal payment at end of 15 years	$1,000
	Yield to maturuty =Internal rate of return
	Yield to maturuty	5.8%	(Using RATE function of excel with Nper=12,Pmt=73.5, PV=-1130, FV=1000)
	ANSWER: 5.8%
	QUESTION6
	Answer: Market Rates decline sharply
	If the market rates declinines sharply,
	The company will isssue a fresh bond with low interest rate
	And utilise the money to call the old bonds
	QUESTION 8
	TRUE
	QUESTION9
	Can not change the coupon
	QUESTION 10
	FALSE
	Longer the bond duration , higher is the risk
	Higher the sensitivity of bond price with change in interest rate
	QUESTION 11
	The bond's YTM is greater than it's coupon rate
	The Bond is selling at a discount
	YTM is the market yield
	Since YTM is higher than coupon rate,the Bond is selling at a discount