Business Finance (3)

1. Investors of government bonds require an 8% per annum real return. The inflation rate (CPI) is 5.50%. What is the exact nominal rate?

• 2.50%

• 13.50%

• 10.50%

• 13.94%

2. A 7% Commonwealth government bond has three years to maturity. Given that the bond pays interest semi-annually (i.e. twice a year) and an interest payment has just been made, what is the present value of the bond if the market interest rate is 9% and the face value of the bond is $100 000?

• $88 693.18

• $94 842.13

• $101 522.78

• $105 875.28

. The interest rate of return that has not been adjusted for inflation is called a:

• real rate

• nominal rate

• yield to maturity

• floating rate

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

• yield to maturity

• call yield

• liquidity premium

• current yield

A bond that pays no regular interest payments is called a(n) _____ bond.

• zero coupon

• convertable

• income

• exotic

The lowest rating a bond can receive from Moody's and still be classified as investment grade is:

• A

• BBB

• Ba

• Baa

Bond ratings primarily help potential investors measure the likelihood that the bond issuer will:

• increase the coupon rate.

• increase the size of the firm in a significant manner.

• pay both the bond interest and principal in a timely fashion.

• . convert the bond prior to maturity.

Aussie Investments Pty Ltd is an investor in the money market and regularly buys and sells bank-accepted bills. Today they are selling a bill that matures in 60 days. Sixty-day bills of a similar risk are priced at an interest rate of 6.00% per annum. What price can Aussie Investments expect to receive if the face value is $100 000?

• $94 340

• $99 023

• $90 923

• $95 250

The yield to maturity on a discount bond is:

• . equal to both the coupon rate and the current yield.

• equal to the current yield but greater than the coupon rate.

• greater than both the current yield and the coupon rate.

• less than the current yield but greater than the coupon rate.

The term structure of interest rates represents the relationship between which of the following?

• Nominal rates on risk-free and risky bonds

• Real rates on risk-free and risky bonds

• Nominal and real rates on default-free, pure discount bonds

• Nominal rates on default-free, pure discount bonds and time to maturity