Bond and Investment Quiz

ABC Corporation has 4-year, 5% annual coupon bonds outstanding. Given a 6.5% yield to maturity, determine the duration of these bonds.

• 2.52

• 3.02

• 4.52

• 4.02

• 3.52

Ajax Corporation issued 10,000 units of $1,000 face value bonds that mature in 20 years and have a 4% coupon rate that is paid semiannually. If the bonds were sold at 103.5% of their face value, calculate the yield to maturity at the end of year 8.

• 3.71%

• 3.50%

• 3.64%

• 3.75%

• 3.58%

Which of the following will a bond indenture will not include?

• Protective covenants.

• Security or collateral.

• Maturity date.

• Yield to Maturity.

• Sinking fund provision.

The rate of return earned by an investor who purchases a bond today and holds it for the remainder of the term is called the:

• Compound rate.

• Coupon rate.

• Yield to maturity.

• Yield to call.

• Yield to market.

Margaret wants to compute the present value of a six year semiannual 8% coupon bond that has a 9% yield to maturity. Which one of the following is correct?

• The number of interest payments is twelve.

• The current price of the bond will be greater than the par value.

• The bond is selling at a premium.

• The amount of each interest payment is $80.

• The present value is assumed to be $1,000.

Interest rates or rates of return on investment that have been adjusted for the effects of inflation are called:

• Nominal rates.

• Real rates.

• Stripped rates.

• Coupon rates.

• Effective rates.

As the yield to maturity increases, the:

• Lower the rate of return desired by the investor.

• Amount the investor is willing to pay to buy a bond decreases.

• Higher the price the investor offers to buy a bond.

• Lower the coupon rate desired by that investor.

• Longer the time to maturity.

A zero-coupon bond:

• Is sold at a large premium.

• Has a price equal to the future value of the face amount given a specified rate of return.

• Is initially sold at a deep discount.

• Can only be issued by the Canadian Government.

• Has less interest rate risk than a comparable coupon bond.

Norwegian Adventures offers a 6.5% coupon bond with annual payments. The yield to maturity is 6.71% and the maturity date is 7 years from today. What is the market price of this bond if the face value is $1,000?

• $811.63

• $988.57

• $692.07

• $981.31

• $1,193.35

Atlas Movers is issuing $1,000 face value zero-coupon bonds at a quoted price of 38.70. What is the amount you would pay to purchase one of these bonds?

• $1,000.00

• $961.30

• $1,038.70

• $38.70

• $387.00