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Exam 7: Equity Valuation

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Question 61

Multiple Choice

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The interest rate risk premium is the:

A) additional compensation paid to investors to offset rising prices.
B) compensation investors demand for accepting interest rate risk.
C) difference between the yield to maturity and the current yield.
D) difference between the market interest rate and the coupon rate.
E) difference between the coupon rate and the current yield.

F) All of the above
G) A) and D)

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Question 62

Multiple Choice

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Callable bonds generally:

A) grant the bondholder the option to call the bond anytime after the deferment period.
B) are callable at par as soon as the call-protection period ends.
C) are called when market interest rates increase.
D) are called within the first three years after issuance.
E) have a sinking fund provision.

F) C) and D)
G) C) and E)

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Question 63

Multiple Choice

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Treasury bonds are:

A newly issued bond has a 7 percent coupon with semiannual interest payments.The bonds are currently priced at par value.The effective annual rate provided by these bonds must be:

Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity.What is the $1,000 called?

The collar of a floating-rate bond refers to the minimum and maximum:

All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity.

Bonner Metals wants to issue new 18-year bonds for some much-needed expansion projects.The company currently has 11 percent bonds on the market that sell for $1,459.51, make semiannual payments, and mature in 18 years.What should the coupon rate be on the new bonds if the firm wants to sell them at par?

A corporate bond is quoted at a price of 103.16 and carries a 5.20 percent coupon.The bond pays interest semiannually.What is the current yield on one of these bonds?

Which one of the following is the price a dealer will pay to purchase a bond?

A 6-year, $1,000 face value bond issued by Taylor Tools pays interest semiannually on February 1 and August 1.Assume today is October 1.What will the difference, if any, be between this bond's clean and dirty prices today?

Which of the following correctly describe U.S.Treasury bonds? I.have a "tick" size of 1/32 II.highly liquid III.quoted in dollars and cents IV.quoted at the dirty price

The Walthers Company has a semi-annual coupon bond outstanding.An increase in the market rate of interest will have which one of the following effects on this bond?

Blackwell bonds have a face value of $1,000 and are currently quoted at 98.4.The bonds have a 5 percent coupon rate.What is the current yield on these bonds?

An investment offers a 10.5 percent total return over the coming year.Sam Bernanke thinks the total real return on this investment will be only 6.2 percent.What does Sam believe the inflation rate will be for the next year?

The Corner Grocer has a 7-year, 6 percent annual coupon bond outstanding with a $1,000 par value.The bond has a yield to maturity of 5.5 percent.Which one of the following statements is correct if the market yield suddenly increases to 7 percent?

A call-protected bond is a bond that:

Which one of the following statements concerning bond ratings is correct?

A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus any accrued interest.The additional $30 is called which one of the following?

You own a bond that has a 6 percent annual coupon and matures 5 years from now.You purchased this 10-year bond at par value when it was originally issued.Which one of the following statements applies to this bond if the relevant market interest rate is now 5.8 percent?