Yields & Fixed Income solved questions

Answer Options:
tax risk
inflation risk
interest rate risk
credit risk
exchange rate risk

Answer: D — credit risk

Question: A bond will sell at a discount when:

Answer Options:
the coupon rate exceeds the yield to maturity
the coupon rate equals the yield to maturity
the coupon rate is less than the yield to maturity
the current yield exceeds the coupon rate
the bond is callable

Answer: C — the coupon rate is less than the yield to maturity

Question: A newly issued bond has a coupon rate of 6 percent and pays interest semiannually. If it sells at par, the yield to maturity must be:

Answer Options:
3 percent
6 percent
greater than 3 percent but less than 6 percent
greater than 6 percent
less than 3 percent

Answer: B — 6 percent

Question: For a premium bond, which one of the following is true?

Answer Options:
Yield to maturity exceeds the coupon rate
Current yield exceeds the coupon rate
Yield to maturity is less than the coupon rate
Current yield equals the coupon rate
Price is below par

Answer: C — Yield to maturity is less than the coupon rate

Question: Which one of the following is most likely to be listed in a bond indenture?

Answer Options:
The current market price of the bond
The names of all current bondholders
A list of collateral securing the bond
The current yield on the bond
The bid-ask spread

Answer: C — A list of collateral securing the bond

Question: Which one of the following statements is true for a premium bond?

Answer Options:
Coupon rate < Current yield < Yield to maturity
Coupon rate > Current yield > Yield to maturity
Current yield > Coupon rate > Yield to maturity
Yield to maturity > Coupon rate > Current yield
Coupon rate = Current yield = Yield to maturity

Answer: B — Coupon rate > Current yield > Yield to maturity

Question: All else constant, the price of a bond will increase when the:

Answer Options:
coupon rate decreases
maturity decreases
market rate of interest decreases
default risk increases
tax rate increases

Answer: C — market rate of interest decreases

Question: You bought a bond at par when issued. Its coupon rate is 8 percent, and the market rate is now 6 percent. If you sell the bond today, you will most likely realize a:

Answer Options:
capital loss
capital gain
zero gain because coupon rates are fixed
zero gain because par value is fixed
gain only if the bond is callable

Answer: B — capital gain

Question: Which type of bond will generally have the greatest price volatility?

Answer Options:
Short-term, high-coupon bond
Short-term, low-coupon bond
Long-term, high-coupon bond
Long-term, low-coupon bond
Floating-rate bond

Answer: D — Long-term, low-coupon bond

Question: Which bond feature allows a bond investor to benefit if the issuing firm’s stock price rises substantially?

Answer Options:
Call provision
Warrant
Negative covenant
Sinking fund
Put provision

Answer: B — Warrant

Question: A 12-year bond with a 8.2 percent coupon rate, paid semiannually, sells for $1,047.25. What is the yield to maturity?

Answer Options:
6.90%
7.59%
8.20%
7.12%
8.68%

Answer: B — 7.59%

Question: A 14-year bond with a 6.1 percent coupon rate, paid semiannually, has a yield to maturity of 6.9 percent. What is the bond’s price?

Answer Options:
$1,026.60
$892.89
$928.91
$947.17
$1,078.88

Answer: C — $928.91

Question: An 11-year zero coupon bond with a face value of $1,000 yields 7.3 percent, compounded semiannually. What is its current price?

Answer Options:
$454.44
$547.81
$422.18
$389.60
$611.25

Answer: A — $454.44

Question: A 10-year bond with a 7 percent coupon rate, paid semiannually, sells for $944.25. What is its yield to maturity?

Answer Options:
6.40%
7.12%
7.81%
8.20%
9.05%

Answer: C — 7.81%

Question: A bond has a 6.8 percent annual coupon and sells for $955.40. What is its current yield?

Answer Options:
6.80%
7.12%
7.64%
7.81%
6.40%

Answer: B — 7.12%

Question: A zero coupon bond has a face value of $1,000 and sells for $422.18. If the yield to maturity is 8.4 percent, compounded semiannually, how many years remain until maturity?

Answer Options:
9.60 years
10.48 years
12.48 years
14.25 years
17.39 years

Answer: B — 10.48 years

Question: A 9-year bond with a face value of $1,000 has a 7.2 percent coupon rate and pays interest semiannually. If the yield to maturity is 6.8 percent, what is the market price?

Answer Options:
$950.27
$1,026.60
$947.17
$1,078.88
$892.89

Answer: B — $1,026.60

Question: What is a common side effect of traditional antipsychotic medications?

Answer Options:
A – Kidney dysfunction
B – Extrapyramidal symptoms
C – Weight loss
D – Hearing impairments

Answer: B – Extrapyramidal symptoms