Question 1
A Treasury bond due in one year has a yield of 4.3%; a Treasury bond due in 5 years has a yield of 5.06%. A bond issued by Boeing due in 5 years has a yield of 7.63%; a bond issued by Caterpillar due in one year has a yield of 7.16%. The default risk premiums on the bonds issued by Boeing and Caterpillar, respectively, are
A. 3.33% and 2.10%
B. 2.57% and 2.86%
C. 1.2% and 1.0%
D. 0.76% and 0.47%
E. none of the above
Question 2
Subordination clauses in bond indentures
A. may restrict the amount of additional borrowing the firm can undertake.
B. are always bad for investors.
C. provide higher priority to senior creditors in the event of bankruptcy.
D. all of the above are true.
E. both A and C are true.
Question 3
The yield to maturity of a 20-year zero coupon bond that is selling for $372.50 with a value at maturity of $1,000 is ________.
A. 5.1%
B. 8.8%
C. 10.8%
D. 13.4%
E. none of the above
Question 4
A coupon bond that pays interest of $90 annually has a par value of $1,000, matures in 9 years, and is selling today at a $66 discount from par value. The yield to maturity on this bond is __________.
A. 9.00%
B. 10.15%
C. 11.25%
D. 12.32%
E. none of the above
Question 5
A coupon bond pays interest semi-annually, matures in 5 years, has a par value of $1,000 and a coupon rate of 12%, and an effective annual yield to maturity of 10.25%. The price the bond should sell for today is ________.
A. $922.77
B. $924.16
C. $1,075.80
D. $1,077.20
E. none of the above
Question 6
A coupon bond that pays interest annually is selling at par value of $1,000, matures in 5 years, and has a coupon rate of 9%. The yield to maturity on this bond is:
A. 8.0%
B. 8.3%
C. 9.0%
D. 10.0%
E. none of the above
Question 7
The yield curve is a component of
A. the producer price index.
B. the index of leading economic indicators.
C. the inflation index.
D. the Dow Jones Industrial Average.
E. the consumer price index.
Question 8
Forward Rates
Year 1-Year Forward Rate
1 5%
2 5.5%
3 6.0%
4 6.5%
5 7.0%
Calculate the price at the beginning of year 1 of an 8% annual coupon bond with face value $1,000 and 5 years to maturity.
A. $1,105.47
B. $1,150.01
C. $1,131.91
D. $1,084.25
E. $719.75
