Solved MCQs
Bond Prices and Yields
1. A coupon bond that pays interest annually has a par value of $1,000, matures in 6 years, and has a yield to maturity of 11%. The intrinsic value of the bond today will be ______ if the coupon rate is 7.5%.
A) $712.99
B) $851.93
C) $1,123.01
D) $886.28
E) $1,000.00
Moderate
Rationale: FV = 1000, PMT = 75, n = 6, i = 11, PV = 851.93.
2. A coupon bond that pays interest annually has a par value of $1,000, matures in 8 years, and has a yield to maturity of 9%. The intrinsic value of the bond today will be ______ if the coupon rate is 6%.
A) $833.96
B) $620.92
C) $1,123.01
D) $886.28
E) $1,000.00
Rationale: FV = 1000, PMT = 60, n = 8, i = 9, PV = 833.96
3. A coupon bond that pays interest semi-annually has a par value of $1,000, matures in 6 years, and has a yield to maturity of 9%. The intrinsic value of the bond today will be __________ if the coupon rate is 9%.
A) $922.78
B) $924.16
 |
| http://groups.google.com/group/vuZs |
| Visit this group |
C) $1,075.80
D) $1,000.00
E) none of the above
Rationale: FV = 1000, PMT = 45, n = 12, i = 4.5, PV = 1000.00
4. A coupon bond that pays interest semi-annually has a par value of $1,000, matures in 7 years, and has a yield to maturity of 11%. The intrinsic value of the bond today will be __________ if the coupon rate is 8.8%.
A) $922.78
B) $894.51
C) $1,075.80
D) $1,077.20
E) none of the above
Rationale: FV = 1000, PMT = 44, n = 14, i = 5.5, PV = 894.51
5. 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
Rationale: FV = 1000, PMT = 90, n = 9, PV = -934, i = 10.15%
6. A coupon bond that pays interest of $40 semi annually has a par value of $1,000, matures in 4 years, and is selling today at a $36 discount from par value. The yield to maturity on this bond is __________.
A) 8.69%
B) 9.09%
C) 10.43%
D) 9.76%
E) none of the above
Rationale: FV = 1000, PMT = 40, n = 8, PV = -964, i = 9.09%
7. You purchased an annual interest coupon bond one year ago that now has 18 years remaining until maturity. The coupon rate of interest was 11% and par value was $1,000. At the time you purchased the bond, the yield to maturity was 10%. The amount you paid for this bond one year ago was
A) $1,057.50
B) $1,075.50
C) $1,083.65
D) $1.092.46
E) $1,104.13
Rationale: FV = 1000, PMT = 110, n = 19, i = 10, PV = 1,083.65
8. You purchased an annual interest coupon bond one year ago that had 9 years remaining to maturity at that time. The coupon interest rate was 10% and the par value was $1,000. At the time you purchased the bond, the yield to maturity was 8%. If you sold the bond after receiving the first interest payment and the yield to maturity continued to be 8%, your annual total rate of return on holding the bond for that year would have been _________.
A) 8.00%
B) 7.82%
C) 7.00%
D) 11.95%
E) none of the above
Rationale: FV = 1000, PMT = 100, n = 9, i = 8, PV = 1124.94; FV = 1000, PMT = 100, n = 8, i = 8, PV = 1114.93; HPR = (1114.93 - 1124.94 + 100) / 1124.94 = 8%
9. Consider two bonds, F and G. Both bonds presently are selling at their par value of $1,000. Each pays interest of $90 annually. Bond F will mature in 15 years while bond G will mature in 26 years. If the yields to maturity on the two bonds change from 9% to 10%, ____________.
A) both bonds will increase in value, but bond F will increase more than bond G
B) both bonds will increase in value, but bond G will increase more than bond F
C) both bonds will decrease in value, but bond F will decrease more than bond G
D) both bonds will decrease in value, but bond G will decrease more than bond F
E) none of the above
Rationale: The longer the maturity, the greater the price change when interest rates change.
10. A zero-coupon bond has a yield to maturity of 12% and a par value of $1,000. If the bond matures in 18 years, the bond should sell for a price of _______ today.
A) 422.41
B) $501.87
C) $513.16
D) $130.04
E) none of the above
Rationale: $1,000/(1.12)18 = $130.04
for more contents visit
11. A zero-coupon bond has a yield to maturity of 11% and a par value of $1,000. If the bond matures in 27 years, the bond should sell for a price of _______ today.
A) $59.74
B) $501.87
C) $513.16
D) $483.49
E) none of the above
Rationale: $1,000/(1.11)27 = $59.74
12. You have just purchased a 12-year zero-coupon bond with a yield to maturity of 9% and a par value of $1,000. What would your rate of return at the end of the year be if you sell the bond? Assume the yield to maturity on the bond is 10% at the time you sell.
A) 10.00%
B) 20.42%
C) -1.4%
D) 1.4%
E) none of the above
Rationale: $1,000/(1.09)12 = $355.53; $1,000/(1.10)11 = $350.49; ($350.49 - $355.53)/$355.53 = -1.4%.
13. You have just purchased a 7-year zero-coupon bond with a yield to maturity of 11% and a par value of $1,000. What would your rate of return at the end of the year be if you sell the bond? Assume the yield to maturity on the bond is 9% at the time you sell.
A) 10.00%
B) 23.8%
C) 13.8%
D) 1.4%
E) none of the above
Rationale: $1,000/(1.11)7 = $481.66; $1,000/(1.09)6 = $596.27; ($596.27 - $481.66)/$481.66 = 23.8%.
14. A convertible bond has a par value of $1,000 and a current market price of $975. The current price of the issuing firm's stock is $42 and the conversion ratio is 22 shares. The bond's market conversion value is ______.
A) $729
B) $924
C) $870
D) $1,000
E) none of the above
Rationale: 22 shares X $42/share = $924.
15. A convertible bond has a par value of $1,000 and a current market price of $1105. The current price of the issuing firm's stock is $20 and the conversion ratio is 35 shares. The bond's market conversion value is ______.
A) $700
B) $810
C) $870
D) $1,000
E) none of the above
Rationale: 35 shares X $20/share = $700.
16. A convertible bond has a par value of $1,000 and a current market value of $950. The current price of the issuing firm's stock is $22 and the conversion ratio is 40 shares. The bond's conversion premium is _________.
A) $40
B) $70
C) $190
D) $200
E) none of the above
Rationale: $950 - $880 = $70.
17. A convertible bond has a par value of $1,000 and a current market value of $1150. The current price of the issuing firm's stock is $65 and the conversion ratio is 15 shares. The bond's conversion premium is _________.
A) $40
B) $150
C) $175
D) $200
E) none of the above
Rationale: $1150 - $975 = $175.
18. If a 7% coupon bond that pays interest every 182 days paid interest 32 days ago, the accrued interest would be
A) 5.67
B) 7.35
C) 6.35
D) 6.15
E) 7.12
Rationale: $35*(32/182) = $6.15
19. If a 7.5% coupon bond that pays interest every 182 days paid interest 62 days ago, the accrued interest would be
A) 11.67
B) 12.35
C) 12.77
D) 11.98
E) 12.15
Rationale: $37.5*(62/182) = $12.77
20. If a 9% coupon bond that pays interest every 182 days paid interest 112 days ago, the accrued interest would be
A) 27.69
B) 27.35
C) 26.77
D) 27.98
E) 28.15
Rationale: $45*(112/182) = $27.69
for more contents visit
--
Regards
Umeed
MBA 3rd Sem
