投资经济学题目

投资经济学题目Chapter 14 Bond Prices and Yields Multiple Choice Questions 1. The current yield on a bond is equal to _. A) the internal rate of return B) the yield to maturity C) annual interest divided by the par value D) annual interest divided by the current market price E) none of the above Answer: D Difficulty: Easy Rationale: D is current yield and is quoted as such in the financial press. 2. Of the following four investments, _ is considered to be the safest. A) commercial paper B) corporate bonds C) Treasury bills D) Treasury bonds E) U. S. Agency issues Answer: C Difficulty: Easy Rationale: Only Treasury issues are insured by the U. S. government; the shorter-term the instrument, the safer the instrument. 3. The bonds of Elbow Grease Dishwashing Company have received a rating of "D" by Moody's. The "D" rating indicates A) the bonds are insured. B) the bonds are junk bonds. C) the bonds are referred to as "high yield" bonds. D) A and B. E) B and C. Answer: E Difficulty: Easy Rationale: D ratings are risky bonds, often called junk bonds (or high yield bonds by those marketing such bonds). 298 Bodie, Investments, Sixth Edition Chapter 14 Bond Prices and Yields 4. To earn a high rating from the bond rating agencies, a firm should have A) a low times interest earned ratio. B) a low debt to equity ratio. C) a high quick ratio. D) A and C. E) B and C. Answer: E Difficulty: Easy Rationale: High values for the times interest and quick ratios and a low debt to equity ratio are desirable indicators of safety. 5. At issue, coupon bonds typically sell _. A) above par value B) at or near par value C) below par D) at a value unrelated to par E) none of the above Answer: B Difficulty: Easy Rationale: If the investment banker has appraised the market and the quality of the bond correctly, the bond will sell at or near par (unless interest rates have changed very dramatically and very quickly around the time of issuance). 6. Accrued interest A) is quoted in the bond price in the financial press. B) must be paid by the buyer of the bond and remitted to the seller of the bond. C) must be paid to the broker for the inconvenience of selling bonds between maturity dates. D) A and B. E) A and C. Answer: B Difficulty: Moderate Rationale: Accrued interest must be paid by the buyer, but is not included in the quotations page price. Bodie, Investments, Sixth Edition 299 Chapter 14 Bond Prices and Yields 7. The bond market A) can be quite "thin". B) primarily consists of a network of bond dealers in the over the counter market. C) consists of many investors on any given day. D) A and B. E) B and C. Answer: D Difficulty: Easy Rationale: The bond market, unlike the stock market, can be a very thinly traded market. In addition, most bonds are traded by dealers. 8. Ceteris paribus, the price and yield on a bond are A) positively related. B) negatively related. C) sometimes positively and sometimes negatively related. D) not related. E) indefinitely related. Answer: B Difficulty: Easy Rationale: Bond prices and yields are inversely related. 9. The _ is a measure of the average rate of return an investor will earn if the investor buys the bond now and holds until maturity. A) current yield B) dividend yield C) P/E ratio D) yield to maturity E) discount yield Answer: D Difficulty: Easy Rationale: The current yield is the annual interest as a percent of current market price; the other choices do not apply to bonds. 300 Bodie, Investments, Sixth Edition Chapter 14 Bond Prices and Yields 10. The _ gives the number of shares for which each convertible bond can be exchanged. A) conversion ratio B) current ratio C) P/E ratio D) conversion premium E) convertible floor Answer: A Difficulty: Easy Rationale: The conversion premium is the amount for which the bond sells above conversion value; the price of bond as a straight bond provides the floor. The other terms are not specifically relevant to convertible bonds. 11. A coupon bond is a bond that _. A) pays interest on a regular basis (typically every six months) B) does not pay interest on a regular basis but pays a lump sum at maturity C) can always be converted into a specific number of shares of common stock in the issuing company D) always sells at par E) none of the above Answer: A Difficulty: Easy Rationale: A coupon bond will pay the coupon rate of interest on a semiannual basis unless the firm defaults on the bond. Convertible bonds are specific types of bonds. 12. A _ bond is a bond where the bondholder has the right to cash in the bond before maturity at a specified price after a specific date. A) callable B) coupon C) put D) Treasury E) zero-coupon Answer: C Difficulty: Easy Rationale: Any bond may be redeemed prior to maturity, but all bonds other than put bonds are redeemed at a price determined by the prevailing interest rates. Bodie, Investments, Sixth Edition 301 Chapter 14 Bond Prices and Yields 13. Callable bonds A) are called when interest rates decline appreciably. B) have a call price that declines as time passes. C) are called when interest rates increase appreciably. D) A and B. E) B and C. Answer: D Difficulty: Easy Rationale: Callable bonds often are refunded (called) when interest rates decline appreciably. The call price of the bond (approximately par and one year's coupon payment) declines to par as time passes and maturity is reached. 14. A Treasury bond due in one year has a yield of 6.2%; a Treasury bond due in 5 years has a yield of 6.7%. A bond issued by General Motors due in 5 years has a yield of 7.9%; a bond issued by Exxon due in one year has a yield of 7.2%. The default risk premiums on the bonds issued by Exxon and General Motors, respectively, are A) 1.0% and 1.2% B) 0.5% and .7% C) 1.2% and 1.0% D) 0.7% and 0.5% E) none of the above Answer: A Difficulty: Moderate Rationale: Exxon: 7.2% - 6.2% = 1.0%; GM: 7. 9% - 6.7% = 1.2%. 302 Bodie, Investments, Sixth Edition Chapter 14 Bond Prices and Yields 15. Floating-rate bonds are designed to _ while convertible bonds are designed to _. A) minimize the holders' interest rate risk; give the investor the ability to share in the price appreciation of the company's stock B) maximize the holders' interest rate risk; give the investor the ability to share in the price appreciation of the company's stock C) minimize the holders' interest rate risk; give the investor the ability to benefit from interest rate changes D) maximize the holders' interest rate risk; give investor the ability to share in the profits of the issuing company E) none of the above Answer: A Difficulty: Moderate Rationale: Floating rate bonds allow the investor to earn a rate of interest income tied to current interest rates, thus negating one of the major disadvantages of fixed income investments. Convertible bonds allow the investor to benefit from the appreciation of the stock price, either by converting to stock or holding the bond, which will increase in price as the stock price increases. 16. 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) 6.00% B) 8.33% C) 9.00% D) 45.00% E) none of the above Answer: C Difficulty: Easy Rationale: When a bond sells at par value, the coupon rate is equal to the yield to maturity. Bodie, Investments, Sixth Edition 303 Chapter 14 Bond Prices and Yields 17. A coupon bond that pays interest annually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be _ if the coupon rate is 7%. A) $712.99 B) $620.92 C) $1,123.01 D) $886.28 E) $1,000.00 Answer: D Difficulty: Moderate Rationale: FV = 1000, PMT = 70, n = 5, i = 10, PV = 886.28. 18. A coupon bond that pays interest annually, has a par value of $1,000, matures in 5 years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be _ if the coupon rate is 12%. A) $922.77 B) $924.16 C) $1,075.82 D) $1,077.20 E) none of the above Answer: C Difficulty: Moderate Rationale: FV = 1000, PMT = 120, n = 5, i = 10, PV = 1075.82 19. A coupon bond that pays interest semi-annually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be _ if the coupon rate is 8%. A) $922.78 B) $924.16 C) $1,075.80 D) $1,077.20 E) none of the above Answer: A Difficulty: Moderate Rationale: FV = 1000, PMT = 40, n = 10, i = 5, PV = 922.78 304 Bodie, Investments, Sixth Edition Chapter 14 Bond Prices and Yields 20. A coupon bond that pays interest semi-annually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be _ if the coupon rate is 12%. A) $922.77 B) $924.16 C) $1,075.80 D) $1,077.22 E) none of the above Answer: D Difficulty: Moderate Rationale: FV = 1000, PMT = 60, n = 10, i = 5, PV = 1077.22 21. A coupon bond that pays interest of $100 annually has a par value of $1,000, matures in 5 years, and is selling today at a $72 discount from par value. The yield to maturity on this bond is _. A) 6.00% B) 8.33% C) 12.00% D) 60.00% E) none of the above Answer: C Difficulty: Moderate Rationale: FV = 1000, PMT = 100, n = 5, PV = -928, i = 11.997% 22. You purchased an annual interest coupon bond one year ago that now has 6 years remaining until maturity. The coupon rate of interest was 10% and par value was $1,000. At the time you purchased the bond, the yield to maturity was 8%. The amount you paid for this bond one year ago was A) $1,057.50. B) $1,075.50. C) $1,088.50. D) $1.092.46. E) $1,104.13. Answer: E Difficulty: Moderate Rationale: FV = 1000, PMT = 100, n = 7, i = 8, PV = 1104.13 Bodie, Investments, Sixth Edition 305 Chapter 14 Bond Prices and Yields 23. You purchased an annual interest coupon bond one year ago that had 6 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) 7.00% B) 7.82% C) 8.00% D) 11.95% E) none of the above Answer: C Difficulty: Difficult Rationale: FV = 1000, PMT = 100, n = 6, i = 8, PV = 1092.46; FV = 1000, PMT = 100, n = 5, i = 8, PV = 1079.85; HPR = (1079.85 - 1092.46 + 100) / 1092.46 = 8% 24. Consider two bonds, A and B. Both bonds presently are selling at their par value of $1,000. Each pays interest of $120 annually. Bond A will mature in 5 years while bond B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to 10%, _. A) both bonds will increase in value, but bond A will increase more than bond B B) both bonds will increase in value, but bond B will increase more than bond A C) both bonds will decrease in value, but bond A will decrease more than bond B D) both bonds will decrease in value, but bond B will decrease more than bond A E) none of the above Answer: B Difficulty: Moderate Rationale: The longer the maturity, the greater the price change when interest rates change. 306 Bodie, Investments, Sixth Edition Chapter 14 Bond Prices and Yields 25. A coupon bond pays annual interest, has a par value of $1,000, matures in 4 years, has a coupon rate of 10%, and has a yield to maturity of 12%. The current yield on this bond is _. A) 9.39% B) 10.00% C) 10.65% D) 12.00% E) none of the above Answer: C Difficulty: Moderate Rationale: FV = 1000, n = 4, PMT = 100, i = 12, PV= 939.25; $100 / $939.25 = 10.65%. 26. A zero-coupon bond has a yield to maturity of 9% and a par value of $1,000. If the bond matures in 8 years, the bond should sell for a price of _ today. A) 422.41 B) $501.87 C) $513.16 D) $483.49 E) none of the above Answer: B Difficulty: Moderate Rationale: $1,000/(1.09)8 = $501.87 27. You have just purchased a 10-year zero-coupon bond with a yield to maturity of 10% 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 11% at the time you sell. A) 10.00% B) 20.42% C) 13.8% D) 1.4% E) none of the above Answer: D Difficulty: Moderate Rationale: $1,000/(1.10)10 = $385.54; $1,000/(1.11)9 = $390.92; ($390.92 - $385.54)/$385.54 = 1.4%. Bodie, Investments, Sixth Edition 307 Chapter 14 Bond Prices and Yields 28. A coupon bond is reported as having an ask price of 113% of the $1,000 par value in the Wall Street Journal. If the last interest payment was made two months ago and the coupon rate is 12%, the invoice price of the bond will be _. A) $1,100 B) $1,110 C) $1,150 D) $1,160 E) none of the above Answer: C Difficulty: Moderate Rationale: $1,130 + $20 (accrued interest) = $1,150. 29. A Treasury bill with a par value of $100,000 due one month from now is selling today for $99,010. The effective annual yield is _. A) 12.40% B) 12.55% C) 12.62% D) 12.68% E) none of the above Answer: D Difficulty: Moderate Rationale: $990/$99,010 = 0.01; (1.01)12 - 1.0 = 12.68%. 30. A Treasury bill with a par value of $100,000 due two months from now is selling today for $98,039, with an effective annual yield of _. A) 12.40% B) 12.55% C) 12.62% D) 12.68% E) none of the above Answer: C Difficulty: Moderate Rationale: $1,961/$98,039 = 0.02; (1.02)6 - 1 = 12.62%. 308 Bodie, Investments, Sixth Edition Chapter 14 Bond Prices and Yields 31. A Treasury bill with a par value of $100,000 due three months from now is selling today for $97,087, with an effective annual yield of _. A) 12.40% B) 12.55% C) 12.62% D) 12.68% E) none of the above Answer: B Difficulty: Moderate Rationale: $2,913/$97,087 = 0.03; (1.03)4 - 1.00 = 12.55%. 32. 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 Answer: D Difficulty: Moderate Rationale: (1.1025)1/2 - 1 = 5%, N=10, I=5%, PMT=60, FV=1000, PV=1,077.22. 33. A convertible bond has a par value of $1,000 and a current market price of $850. The current price of the issuing firm's stock is $29 and the conversion ratio is 30 shares. The bond's market conversion value is _. A) $729 B) $810 C) $870 D) $1,000 E) none of the above Answer: C Difficulty: Easy Rationale: 30 shares X $29/share = $870. Bodie, Investments, Sixth Edition 309 Chapter 14 Bond Prices and Yields 34. A convertible bond has a par value of $1,000 and a current market value of $850. The current price of the issuing firm's stock is $27 and the conversion ratio is 30 shares. The bond's conversion premium is _. A) $40 B) $150 C) $190 D) $200 E) none of the above Answer: A Difficulty: Moderate Rationale: $850 - $810 = $40. Use the following to answer questions 35-38: Consider the following $1,000 par value zero-coupon bonds: Bond Years to Maturity Price A 1 $909.09 B 2 $811.62 C 3 $711.78 D 4 $635.52 35. The yield to maturity on bond A is _. A) 10% B) 11% C) 12% D) 14% E) none of the above Answer: A Difficulty: Moderate Rationale: ($1,000 - $909.09)/$909.09 = 10%. 36. The yield to maturity on bond B is _. A) 10% B) 11% C) 12% D) 14% E) none of the above Answer: B Difficulty: Moderate Rationale: ($1,000 - $811.62)/$811.62 = 0.2321; (1.2321)1/2 - 1.0 = 11%. 310 Bodie, Investments, Sixth Edition Chapter 14 Bond Prices and Yields 37. The yield to maturity on bond C is _. A) 10% B) 11% C) 12% D) 14% E) none of the above Answer: C Difficulty: Moderate Rationale: ($1,000 - $711.78)/$711.78 = 0.404928; (1.404928)1/3 - 1.0 = 12%. 38. The yield to maturity on bond D is _. A) 10% B) 11% C) 12% D) 14% E) none of the above Answer: C Difficulty: Moderate Rationale: ($1,000 - $635.52)/$635.52 = 0.573515; (1.573515)1/4 - 1.0 = 12%. 39. A 10% coupon bond, annual payments, 10 years to maturity is callable in 3 years at a call price of $1,100. If the bond is selling today for $975, the yield to call is _. A) 10.26% B) 10.00% C) 9.25% D) 13.98% E) none of the above Answer: D Difficulty: Moderate Rationale: FV = 1100, n = 3, PMT = 100, PV = -975, i = 13.98%. Bodie, Investments, Sixth Edition 311 Chapter 14 Bond Prices and Yields 40. A 12% coupon bond, semiannual payments, is callable in 5 years. The call price is $1,120; if the bond is selling today for $1,110, what is the yield to call? A) 12.03%. B) 10.86%. C) 10.95%. D) 9.14%. E) none of the above. Answer: C Difficulty: Moderate Rationale: YTC = FV = 1120, n = 10, PMT = 60, PV = -1,110m Þ i = 5.48%, 5.48*2=10.95 41. A 10% coupon, annual payments, bond maturing in 10 years, is expected to make all coupon payments, but to pay only 50% of par value at maturity. What is the expected yield on this bond if the bond is purchased for $975? A) 10.00%. B) 6.68%. C) 11.00%. D) 8.68%. E) none of the above. Answer: B Difficulty: Moderate Rationale: FV = 500, PMT = 100, n = 10, PV = -975, i = 6.68% 42. You purchased an annual interest coupon bond one year ago with 6 years remaining to maturity at the time of purchase. The coupon interest rate is 10% and par value is $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 bond's yield to maturity had changed to 7%, your annual total rate of return on holding the bond for that year would have been _. A) 7.00% B) 8.00% C) 9.95% D) 11.95% E) none of the above Answer: D Difficulty: Difficult Rationale: FV = 1000, PMT = 100, n = 6, i = 8, PV = 1092.46; FV = 1000, PMT = 100, n = 5, i = 7, PV = 1123.01; HPR = (1123.01 - 1092.46 + 100) / 1092.46 = 11.95%. 312 Bodie, Investments, Sixth Edition Chapter 14 Bond Prices and Yields 43. The _ is used to calculate the present value of a bond. A) nominal yield B) current yield C) yield to maturity D) yield to call E) none of the above Answer: C Difficulty: Easy Rationale: Yield to maturity is the discount rate used in the bond valuation formula. For callable bonds, yield to call is sometimes the more appropriate calculation for the investor (if interest rates are expected to decrease). 44. The yield to maturity on a bond is _. A) below the coupon rate when the bond sells at a discount, and equal to the coupon rate when the bond sells at a premium.