Chap014 - Multiple Choice Questions 1. The current yield on...

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Multiple Choice Questions 1. The current yield on a bond is equal to ________. A) annual interest divided by the current market price B) the yield to maturity C) annual interest divided by the par value D) the internal rate of return E) none of the above Answer: A Difficulty: Easy 2. If a 7% coupon bond is trading for $975.00, it has a current yield of ____________ percent. A) 7.00 B) 6.53 C) 7.24 D) 8.53 E) 7.18 Answer: E Difficulty: Easy Rationale: 70/975 = 7.18. 3. If a 6% coupon bond is trading for $950.00, it has a current yield of ____________ percent. A) 6.5 B) 6.3 C) 6.1 D) 6.0 E) 6.6 Answer: B Difficulty: Easy Rationale: 60/950 = 6.3. 4. If an 8% coupon bond is trading for $1025.00, it has a current yield of ____________ percent. A) 7.8 B) 8.7 C) 7.6 D) 7.9 E) 8.1 Answer: A Difficulty: Easy Rationale: 80/1025 = 7.8. 5. If a 7.5% coupon bond is trading for $1050.00, it has a current yield of ____________ percent. A) 7.0 B) 7.4 C) 7.1 D) 6.9 E) 6.7 Answer: C Difficulty: Easy Rationale: 75/1050 = 7.1. 6. 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) 10.65% B) 10.45% C) 10.95% D) 10.52% E) none of the above Answer: A Difficulty: Moderate Rationale: FV = 1000, n = 4, PMT = 100, i = 12, PV= 939.25; $100 / $939.25 = 10.65%. 7. A coupon bond pays annual interest, has a par value of $1,000, matures in 12 years, has a coupon rate of 11%, and has a yield to maturity of 12%. The current yield on this bond is ___________. A) 10.39% B) 10.43%
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C) 10.58% D) 10.66% E) none of the above Answer: D Difficulty: Moderate Rationale: FV = 1000, n = 12, PMT = 110, i = 12, PV= 938.06; $100 / $938.06 = 10.66%. 8. Of the following four investments, ________ is considered the safest. A) commercial paper B) corporate bonds C) U. S. Agency issues D) Treasury bonds E) Treasury bills Answer: E Difficulty: Easy 9. 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) B and C E) A and C Answer: D Difficulty: Easy 10. At issue, coupon bonds typically sell ________. A) above par value B) below par C) at or near par value D) at a value unrelated to par E) none of the above Answer: C Difficulty: Easy 11. 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 12. The invoice price of a bond that a buyer would pay is equal to A) the asked price plus accrued interest. B)
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This note was uploaded on 04/03/2011 for the course FIN 202 taught by Professor Sam during the Spring '11 term at University of Texas at Dallas, Richardson.

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Chap014 - Multiple Choice Questions 1. The current yield on...

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