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Bond Prices and Yields
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
Rationale: A is current yield and is quoted as such in the financial press.
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.
41

Chapter 14
Bond Prices and Yields
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%.
42

Chapter 14
Bond Prices and Yields
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%
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
Rationale: Only Treasury issues are insured by the U. S. government; the shorter-term
the instrument, the safer the instrument.
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
Rationale: High values for the times interest and quick ratios and a low debt to equity
ratio are desirable indicators of safety.
43

Chapter 14
Bond Prices and Yields
10.
At issue, coupon bonds typically sell ________.
A) above par value

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