Cecchetti3e_MCQuiz_Ch06_FINAL copy 2

Cecchetti3e_MCQuiz_Ch06_FINAL copy 2 - Chapter 6 Bonds,...

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Unformatted text preview: Chapter 6 Bonds, Bond Prices, and the Determination of Interest Rates Multiple Choice Questions 1. If the annual interest rate is 5% (.05), the price of a one year Treasury bill would be: (Hint: T-Bills have $100 face value) A. $95.00 B. $97.50 C. $95.24 D. $96.10 Ans: C Difficulty: Hard Topic: Bond Prices. 2. If the annual interest rate is 5%, the price of a three-month Treasury bill would be: (Hint: T-Bills have $100 face value) A. $98.79 B. $95.00 C. $98.75 D. $97.59 Ans: A Difficulty: Hard Topic: Bond Prices. 3. If a consol is offering an annual coupon of $50 and the annual interest rate is 6%, the price of the consol is: A. $47.17 B. $813.00 C. $833.33 D. None of the above Ans: C Difficulty: Hard Topic: Bond Prices. 4. A $1000 face value bond purchased for $965.00, with an annual coupon of $60, and 20 years to maturity has: A. A current yield equal to 6.22%. B. A current yield equal to 6.00%. C. A coupon rate equal to 6.22%. D. A yield to maturity and current yield equal to 6.00%. E. A yield to maturity and coupon rate equal to 6.00%. Ans: A Difficulty: Medium Topic: Bond Yields. 5. A $1000 face value bond, with an annual coupon of $40, one year to maturity and a purchase price of $980: A. Has a current yield that equals 4.00%. B. Has a coupon rate that equals 4.80%. C. Has a current yield that equals 4.08% and a yield to maturity that equals 6.12%. D. Has a current yield that equals 4.08% and a yield to maturity that equals 4.0%. Ans: C Difficulty: Medium Topic: Bond Yields. 6. If a one year bond has a face value of $100 and is purchased for $94, and is held to maturity: A. The holding period return will equal the yield to maturity. B. The yield to maturity will exceed the holding period return. C. The yield to maturity will be 6.38%. D. a and c. Ans: B Difficulty: Hard Topic: Bond Yields. 7. A 30-year Treasury bond as a face value of $1,000, price of $1,200 with a $50 coupon payment. Assume the price of this bond decreases to $1,100 over the next year. The oneyear holding period return is equal to: A. -9.17% B. -8.33% C. -4.17% D. -3.79% Ans: C Difficulty: Medium Topic: Bond Yields. 8. If a one-year zero-coupon bond has a face value of $100, is purchased for $94, and is held to maturity: A. The holding period return will exceed the yield to maturity . B. The yield to maturity will exceed the holding period return . C. The yield to maturity will be 6.38% . D. The holding period return will be 6.38% . Ans: C Difficulty: Hard Topic: Bond Yields. 9. Consider a zero-coupon bond with a $1,100 payment in one year. Suppose the interest rate decreases from 10% to 8%. The price of this bond: A. Increases from $1,000 to $1,018. B. Increases from $1,000 to $1,375. C. Decreases from $110 to $88. D. Decreases from $1,210 to $1,188. Ans: A Difficulty: Medium Topic: Bond Yields. 10. Consider a $1,000 face value bond with a $55 coupon payment and 1 year to maturity. Calculate the current yield, coupon rate and the yield to maturity if the bond is purchased for $940. A. Current yield = 5.50%, coupon rate = 5.50%, yield to maturity = 12.23%. B. Current yield = 5.85%, coupon rate = 5.50%, yield to maturity = 12.23%. C. Current yield = 5.85%, coupon rate = 5.00%, yield to maturity = 6.38%. D. Current yield = 5.50%, coupon rate = 5.00%, yield to maturity = 6.38%. Ans: B Difficulty: Medium Topic: Bond Yields. 11. Consider a $1,000 face value bond with a $55 coupon payment and 1 year to maturity. Calculate the current yield, coupon rate and the yield to maturity if the bond is purchased for $1,130. A. Current yield = 5.50%, coupon rate = 4.87%, yield to maturity = 5.00%. B. Current yield = 5.50%, coupon rate = 5.50%, yield to maturity = -6.64%. C. Current yield = 4.87%, coupon rate = 5.50%, yield to maturity = -6.64%. D. Current yield = 4.87%, coupon rate = 5.00%, yield to maturity = -5.00%. Ans: C Difficulty: Medium Topic: Bond Yields. 58.If the U.S. government's borrowing needs increase, all other factors constant: A. The demand for bonds will decrease. B. The price of bonds will increase. C. The supply of bonds will increase. D. The yields on bonds will decrease. Ans: C Difficulty: Medium Topic: The Bond Market and Determination of Interest Rates 13. Consider a two-year, 4.5% coupon bond with a $500 face value that is originally purchased for $475. Calculate the holding period return of this bond if it is sold after one year at a price of $485. A. 6.84% B. 6.50% C. 11.58% D. 3.05% Ans: A Difficulty: Medium Topic: Bond Yields. 14. Consider a two-year, 8% coupon bond with a $1,500 face value that is originally purchased for $1,490. Calculate the holding period return of this bond if it is sold after one year at a price of $1,505. A. 8.67% B. 9.06% C. 1.54% D. 6.38% Ans: B Difficulty: Medium Topic: Bond Yields. 15. If the risk on foreign government bonds increases relative to U.S. government bonds, the price of U.S. government bonds should: A. Not change since U.S. government bonds are free of default risk. B. Decrease since people will bail out of all government bonds. C. Increase as the demand for these bonds increases. D. Not be affected because the two types of bonds are traded in different markets. Ans: C Difficulty: Medium Topic: The Bond Market and the Determination of Interest Rates ...
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This document was uploaded on 10/26/2011 for the course FIN 320 at DePaul.

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