Each pay 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 14%, _________.
D.
both bonds will decrease in value but bond B will decrease more than bond A
10-2

Chapter 10 - Bond Prices and Yields
Everything else equal _________ bonds will require a higher promised YTM than ________
bonds.
A.
catastrophe; standard
Bonds with coupon rates that fall when the general level of interest rates rise are called
_____________.
C.
inverse floaters
_______ bonds represent a novel way of obtaining insurance from capital markets against
specified disasters.
C.
Catastrophe
The issuer of a/an ________ bond may choose to pay interest either in cash or in additional
bonds.
D.
pay in kind
Everything else equal the __________ the maturity of a bond and the __________ the coupon
the greater the sensitivity of the bond's price to interest rate changes.
B.
longer; lower
Which one of the following statements is correct?
B.
Invoice price = Flat price + Accrued Interest
A __________ bond is a bond where the issuer has an option to retire the bond before
maturity at a specific price after a specific date.
A.
callable
Which of the following possible provisions of a bond indenture is designed to ease the burden
of principal repayment by spreading it out over several years?
D.
Sinking fund
Serial bonds are associated with _________.
A.
staggered maturity dates
In an era of particularly low interest rates, which of the following bonds is most likely to be
called?
C.
Coupon bonds selling at a premium
Consider the expectations theory of the term structure of interest rates. If the yield curve is
downward sloping, this indicates that investors expect short-term interest rates to __________
in the future.
B.
decrease
10-3

Chapter 10 - Bond Prices and Yields
A convertible bond has a par value of $1,000 but its current market price is $975. The current
price of the issuing company's stock is $26 and the conversion ratio is 34 shares. The bond's
market conversion value is _________.
B.
$884
A convertible bond has a par value of $1,000 but its current market price is $950. The current
price of the issuing company's stock is $19 and the conversion ratio is 40 shares. The bond's
conversion premium is _________.
B.
$190.00
A coupon bond which pays interest of 4% annually, has a par value of $1,000, matures in 5
years, and is selling today at $785. The actual yield to maturity on this bond is _________.
D.
9.6%
A coupon bond which pays interest of $60 annually, has a par value of $1,000, matures in 5
years, and is selling today at a $84.52 discount from par value. The approximate yield to
maturity on this bond is _________.
C.
8%
A coupon bond which pays interest of $60 annually, has a par value of $1,000, matures in 5
years, and is selling today at a $75.25 discount from par value. The current yield on this bond
is _________.
B.
6.49%
A callable bond pays annual interest of $60, has a par value of $1,000, matures in 20 years but
is callable in 10 years at a price of $1,100, and has a value today of $1055.84. The yield to
call on this bond is _________.

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- Spring '13
- Jacobsen
- Finance, Interest Rates, Interest, Bond C, Asbury bond