47.
You expect interest rates to decline and wish to capitalize on the anticipated changes in bond
prices. To realize your maximum gain, all else constant, you should purchase _ bonds.
A. short-term; low coupon
B. short-term; high coupon
C. long-term; zer
91. You are purchasing a 30-year, zero coupon bond. The yield to maturity is 9.1 percent and the face
value is $1,000. What is the current market price?
A. $2.20
B. $69.27
C. $73.33
D. $263.20
E. $270.79
92. Today, you want to sell a zero coupon bond you
59.
Your insurance agent is trying to sell you an annuity that costs $165,000 today. By buying this
annuity, your agent promises that you will receive payments of $775 a month for the next 40
years. What is the rate of return on this investment?
A. 4.28 p
70.
You are considering two insurance settlement offers. The first offer includes annual payments
of $15,000, $22,500, and $25,000 over the next three years, respectively. The other offer is the
payment of one lump sum amount today. You are trying to deci
45. As the time to maturity increases, interest rate risk:
A. increases at an increasing rate.
B. increases at a decreasing rate.
C. increases at a constant rate.
D. decreases at an increasing rate.
E. decreases at a decreasing rate.
46. You own a bond th
SECTION: 7.1 AND 7.4
TOPIC: PRICE OF ZERO COUPON BOND
TYPE: PROBLEMS
93.
The zero coupon bonds of Cold Pak Transport have a market price of $460.23, a face value of
$1,000, and a yield to maturity of 8.42 percent. How many years is it until these bonds ma
SECTION: 7.4
TOPIC: TREASURY BONDS
TYPE: CONCEPTS
58.
Treasury bonds are:
A. issued by any governmental agency in the U.S.
B. issued only on the first day of each fiscal year by the U.S. Department of Treasury.
C. offer the best tax benefits of any bonds
16.
A member of the NYSE acting as a dealer in one or more securities on the exchange floor is
called a:
A. floor trader.
B. floor post.
C. specialist.
D. floor broker.
E. commission broker.
Ross - Chapter 008 #16
SECTION: 8.3
TOPIC: SPECIALIST
TYPE: DEFI
85. Gloria's Boutique recently paid $1.65 as an annual dividend. Future dividends are projected at
$1.68, $1.72, $1.76, and $1.80 over the next four years, respectively. Beginning five years from
now, the dividend is expected to increase by 2.5 percent an
80.
Stevenson Interiors has a $67,500 liability they must pay four years from today. The company
is opening a savings account so that the entire amount will be available when this debt needs to
be paid. The plan is to make an initial deposit today and the
72. The common stock of Flo's Flowers pays an annual dividend that is expected to increase by 3.6
percent per year. The stock commands a market rate of return of 11.6 percent and sells for $37.80
a share. What is the expected amount of the next dividend?
76. Today, February 21, you want to buy a bond with a quoted price of 100.42. The bond pays interest
on September 1 and March 1. The price you will pay to purchase this bond is equal to the:
A. clean price.
B. muddy price.
C. dirty price.
D. par value pri
TOPIC: SINKING FUND
TYPE: DEFINITIONS
13.
An agreement giving the bond issuer the option to repurchase the bond at a specified price
prior to maturity is the _ provision.
A. sinking fund
B. call
C. seniority
D. collateral
E. debenture
Ross - Chapter 007 #
30. A Treasury yield curve is defined as the plotting of the yields on Treasury securities relative to:
A. market interest rates.
B. comparable corporate bond yields.
C. the risk-free rate.
D. inflation.
E. maturity.
31. The _ premium is that portion of a
88.
Your credit card company charges you 1.45 percent per month. What is the annual percentage
rate on your account?
A. 16.67 percent
B. 16.79 percent
C. 17.40 percent
D. 18.00 percent
E. 18.86 percent
APR = .0145
12 = .174 = 17.4 percent
AACSB TOPIC: ANA
109.
The outstanding bonds of Frank's Welding provide a real rate of return of 2.87 percent. The
current rate of inflation is 4.64 percent. What is the nominal rate of return on these bonds?
A. 7.33 percent
B. 7.46 percent
C. 7.51 percent
D. 7.64 percent
117.
Explain the conditions that would need to exist for the Treasury yield curve to be downward
sloping.
A downward sloping Treasury yield curve exists when current inflation rates are high but are
expected to decline in the future. The decline in the in
107.
On March 1, you borrow $239,000 to buy a house. The mortgage rate is 7.75 percent. The loan
is to be repaid in equal monthly payments over 20 years. The first payment is due on April 1.
How much of the third payment applies to the principle balance?
59. Municipal bonds:
A. have no risk of default.
B. generally pay a higher rate of return than corporate bonds.
C. are those bonds issued only by local municipalities, such as a city or a borough.
D. are generally callable.
E. pay interest that is automat
Chapter 7 Key
1.
The stated interest payment, in dollars, made on a bond each period is called the bond's:
A. coupon.
B. face value.
C. maturity.
D. yield to maturity.
E. coupon rate.
Ross - Chapter 007 #1
SECTION: 7.1
TOPIC: COUPON
TYPE: DEFINITIONS
2.
T
5.
The voting procedure whereby shareholders may cast all of their votes for one member of the
board is called _ voting.
A. democratic
B. cumulative
C. straight
D. deferred
E. proxy
Ross - Chapter 008 #5
SECTION: 8.2
TOPIC: CUMULATIVE VOTING
TYPE: DEFINIT
24.
A real rate is a nominal rate which has been adjusted for:
A. inflation.
B. interest rate risk.
C. accrued interest.
D. changes in the market rate of interest.
E. both inflation and interest rate risk.
Ross - Chapter 007 #24
SECTION: 7.6
TOPIC: REAL R
99.
A corporate bond is quoted at a current price of 103.68. What is the market price if the face
value is $5,000?
A. $4,785.00
B. $4,822.53
C. $5,103.68
D. $5,184.00
E. $5,210.68
Market price = 1.0368
$5,000 = $5,184.00
AACSB TOPIC: ANALYTIC
Ross - Chapt
100.
You are borrowing money today at a 7.9 percent interest rate. You will repay the principle plus
all the interest in one lump sum of $7,500 four years from today. How much are you
borrowing?
A. $5,250.00
B. $5,233.50
C. $5,533.19
D. $5,611.08
E. $6,00
95.
You have $3,500 that you want to use to open a savings account. You have found five different
accounts that are acceptable to you. All you have to do now is determine which account you
want to use such that you can earn the highest rate of interest po
36.
All else constant, a bond will sell at _ when the coupon rate is _ the yield to maturity.
A. a premium; less than
B. a premium; equal to
C. a discount; less than
D. a discount; higher than
E. par; less than
Ross - Chapter 007 #36
SECTION: 7.1
TOPIC: B
59. Jessica's Pharmacy made two announcements concerning their common stock today. First, the
company announced the next annual dividend will be $1.48 a share. Secondly, all dividends after
that will increase by 2.5 percent annually. What is the maximum a
1. The stock valuation model that determines the current stock price by dividing the next annual
dividend amount by the excess of the discount rate less the dividend growth rate is called the
_ model.
A. zero growth
B. dividend growth
C. capital pricing
D
82.
Two of the primary differences between the yields on a corporate bond and a Treasury bond
with identical maturity dates are related to:
A. interest rate risk and time value of money.
B. time value of money and inflation.
C. taxes and potential default