Quiz 15.docx

1、Quiz 1515: Asset Valuation: Debt Investments: Analysis and Valuation1.A: Introduction to the Valuation of Fixed Income SecuritiesQuestion ID: 12975What is the present value of a three-year security that pays a fixed annual coupon of 6 percent using a discount rate of 7 percent?A.92.48.B.97.38.C.100.

2、00.D.101.75. BThis value is computed as follows: Present Value = 6/1.07 + 6/1.072 + 106/1.073 = 97.38 The value 92.48 results if the coupon payment at maturity of the bond is neglected. The coupon rate and the discount rate are not equal so 100.00 cannot be the correct answer. Question ID: 13009If a

3、 bonds coupon is greater than the prevailing market rate on new issues, the bond is called a:A.par bond.B.term bond.C.premium bond.D.discount bond.CQuestion ID: 22342By purchasing a noncallable, nonputable, U.S. Government 30-year bond, an investor is entitled to:A.annuity of coupon payments.B.month

4、ly payments depending on the principal prepayment behavior of individual homeowners.C.annuity of coupon payments plus recovery of principal at maturity.D.full recovery of face value at maturity or when the bond is retired.CBond investors are entitled to two distinct types of cash flows: (1) the peri

5、odic receipt of coupon income over the life of the bond, and (2) the recovery of principal (or face value) at the end of the bonds life.Question ID: 13010Using the present-value method, which of the following is NOT needed to value a bond?A.Coupon payment.B.Term to maturity.C.Par value.D.Bond rating

6、. DQuestion ID: 13011The value of a bond is NOT affected by:A.current yield.B.coupon rate.C.required rate of return.D.year to maturity. AQuestion ID: 22343Which of the following is NOT one of the steps in a valuation process for a noncallable bond?A.Estimate the bonds cash flows.B.Calculate the pres

7、ent value of the estimated cash flows.C.Determine the appropriate discount rate.D.Evaluate the probability of the issuer retiring the bond prematurely.DThe three fundamental steps in the bond valuation process are (1) estimate the bonds cash flows, (2) determine the appropriate discount rate, and (3

8、) calculate the present value of the estimated cash flows. Since the bond has a noncallable feature, the issuer does not have the right to retire the bond prematurely. Question ID: 22345Zeta Corp. has outstanding a $10 million, 14 percent coupon bond that is noncallable. The bond pays quarterly coup

9、on payments. The value of each cash coupon is closest to:A.$700,000.B.$350,000.C.$1,000,000.D.$1,400,000.BThe cash coupon is ($10,000,000*0.14)/4 = $350,000. Note that while the coupon rate is stated as an annual percentage, the cash coupon payments are made on a quarterly basis.Question ID: 22346An

10、 investor gathers the following information about a 12-year bond: Par value of $10,000 Semiannual coupon rate of 6 % Current price of $9,543 Yield to maturity of 6.56 %The value of each cash coupon is closest to: A.$300. B.$328.C.$600.D.$656.AThe cash coupon is ($10,000*0.06)/2 = $300. Note that whi

11、le the coupon rate is stated as an annual percentage, the cash coupon payments are made on a semiannual basis.Question ID: 22344If an investor purchases a 30-year semiannual bond with a coupon rate of 5 percent and par value of $100,000, the value of each cash coupon received is closest to:A.$2,500.

12、B.$5,000.C.$100,000.D.$83.AThe cash coupon is ($100,000*0.05)/2 = $2,500. Note that while the coupon rate is stated as an annual percentage, the cash coupon payments are made on a semiannual basis.Question ID: 22348Which of the following characteristics would create the least difficulty in estimatin

13、g a bonds cash flows?A.Conversion privilege.B.Sinking fund provisions.C.Fixed coupon rate.D.Callable bond.CNormally, estimating the cash flow stream is straightforward for a high quality, option-free bond due to the high degree of certainty in the timing and amount of the payments. The following fou

14、r conditions could lead to difficulty in forecasting the bonds future cash flow stream: (1) increased credit risk, (2) the presence of embedded options (i.e., call/put features or sinking fund provisions), (3) the use of variable rather than fixed coupon rate, and (4) the presence of a conversion or

15、 exchange privilege. Question ID: 22349Which of the following characteristics would create the most difficulty in estimating a bonds cash flows?A.Exchange privilege.B.Noncallable bond.C.Fixed coupon rate.D.High credit quality bond.ANormally, estimating the cash flow stream is straightforward for a h

16、igh quality, option-free bond due to the high degree of certainty in the timing and amount of the payments. The following four conditions could lead to difficulty in forecasting the bonds future cash flow stream: (1) increased credit risk, (2) the presence of embedded options (i.e., call/put feature

17、s or sinking fund provisions), (3) the use of variable rather than fixed coupon rate, and (4) the presence of a conversion or exchange privilege. Question ID: 22347Which of the following characteristics would create the least difficulty in estimating a bonds cash flows?A.Exchange privilege.B.Variabl

18、e coupon rate.C.Noncallable bond.D.Putable bond.CNormally, estimating the cash flow stream is straightforward for a high quality, option-free bond due to the high degree of certainty in the timing and amount of the payments. The following four conditions could lead to difficulty in forecasting the b

19、onds future cash flow stream: (1) increased credit risk, (2) the presence of embedded options (i.e., call/put features or sinking fund provisions), (3) the use of variable rather than fixed coupon rate, and (4) the presence of a conversion or exchange privilege. Question ID: 13014What value would an

20、 investor place on a 20-year, 10 percent annual coupon bond, if the investor required an 11 percent rate of return?A.$945.B.$1,035C.$920.D.$879. CN = 20, I/Y = 11, PMT = 100, FV = 1000, CPT PVQuestion ID: 13024A coupon bond that pays interest annually has a par value of $1,000, matures in 5 years, a

21、nd has a yield to maturity of 10 percent. What is the intrinsic value of the bond today if the coupon rate is 8 percent?A.$924.18.B.$1,000.00.C.$1,500.00.D.$2,077.00. AFV=1000 N=5 I=10 PMT=80 Compute PV=924.18. Question ID: 13012Using the following spot rates for pricing the bond, what is the presen

22、t value of a three-year security that pays a fixed annual coupon of 6 percent? Year 1: 5.0%Year 2: 5.5%Year 3: 6.0%A.100.00.B.100.10.C.102.46.D.95.07. BThis value is computed as follows: Present Value = 6/1.05 + 6/1.0552 + 106/1.063 = 100.10 The value 95.07 results if the coupon payment at maturity

23、of the bond is neglected. Question ID: 13020A coupon bond that pays interest annually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 10 percent. What is the intrinsic value of the bond today if the coupon rate is 12 percent?A.$1,000.00.B.$1,075.82.C.$2,077.00D.$650.00.

24、 BFV=1000 N=5 I=10 PMT=120 PV=? PV=1,075.82. Question ID: 13017An investor purchased a 6-year annual interest coupon bond one year ago. The coupon rate of interest was 10 percent and par value was $1,000. At the time she purchased the bond, the yield to maturity was 8 percent. The amount paid for th

25、is bond one year ago was:A.$1,215.51.B.$1,092.46.C.$1,125.53.D.$1,198.07. BN=6 PMT=(.10)(1000)=100 I=8 FV=1000 PV=? PV=1092.46 Question ID: 13026Consider a bond that pays an annual coupon of 5 percent and that has three years remaining until maturity. Suppose the term structure of interest rates is

26、flat at 6 percent. How much does the bond price change if the term structure of interest rates shifts down by 1 percent instantaneously.?A.-2.67.B.3.76.C.2.67.D.0.00. CThis value is compute as follows: Bond Price Change = New Price Old Price = 100 (5/1.06 + 5/1.062 + 105/1.063 = 2.67. -2.67 is the c

27、orrect value but the wrong sign. The value 0.00 is incorrect because the bond price is not insensitive to interest rate changes. Question ID: 13031Deep discount bonds have:A.greater price volatility than bonds selling at par.B.less call protection than bonds selling at par.C.less coupon protection t

28、han bonds selling at par.D.greater reinvestment risk than bonds selling at par.AQuestion ID: 13029A year ago a company issued a bond with a face value of $1,000 an 8 percent coupon. Now the prevailing market yeild is 10 percent. What happens to the bond? The:A.bond is traded at a market price higher than $1,000.B.company has to issue a new 2-percent