投资学第7版TestBank答案.docx
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投资学第7版TestBank答案
percent.
percent.
percent.
MultipleChoiceQuestions
:
LThecurrentyieldonabondisequalto・
A）annualinterestdividedbythecurrentmarketprice
B）theyieldtomaturity
C）annualinterestdividedbytheparvalue
D）theinternalrateofreturn
E）noneoftheabove
a
Answer:
ADifficulty:
Easy
Rationale:
Aiscurrentyieldandisquotedassuchinthefinancialpress.
2.Ifa7%couponbondistradingfor$,ithasacurrentyieldof
A）—
B）
C）
D）
E）
>
Answer:
EDifficulty:
Easy
Rationale:
70/975=・
3.Ifa6%couponbondistradingfor$,ithasacurrentyieldof
A）—
B）
C）
D）
E）
A
Answer:
BDifficulty:
Easy
Rationale:
60/950=・
4.Ifan8%couponbondistradingfor$,ithasacurrentyieldof_
A）—
B）
C）
D）
E）
Answer:
ADifficulty:
Easy
Rationale:
80/1025=・
5.Ifa%couponbondistradingfor$,ithasacurrentyieldofpercent.
A）
>
B）
C）
D）
E）
<
Answer:
CDifficulty:
Easy
Rationale:
75/1050=.
6・Acouponbondpaysannualinterest,hasaparvalueof$1,000,maturesin4years,hasacouponrateof10%,andhasayieldtomaturityof12%・Thecurrentyieldonthisbondis.
A）%
>
B）%
C）%
D）%
E）noneoftheabove
%
Answer:
ADifficulty:
Moderate
Rationale:
FV=1000,n=4,PMT=100,i=12,PV=;$100/$=%・
7.Acouponbondpaysannualinterest,hasaparvalueof$1,000,maturesin12years,
hasacouponrateof11%,andhasayieldtomaturityof12%・Thecurrentyieldonthisbondis.
A）%
B）%
C）%
D）%
E）noneoftheabove
Answer:
DDifficulty:
Moderate
Rationale:
FV=1000,n=12,PMT=110,i=12,PV=;$100/$=%・
8.Ofthefollowingfourinvestments,isconsideredthesafest・
A）commercialpaper
B）corporatebonds
C）U・S・Agencyissues
D）Treasurybonds
E）Treasurybills
>
Answer:
EDifficulty:
Easy
Rationale:
OnlyTreasuryissuesareinsuredbytheU・S・government;theshorter-termtheinstrument,thesafertheinstrument.
9.Toearnahighratingfromthebondratingagencies,afirmshouldhave
A）alowtimesinterestearnedratio
\
B）alowdebttoequityratio
C）ahighquickratio
D）BandC
E）AandC
J
Answer:
DDifficulty:
Easy
Rationale:
Highvaluesforthetimesinterestandquickratiosandalowdebttoequityratioaredesirableindicatorsofsafety.
10.Atissue,couponbondstypicallysell・
A）aboveparvalue
）
B）belowpar
C）atornearparvalue
D）atavalueunrelatedtopar
E）noneoftheabove
Answer:
CDifficulty:
Easy
Rationale:
Iftheinvestmentbankerhasappraisedthemarketandthequalityofthebondcorrectly,thebondwillsellatornearpar（unlessinterestrateshavechangedverydramaticallyandveryquicklyaroundthetimeofissuance）・
11.Accruedinterest
A）isquotedinthebondpriceinthefinancialpress・
\
B）mustbepaidbythebuyerofthebondandremittedtothesellerofthebond.
C）mustbepaidtothebrokerfortheinconvenienceofsellingbondsbetweenmaturitydates・
D）AandB・
E）AandC・
Answer:
BDifficulty:
Moderate
Rationale:
Accruedinterestmustbepaidbythebuyer,butisnotincludedinthequotationspageprice・
12.Theinvoicepriceofabondthatabuyerwouldpayisequalto
A）theaskedpriceplusaccruedinterest・
j
B）theaskedpricelessaccruedinterest・
C）thebidpriceplusaccruedinterest・
D）thebidpricelessaccruedinterest・
E）thebidprice・
<
Answer:
ADifficulty:
Easy
Rationale:
Thebuyerofabondwillbuyattheaskedpriceandwillalsobeinvoicedforanyaccruedinterestduetotheseller.
13.An8%couponU・S.TreasurynotepaysinterestonMay30andNovember30andis
tradedforsettlementonAugust15.Theaccruedinterestonthe$100,000facevalueofthisnoteis・
A）$
Y
B）$
C）$
D）$1,
E）noneoftheabove
Answer:
DDifficulty:
Moderate
Rationale:
76/183（$4,000）=$1,.Approximation:
.08/12*100,000=permonth,month*months=14.Acouponbondisreportedashavinganaskpriceof113%of
the$1,000parvalueintheWallStreetJournal.Ifthelastinterestpaymentwasmadetwomonthsagoandthecouponrateis12%,theinvoicepriceofthebondwillbe・
A）$1,100
B）$1,110
C）$1,150
D）$1,160
E）noneoftheabove
Answer:
CDifficulty:
Moderate
Rationale:
$1,130+$20（accruedinterest）=$1,150.
15.ThebondsofFordMotorCompanyhavereceivedaratingof"D11byMoody's・The
nABC
ratingindicates
thebondsareinsured
thebondsarejunkbonds
thebondsarereferredtoas"highyield11bonds
D）AandB
E）BandC
Answer:
EDifficulty:
Easy
Rationale:
Dratingsareriskybonds,oftencalledjunkbonds（orhighyieldbondsbythosemarketingsuchbonds）.
16.Thebondmarket
A）canbequite"thin".
B）primarilyconsistsofanetworkofbonddealersintheoverthecountermarket.
C）consistsofmanyinvestorsonanygivenday・
A
D）AandB.
E）BandC.
Answer:
DDifficulty:
Easy
Rationale:
Thebondmarket,unlikethestockmarket,canbeaverythinlytradedmarket.Inaddition,mostbondsaretradedbydealers・
¥
17.Ceterisparibus,thepriceandyieldonabondare
A）positivelyrelated・
B）negativelyrelated・
C）sometimespositivelyandsometimesnegativelyrelated・
■
E）notrelated・
E）indefinitelyrelated・
Answer:
BDifficulty:
Easy
Rationale:
Bondpricesandyieldsareinverselyrelated・
J
18.Theisameasureoftheaveragerateofreturnaninvestorwillearn讦the
investorbuysthebondnowandholdsuntilmaturity・
A）currentyield
B）dividendyield
C）P/Eratio
D）yieldtomaturity
E）discountyield
Answer:
DD讦ficulty:
Easy
Rationale:
Thecurrentyieldistheannualinterestasapercentofcurrentmarketprice;theotherchoicesdonotapplytobonds.
）
19.Thegivesthenumberofsharesforwhicheachconvertiblebondcanbe
exchanged・
A）conversionratio
B）currentratio
C）P/Eratio
D）conversionpremium
E）convertiblefloor
Answer:
ADifficulty:
Easy
Rationale:
Theconversionpremiumistheamountforwhichthebondsellsaboveconversionvalue;thepriceofbondasastraightbondprovidesthefloor.Theothertermsarenotspec讦icallyrelevanttoconvertiblebonds・
20.Acouponbondisabondthat・
A）paysinterestonaregularbasis（typicallyeverysixmonths）
B）doesnotpayinterestonaregularbasisbutpaysalumpsumatmaturity
C）canalwaysbeconvertedintoaspecificnumberofsharesofcommonstockintheissuingcompany
A
D）alwayssellsatpar
E）noneoftheabove
Answer:
ADifficulty:
Easy
Rationale:
Acouponbondwillpaythecouponrateofinterestonasemiannualbasisunlessthefirmdefaultsonthebond・Convertiblebondsarespec讦ictypesofbonds・
<
21.Abondisabondwherethebondholderhastherighttocashinthe
bondbeforematurityataspecifiedpriceafteraspecificdate.
A）callable
B）coupon
C）put
D）Treasury
E）zero-coupon
Answer:
CDifficulty:
Easy
Rationale:
Anybondmayberedeemedpriortomaturity,butallbondsotherthanputbondsareredeemedatapricedeterminedbytheprevailinginterestrates・
$
22.Callablebonds
A）arecalledwheninterestratesdeclineappreciably.
B）haveacallpricethatdeclinesastimepasses・
C）arecalledwheninterestratesincreaseappreciably.
D）AandB・
E）BandC.
Answer:
DDifficulty:
Easy
Rationale:
Callablebondsoftenarerefunded（called）wheninterestratesdeclineappreciably.Thecallpriceofthebond（approximatelyparandoneyear'scouponpayment）declinestoparastimepassesandmaturityisreached・
23.ATreasurybonddueinoneyearhasayieldof%;aTreasurybondduein5yearshasayieldof%・AbondissuedbyFordMotorCompanyduein5yearshasayieldof%;abondissuedbyShellOildueinoneyearhasayieldof%・ThedefaultriskpremiumsonthebondsissuedbyShellandFord,respectively,are
A）%and%
B）%and%
C）%and%
（
D）%and%
E）noneoftheabove
Answer:
DDifficulty:
Moderate
Rationale:
Shell:
%-%=.8%;Ford:
%-%=%・
24.ATreasurybonddueinoneyearhasayieldof%;aTreasurybondduein5yearshasayieldof%・AbondissuedbyLucentTechnologiesduein5yearshasayieldof%;abondissuedbyMobildueinoneyearhasayieldof%・ThedefaultriskpremiumsonthebondsissuedbyMobilandLucentTechnologies,respectively,are:
A）%and%
B）%and.7%
C）%and%
>
D）%and%
E）noneoftheabove
Answer:
ADifficulty:
Moderate
Rationale:
Mobil:
%-%=%;LucentTechnologies:
%-%=%・
it
25.ATreasurybonddueinoneyearhasayieldof%;aTreasurybondduein5yearshasayieldof%・AbondissuedbyXeroxduein5yearshasayieldof%;abondissuedbyExxondueinoneyearhasayieldof%・ThedefaultriskpremiumsonthebondsissuedbyExxonandXerox,respectively,are
A）%and%
B）%and.7%
C）%and%
<
D）%and%
E）noneoftheabove
Answer:
ADifficulty:
Moderate
Rationale:
Exxon:
%-%=%;Xerox:
7.9%-%=%・
<
26.Floating-ratebondsaredesignedtowhileconvertiblebondsare
designedto.
A）minimizetheholders1interestraterisk;givetheinvestortheabilitytoshareinthepriceappreciationofthecompanyfsstock
B）maximizetheholders'interestraterisk;givetheinvestortheabilitytoshareinthepriceappreciationofthecompany'sstock
C）minimizetheholders1interestraterisk;givetheinvestortheabilitytobenefitfrominterestratechanges
<
D）maximizetheholders'interestraterisk;giveinvestortheabilitytoshareintheprofitsoftheissuingcompany
E）noneoftheabove
Answer:
ADifficulty:
Moderate
Rationale:
Floatingratebondsallowtheinvestortoearnarateofinterestincometiedtocurrentinterestrates,thusnegatingoneofthemajordisadvantagesoffixedincomeinvestments.Convertiblebondsallowtheinvestortobenefitfromtheappreciationofthestockprice,eitherbyconvertingtostockorholdingthebond,whichwillincreaseinpriceas
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