Quiz 15.docx

Quiz 15.docx

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Quiz15

15:

AssetValuation:

DebtInvestments:

AnalysisandValuation

1.A:

IntroductiontotheValuationofFixedIncomeSecurities

QuestionID:

12975

Whatisthepresentvalueofathree-yearsecuritythatpaysafixedannualcouponof6percentusingadiscountrateof7percent?

A.

92.48.

B.

97.38.

C.

100.00.

D.

101.75.

B

Thisvalueiscomputedasfollows:

PresentValue=6/1.07+6/1.072+106/1.073=97.38

Thevalue92.48resultsifthecouponpaymentatmaturityofthebondisneglected.Thecouponrateandthediscountratearenotequalso100.00cannotbethecorrectanswer.

QuestionID:

13009

Ifabond'scouponisgreaterthantheprevailingmarketrateonnewissues,thebondiscalleda:

A.

parbond.

B.

termbond.

C.

premiumbond.

D.

discountbond.

C

QuestionID:

22342

Bypurchasinganoncallable,nonputable,U.S.Government30-yearbond,aninvestorisentitledto:

A.

annuityofcouponpayments.

B.

monthlypaymentsdependingontheprincipalprepaymentbehaviorofindividualhomeowners.

C.

annuityofcouponpaymentsplusrecoveryofprincipalatmaturity.

D.

fullrecoveryoffacevalueatmaturityorwhenthebondisretired.

C

Bondinvestorsareentitledtotwodistincttypesofcashflows:

（1）theperiodicreceiptofcouponincomeoverthelifeofthebond,and

（2）therecoveryofprincipal（orfacevalue）attheendofthebond’slife.

QuestionID:

13010

Usingthepresent-valuemethod,whichofthefollowingisNOTneededtovalueabond?

A.

Couponpayment.

B.

Termtomaturity.

C.

Parvalue.

D.

Bondrating.

D

QuestionID:

13011

ThevalueofabondisNOTaffectedby:

A.

currentyield.

B.

couponrate.

C.

requiredrateofreturn.

D.

yeartomaturity.

A

QuestionID:

22343

WhichofthefollowingisNOToneofthestepsinavaluationprocessforanoncallablebond?

A.

Estimatethebond'scashflows.

B.

Calculatethepresentvalueoftheestimatedcashflows.

C.

Determinetheappropriatediscountrate.

D.

Evaluatetheprobabilityoftheissuerretiringthebondprematurely.

D

Thethreefundamentalstepsinthebondvaluationprocessare

（1）estimatethebond’scashflows,

（2）determinetheappropriatediscountrate,and（3）calculatethepresentvalueoftheestimatedcashflows.Sincethebondhasanoncallablefeature,theissuerdoesnothavetherighttoretirethebondprematurely.

QuestionID:

22345

ZetaCorp.hasoutstandinga$10million,14percentcouponbondthatisnoncallable.Thebondpaysquarterlycouponpayments.Thevalueofeachcashcouponisclosestto:

A.

$700,000.

B.

$350,000.

C.

$1,000,000.

D.

$1,400,000.

B

Thecashcouponis（$10,000,000*0.14）/4=$350,000.Notethatwhilethecouponrateisstatedasanannualpercentage,thecashcouponpaymentsaremadeonaquarterlybasis.

QuestionID:

22346

Aninvestorgathersthefollowinginformationabouta12-yearbond:

·Parvalueof$10,000

·Semiannualcouponrateof6%

·Currentpriceof$9,543

·Yieldtomaturityof6.56%

Thevalueofeachcashcouponisclosestto:

A.

$300.

B.

$328.

C.

$600.

D.

$656.

A

Thecashcouponis（$10,000*0.06）/2=$300.Notethatwhilethecouponrateisstatedasanannualpercentage,thecashcouponpaymentsaremadeonasemiannualbasis.

QuestionID:

22344

Ifaninvestorpurchasesa30-yearsemiannualbondwithacouponrateof5percentandparvalueof$100,000,thevalueofeachcashcouponreceivedisclosestto:

A.

$2,500.

B.

$5,000.

C.

$100,000.

D.

$83.

A

Thecashcouponis（$100,000*0.05）/2=$2,500.Notethatwhilethecouponrateisstatedasanannualpercentage,thecashcouponpaymentsaremadeonasemiannualbasis.

QuestionID:

22348

Whichofthefollowingcharacteristicswouldcreatetheleastdifficultyinestimatingabond’scashflows?

A.

Conversionprivilege.

B.

Sinkingfundprovisions.

C.

Fixedcouponrate.

D.

Callablebond.

C

Normally,estimatingthecashflowstreamisstraightforwardforahighquality,option-freebondduetothehighdegreeofcertaintyinthetimingandamountofthepayments.Thefollowingfourconditionscouldleadtodifficultyinforecastingthebond’sfuturecashflowstream:

（1）increasedcreditrisk,

（2）thepresenceofembeddedoptions（i.e.,call/putfeaturesorsinkingfundprovisions）,（3）theuseofvariableratherthanfixedcouponrate,and（4）thepresenceofaconversionorexchangeprivilege.

QuestionID:

22349

Whichofthefollowingcharacteristicswouldcreatethemostdifficultyinestimatingabond'scashflows?

A.

Exchangeprivilege.

B.

Noncallablebond.

C.

Fixedcouponrate.

D.

Highcreditqualitybond.

A

Normally,estimatingthecashflowstreamisstraightforwardforahighquality,option-freebondduetothehighdegreeofcertaintyinthetimingandamountofthepayments.Thefollowingfourconditionscouldleadtodifficultyinforecastingthebond’sfuturecashflowstream:

（1）increasedcreditrisk,

（2）thepresenceofembeddedoptions（i.e.,call/putfeaturesorsinkingfundprovisions）,（3）theuseofvariableratherthanfixedcouponrate,and（4）thepresenceofaconversionorexchangeprivilege.

QuestionID:

22347

Whichofthefollowingcharacteristicswouldcreatetheleastdifficultyinestimatingabond’scashflows?

A.

Exchangeprivilege.

B.

Variablecouponrate.

C.

Noncallablebond.

D.

Putablebond.

C

Normally,estimatingthecashflowstreamisstraightforwardforahighquality,option-freebondduetothehighdegreeofcertaintyinthetimingandamountofthepayments.Thefollowingfourconditionscouldleadtodifficultyinforecastingthebond’sfuturecashflowstream:

（1）increasedcreditrisk,

（2）thepresenceofembeddedoptions（i.e.,call/putfeaturesorsinkingfundprovisions）,（3）theuseofvariableratherthanfixedcouponrate,and（4）thepresenceofaconversionorexchangeprivilege.

QuestionID:

13014

Whatvaluewouldaninvestorplaceona20-year,10percentannualcouponbond,iftheinvestorrequiredan11percentrateofreturn?

A.

$945.

B.

$1,035

C.

$920.

D.

$879.

C

N=20,I/Y=11,PMT=100,FV=1000,CPTPV

QuestionID:

13024

Acouponbondthatpaysinterestannuallyhasaparvalueof$1,000,maturesin5years,andhasayieldtomaturityof10percent.Whatistheintrinsicvalueofthebondtodayifthecouponrateis8percent?

A.

$924.18.

B.

$1,000.00.

C.

$1,500.00.

D.

$2,077.00.

A

FV=1000

N=5

I=10

PMT=80

ComputePV=924.18.

QuestionID:

13012

Usingthefollowingspotratesforpricingthebond,whatisthepresentvalueofathree-yearsecuritythatpaysafixedannualcouponof6percent?

Year1:

5.0%

Year2:

5.5%

Year3:

6.0%

A.

100.00.

B.

100.10.

C.

102.46.

D.

95.07.

B

Thisvalueiscomputedasfollows:

PresentValue=6/1.05+6/1.0552+106/1.063=100.10

Thevalue95.07resultsifthecouponpaymentatmaturityofthebondisneglected.

QuestionID:

13020

Acouponbondthatpaysinterestannuallyhasaparvalueof$1,000,maturesin5years,andhasayieldtomaturityof10percent.Whatistheintrinsicvalueofthebondtodayifthecouponrateis12percent?

A.

$1,000.00.

B.

$1,075.82.

C.

$2,077.00

D.

$650.00.

B

FV=1000

N=5

I=10

PMT=120

PV=?

PV=1,075.82.

QuestionID:

13017

Aninvestorpurchaseda6-yearannualinterestcouponbondoneyearago.Thecouponrateofinterestwas10percentandparvaluewas$1,000.Atthetimeshepurchasedthebond,theyieldtomaturitywas8percent.Theamountpaidforthisbondoneyearagowas:

A.

$1,215.51.

B.

$1,092.46.

C.

$1,125.53.

D.

$1,198.07.

B

N=6

PMT=（.10）（1000）=100

I=8

FV=1000

PV=?

PV=1092.46

QuestionID:

13026

Considerabondthatpaysanannualcouponof5percentandthathasthreeyearsremaininguntilmaturity.Supposethetermstructureofinterestratesisflatat6percent.Howmuchdoesthebondpricechangeifthetermstructureofinterestratesshiftsdownby1percentinstantaneously.?

A.

-2.67.

B.

3.76.

C.

2.67.

D.

0.00.

C

Thisvalueiscomputeasfollows:

BondPriceChange=NewPrice–OldPrice=100–（5/1.06+5/1.062+105/1.063=2.67.

-2.67isthecorrectvaluebutthewrongsign.Thevalue0.00isincorrectbecausethebondpriceisnotinsensitivetointerestratechanges.

QuestionID:

13031

Deepdiscountbondshave:

A.

greaterpricevolatilitythanbondssellingatpar.

B.

lesscallprotectionthanbondssellingatpar.

C.

lesscouponprotectionthanbondssellingatpar.

D.

greaterreinvestmentriskthanbondssellingatpar.

A

QuestionID:

13029

Ayearagoacompanyissuedabondwithafacevalueof$1,000an8percentcoupon.Nowtheprevailingmarketyeildis10percent.Whathappenstothebond?

The:

A.

bondistradedatamarketpricehigherthan$1,000.

B.

companyhastoissueanew2-percent