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Chapter 7 Interest Rates and Bond Valuation
Chapter 07 Quiz A Student Name
_________________________
Student ID
____________
________ 1.
A semiannual
corporate bond has a face value of $$1,000, a yield
to maturity of 7.2 percent, and a coupon
rate of 7.5 percent. The bond matures
10 years from today. This bond:
a.
pays interest payments of $$75.00 every six months.
b.
sells at par value.
c. is currently quoted at a
price of 101.02.
d. has a current yield of
7.34 percent.
________
2.
The price you pay to
purchase a Treasury bond is the _____ price.
a.
asked
b. yield
c. call
d. bid
________
3.
When computing the present value of an
annuity stream of payments you should discount:
a.
the nominal cash flows using the real discount
rate.
b.
each increasing nominal
payment by using the annuity growth formula.
c.
each increasing nominal payment using the real
discount rate for each period.
d. the real
cash flows using the real discount rate.
________
4.
An investor is
considering two bonds, a 5.5 percent municipal
bond versus a 7.5 percent taxable bond. If the
investor is in the 30 percent tax
bracket, which bond should she chose? Why? Ignore
state and local taxes.
a. the taxable bond; it has
a higher aftertax yield
b. the taxable bond, it has
a lower aftertax yield
c. the municipal bond; it
is exempt from all taxes
d. the municipal bond, it
has a higher aftertax yield
________
5.
Teri
earned 7.7 percent on her investments last year.
If her real rate of return was 5.4 percent, what
was the
inflation rate for the year?
a.
.70 percent
b. 1.87 percent
c. 2.18 percent
d. 2.30
percent
________
6.
TES, Inc. offers an 8.5
percent bond with a yield to maturity of 7.65
percent. The bond pays interest annually
and
matures in 22 years. What is the market price of
one of these bonds if the face value is $$1,000?
a.
$$916.02
b. $$916.62
c.
$$1,089.16
d. $$1,089.81
________
7.
Signature Sweets, Inc. has 8 percent
semiannual bonds outstanding with 15 years to
maturity. The latest
quote
on these bonds is 109.16. What is the yield to
maturity?
a. 7.00 percent
b. 7.67
percent
c. 13.99 percent
d.
14.49 percent
________
8.
A zero coupon bond has a
yield to maturity of 6.33 percent and 12 years
until it fully matures. What is
the current price of this
bond if the face value is $$1,000?
a. $$473.39
b. $$478.77
c. $$688.04
d. $$692.51
________
9.
An
annual, ten-year bond is currently selling for
$$1,037.86 and has a yield to maturity of 6.23
percent.
What
is the coupon rate of this bond if the face value
is $$1,000?
a. 3.25 percent
b. 4.50
percent
c. 5.00 percent
d.
6.75 percent
________
10.
The bonds of XYZ, Inc.
are currently quoted at 97.65 and mature in 13
years. The bonds
pay a $$45 semiannual coupon. What is
the current yield on these bonds?
a. 4.32 percent
b. 4.61 percent
c. 9.22
percent
d. 9.32 percent
7-1
Chapter 7 Interest Rates and Bond
Valuation
Chapter 07 Quiz A
Answers
1.
d
?
?
?<
/p>
.
072
?
10
?
2
?
?
?
1
?
?
1
/
?
1
?
?
?
?
< br>2
?
?
.
075
?
$$
1
,
000
?
?
$$
1
,
000
?
?
?
?
?
P
?
?
?
; P = $$528.175 + $$492.952 = $$1,021.13
?
10
?
2
.
072
2
?
?
?
1
?
.
072
?
?
2
?
?
?
< br>2
?
?
?
?
Enter
10
?
2 7.2/2
75/2 1,000
N
I/Y
PV
PMT
FV
Solve for
-1,021.13
Current yield = (.075
?
$$1,000) / $$1,021.13 =
.073448 = 7.34 percent
You pay the
asked price to purchase a Treasury bond.
You should discount the real cash flows
using the real discount rate.
Municipal
ATY = 5.50 percent. Taxable bond ATY = .075
×
(1
–
.30) =
.0525 = 5.25 percent
h = [(1 + .077) /
(1 + .054)]
–
1 = .02182 =
2.18 percent
2.
3.
4.
5.
6.
7.
8.
9.
10.
a
d
d
c
c
a
b
d
c
?
1<
/p>
?
1
/
?
1
?
.
0765
?
22
?
$$
1
,
000
P
?
?
.
085
?
$$
1
,
000
?
?
?
?
; P = $$891.60 + $$197.56 =
$$1,089.16
?
22
.
0765
?
?
?
1
?
.
0765<
/p>
?
Enter
22 7.65
N
I/Y
PV
Solve for
-1,089.16
85 1,000
PMT
FV
?
?
Enter
15
?
2
/2 -1,091.60 80/2 1,000
N
I/Y
PV
PMT
FV
Solve for
7.00
P
?
$$
1
,
000
?
1
?
.
0633
< br>?
12
; P = $$478.77
Enter
12 6.33
N
I/Y
PV
Solve for
-478.77
1,000
PMT
FV
?
1
?
1
/<
/p>
?
1
?
.
0623
?
10
?<
/p>
$$
1
,
000<
/p>
$$
1
,
037<
/p>
.
86
?
C
?
$$
1
,
000
?
?
?
; C = .0675 = 6.75 percent
?
10
.
0623
?
?
?
1
?
.
0623
?
Enter
10
6.23 -1,037.86
N
I/Y
PV
PMT
Solve for
67.50
1,000
FV
?
?
Coupon rate = $$67.50 / $$1,000 = .0675 =
6.75 percent
CY = ($$45.00 ×
2) / $$976.50 = .09217 = 9.22 percent
7-2
Chapter 7 Interest Rates
and Bond Valuation
Chapter 07 Quiz B
Student Name _________________________
Student ID ____________
________
1.
TES, Inc. offers a 7.5 percent bond
with a yield to maturity of 8.25 percent. The bond
pays interest annually
and matures in 19 years.
What is the market price of one of these bonds if
the face value is $$1,000?
a. $$481.37
b.
$$575.50
c. $$913.56
d.
$$929.25
________
2.
Signature Sweets, Inc.
has 9 percent semiannual bonds outstanding with 18
years to maturity. The latest
quote on these bonds is 95.50. What is
the yield to maturity?
a. 9.00 percent
b. 9.53 percent
c. 9.76
percent
d. 10.27 percent
________
3.
A
zero coupon bond has a yield to maturity of 8.35
percent and 10 years until it fully matures. What
is
the current
price of this bond if the face value is $$1,000?
a.
$$441.30
b. $$448.45
c.
$$657.60
d. $$664.30
________
4.
An
annual, fourteen-year bond is currently selling
for $$971.29 and has a yield to maturity of 7.59
percent.
What
is the coupon rate of this bond if the face value
is $$1,000?
a. 6.25 percent
b. 6.50
percent
c. 7.00 percent
d.
7.25 percent
________
5.
The bonds of XYZ, Inc.
are currently quoted at 101.45 and mature in 9
years. The bonds pay a $$35
semiannual
coupon. What is the current yield on these bonds?
a.
3.45 percent
b. 3.50 percent
c. 6.78 percent
d. 6.90
percent
________ 6.
A semiannual corporate bond has a face
value of $$1,000, a yield to maturity of 8.7
percent, and a coupon
rate of 8.5 percent. The
bond matures 15 years from today. This bond:
a. has a current yield of 4.32 percent.
b.
sells at a discount.
c. is currently quoted at a
price of 101.87.
d. pays interest payments
of $$85.00 every six months.
________
7.
The
price you receive when you sell a Treasury bond is
the _____ price.
a. bid
b. yield
c. call
d. asked
________
8.
Which
one of the following statements is correct
regarding interest rate risk?
a. A 3-year, 2
percent coupon bond has more interest rate risk
than a 5-year, 2 percent coupon bond.
b. A 10-year
zero coupon bond has more interest rate risk than
a 10-year coupon bond.
c. A 6-year, 9 percent
coupon bond has more interest rate risk than a
6-year, 5 percent coupon bond.
d. A 7-year
zero coupon bond has more interest rate risk than
a 10-year zero coupon bond.
________
9.
An
investor is considering two bonds, a 6.25 percent
municipal bond and an 8.75 percent taxable bond.
If
the investor is in the 28 percent tax
bracket, which bond should she chose? Why? Ignore
state and local taxes.
a. the taxable bond; it has
a higher aftertax yield
b. the taxable bond, it has
a lower aftertax yield
c. the municipal bond; it
is exempt from all taxes
d. the municipal bond, it
has a higher aftertax yield
________
10.
Katie earned 9.5 percent on her
investments last year. If her real rate of return
was 5.9 percent, what was the
inflation rate for the
year?
a. 3.40 percent
b. 3.60
percent
c. 3.80 percent
d.
4.00 percent
7-3
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