投资学第7版Test Bank答案14.docx
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投资学第7版Test Bank答案14.docx
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投资学第7版TestBank答案14
MultipleChoiceQuestions
1.Thecurrentyieldonabondisequalto________.
A)annualinterestdividedbythecurrentmarketprice
B)theyieldtomaturity
C)annualinterestdividedbytheparvalue
D)theinternalrateofreturn
E)noneoftheabove
Answer:
ADifficulty:
Easy
Rationale:
Aiscurrentyieldandisquotedassuchinthefinancialpress.
2.Ifa7%couponbondistradingfor$975.00,ithasacurrentyieldof____________percent.
A)7.00
B)6.53
C)7.24
D)8.53
E)7.18
Answer:
EDifficulty:
Easy
Rationale:
70/975=7.18.
3.Ifa6%couponbondistradingfor$950.00,ithasacurrentyieldof____________percent.
A)6.5
B)6.3
C)6.1
D)6.0
E)6.6
Answer:
BDifficulty:
Easy
Rationale:
60/950=6.3.
4.Ifan8%couponbondistradingfor$1025.00,ithasacurrentyieldof____________percent.
A)7.8
B)8.7
C)7.6
D)7.9
E)8.1
Answer:
ADifficulty:
Easy
Rationale:
80/1025=7.8.
5.Ifa7.5%couponbondistradingfor$1050.00,ithasacurrentyieldof____________percent.
A)7.0
B)7.4
C)7.1
D)6.9
E)6.7
Answer:
CDifficulty:
Easy
Rationale:
75/1050=7.1.
6.Acouponbondpaysannualinterest,hasaparvalueof$1,000,maturesin4years,hasacouponrateof10%,andhasayieldtomaturityof12%.Thecurrentyieldonthisbondis___________.
A)10.65%
B)10.45%
C)10.95%
D)10.52%
E)noneoftheabove
Answer:
ADifficulty:
Moderate
Rationale:
FV=1000,n=4,PMT=100,i=12,PV=939.25;$100/$939.25=10.65%.
7.Acouponbondpaysannualinterest,hasaparvalueof$1,000,maturesin12years,hasacouponrateof11%,andhasayieldtomaturityof12%.Thecurrentyieldonthisbondis___________.
A)10.39%
B)10.43%
C)10.58%
D)10.66%
E)noneoftheabove
Answer:
DDifficulty:
Moderate
Rationale:
FV=1000,n=12,PMT=110,i=12,PV=938.06;$100/$938.06=10.66%.
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
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.
B)theaskedpricelessaccruedinterest.
C)thebidpriceplusaccruedinterest.
D)thebidpricelessaccruedinterest.
E)thebidprice.
Answer:
ADifficulty:
Easy
Rationale:
Thebuyerofabondwillbuyattheaskedpriceandwillalsobeinvoicedforanyaccruedinterestduetotheseller.
13.An8%couponU.S.TreasurynotepaysinterestonMay30andNovember30andistradedforsettlementonAugust15.Theaccruedinterestonthe$100,000facevalueofthisnoteis_________.
A)$491.80
B)$800.00
C)$983.61
D)$1,661.20
E)noneoftheabove
Answer:
DDifficulty:
Moderate
Rationale:
76/183($4,000)=$1,661.20.Approximation:
.08/12*100,000=666.67permonth.666.67/month*2.5months=1.666.67.
14.Acouponbondisreportedashavinganaskpriceof113%ofthe$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"D"byMoody's.The"D"ratingindicates
A)thebondsareinsured
B)thebondsarejunkbonds
C)thebondsarereferredtoas"highyield"bonds
D)AandB
E)BandC
Answer:
EDifficulty:
Easy
Rationale:
Dratingsareriskybonds,oftencalledjunkbonds(orhighyieldbondsbythosemarketingsuchbonds).
16.Thebondmarket
A)canbequite"thin".
B)primarilyconsistsofanetworkofbonddealersintheoverthecountermarket.
C)consistsofmanyinvestorsonanygivenday.
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.
18.The______isameasureoftheaveragerateofreturnaninvestorwillearniftheinvestorbuysthebondnowandholdsuntilmaturity.
A)currentyield
B)dividendyield
C)P/Eratio
D)yieldtomaturity
E)discountyield
Answer:
DDifficulty:
Easy
Rationale:
Thecurrentyieldistheannualinterestasapercentofcurrentmarketprice;theotherchoicesdonotapplytobonds.
19.The_________givesthenumberofsharesforwhicheachconvertiblebondcanbeexchanged.
A)conversionratio
B)currentratio
C)P/Eratio
D)conversionpremium
E)convertiblefloor
Answer:
ADifficulty:
Easy
Rationale:
Theconversionpremiumistheamountforwhichthebondsellsaboveconversionvalue;thepriceofbondasastraightbondprovidesthefloor.Theothertermsarenotspecificallyrelevanttoconvertiblebonds.
20.Acouponbondisabondthat_________.
A)paysinterestonaregularbasis(typicallyeverysixmonths)
B)doesnotpayinterestonaregularbasisbutpaysalumpsumatmaturity
C)canalwaysbeconvertedintoaspecificnumberofsharesofcommonstockintheissuingcompany
D)alwayssellsatpar
E)noneoftheabove
Answer:
ADifficulty:
Easy
Rationale:
Acouponbondwillpaythecouponrateofinterestonasemiannualbasisunlessthefirmdefaultsonthebond.Convertiblebondsarespecifictypesofbonds.
21.A___________bondisabondwherethebondholderhastherighttocashinthebondbeforematurityataspecifiedpriceafteraspecificdate.
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.ATreasurybonddueinoneyearhasayieldof5.7%;aTreasurybondduein5yearshasayieldof6.2%.AbondissuedbyFordMotorCompanyduein5yearshasayieldof7.5%;abondissuedbyShellOildueinoneyearhasayieldof6.5%.ThedefaultriskpremiumsonthebondsissuedbyShellandFord,respectively,are
A)1.0%and1.2%
B)0.7%and1.5%
C)1.2%and1.0%
D)0.8%and1.3%
E)noneoftheabove
Answer:
DDifficulty:
Moderate
Rationale:
Shell:
6.5%-5.7%=.8%;Ford:
7.5%-6.2%=1.3%.
24.ATreasurybonddueinoneyearhasayieldof4.6%;aTreasurybondduein5yearshasayieldof5.6%.AbondissuedbyLucentTechnologiesduein5yearshasayieldof8.9%;abondissuedbyMobildueinoneyearhasayieldof6.2%.ThedefaultriskpremiumsonthebondsissuedbyMobilandLucentTechnologies,respectively,are:
A)1.6%and3.3%
B)0.5%and.7%
C)3.3%and1.6%
D)0.7%and0.5%
E)noneoftheabove
Answer:
ADifficulty:
Moderate
Rationale:
Mobil:
6.2%-4.6%=1.6%;LucentTechnologies:
8.9%-5.6%=3.3%.
25.ATreasurybonddueinoneyearhasayieldof6.2%;aTreasurybondduein5yearshasayieldof6.7%.AbondissuedbyXeroxduein5yearshasayieldof7.9%;abondissuedbyExxondueinoneyearhasayieldof7.2%.ThedefaultriskpremiumsonthebondsissuedbyExxonandXerox,respectively,are
A)1.0%and1.2%
B)0.5%and.7%
C)1.2%and1.0%
D)0.7%and0.5%
E)noneoftheabove
Answer:
ADifficulty:
Moderate
Rationale:
Exxon:
7.2%-6.2%=1.0%;Xerox:
7.9%-6.7%=1.2%.
26.Floating-ratebondsaredesignedto__________
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