Question

Question 1 of 71

The yield to maturity on a coupon bond is …

·      always greater than the coupon rate.

·       the rate an investor earns if she holds the bond to the maturity date, assuming she can reinvest all coupons at the current yield.

·      the rate an investor earns if she holds the bond to the maturity date, assuming she can reinvest all coupons at the yield to maturity.

·      only equal to the internal rate of return of a bond when the bond is priced at par.

·      greater than both the current yield and coupon rate when the bond is priced at a premium to par.

Question 2 of 71

A bond priced at discount to par will have a current yield that …

·      is greater than the YTM but less than the coupon rate.

·      is greater than both the YTM and coupon rate.

·       is less than the YTM but greater than the coupon rate.

·      Is equal to the coupon rate.

·      is less than both the YTM and coupon rate.

Question 3 of 71

The bonds issued by The South Foot bear a coupon rate of 7.5 percent, payable semiannually. The bonds mature in 6.5 years, sell at par, and have a $1,000 face value. What is the yield to maturity?

·      7.59%

·      7.86%

·       7.50%

·      7.42%

·      15.00%

Question 4 of 71

What is the yield to maturity of a 5-year, 6% annual coupon bond priced at 98?

6.00%

5.522%

6.481%

6.475%

6.122%

Question 5 of 71

Which of the following investments have the highest yield to maturity (YTM)?

·      $1,000 face value 5-year, 5% annual coupon bond priced at 94

·      A 5-year annuity paying $240 annually (at year end)

·      $1,000 face value 9-year, 7% annual coupon bond priced at 104

·      $1,000 face value 9-year 7% annual coupon bond with a current yield of 6.667%

·       $1,000 face value 5-year 0-coupon bond (compounded annually) priced at 73

Question 6 of 71

I am considering investing in a 3-year 6% annual coupon bond. What price will provide me with a 10% YTM?

·      87.57

·      90.00

·       90.05

·      90.91

·      93.06

Question 7 of 71

A large industrial business is considering issuing a $10m face value, 4-year 6% annual coupon bond with a 10% YTM. There is a 1% underwriting fee, calculated on the total face value of the bond, along with $50,000 in various legal, advisory and accounting fees. What is the company’s % all-in-cost (AIC)?

·      11.50%

·      10.52%

·      10.48%

·      10.32%

·      10.15%

Question 8 of 71

A bond has a 6% YTM. If market rates began to decline, what would you expect to happen to the bond price?

·      It would drop in price.

·       It would go up in price.

·      It would go up as long as the bond is trading at a discount.

·      It would go down as long as the bond is trading at a discount.

·      There will not be a change in price.

Question 9 of 71

You own a fixed-rate bond that has a coupon rate of 4.5% and matures in 10 years. You purchased this bond at par value at time of issuance. If the current market rate for this type and quality of bond is 5.0%, then you would expect …

·      to realize a capital loss if you sold the bond at the market price today.

·      the yield to maturity to remain constant throughout the term of the bond.

·      the current yield today to be less than 4.5%.

·       today's market price to be higher than the face value of the bond.

·      to realize a capital gain if you sold the bond at the market price today.

Question 10 of 71

Apple 3% 10/12/2042 Notes

Price: 95.054 / 95.453

In the bond quote above, what is the bid price?

95.054

95.253

95.453

95.300

It is impossible to tell from the information provided.

Answer 1

Problem 1:

A: No; YTM can be less than, greater than or equal to coupon rate

B: No; because discounting happened at YTM

C: Yes; If you invest all coupons at YTM till maturity and compute holding period return between PV and FV including face value and future value of invested coupon; The return is same as YTM.

The yield to maturity on a coupon bond is the rate an investor earns if she holds the bond to the maturity date, assuming she can reinvest all coupons at the yield to maturity.

D: No; When priced at par, YTM = IRR = Coupon rate

E: No; when bond is trading at premium (PV > FV), Coupon rate > YTM