Bond Prices and Yields

Multiple Choice Questions

1. The current yield on a bond is equal to ________.

A. annual interest divided by the current market price

B. the yield to maturity

C. annual interest divided by the par value

D. the internal rate of return

E. none of the above

A is current yield and is quoted as such in the financial press.

Difficulty: Easy

2. If a 7% coupon bond is trading for $975.00, it has a current yield of ____________ percent. A. 7.00

B. 6.53

C. 7.24

D. 8.53

E. 7.18

70/975 = 7.18.

Difficulty: Easy

3. If a 7.25% coupon bond is trading for $982.00, it has a current yield of ____________ percent. A. 7.38

B. 6.53

C. 7.25

D. 8.53

E. 7.18

72.50/982 = 7.38.

Difficulty: Easy

4. If a 6.75% coupon bond is trading for $1016.00, it has a current yield of ____________ percent. A. 7.38

B. 6.64

C. 7.25

D. 8.53

E. 7.18

67.50/1016 = 6.6437.

Difficulty: Easy

5. If a 7.75% coupon bond is trading for $1019.00, it has a current yield of ____________ percent. A. 7.38

B. 6.64

C. 7.25

D. 7.61

E. 7.18

77.50/1019 = 7.605.

Difficulty: Easy

6. If a 6% coupon bond is trading for $950.00, it has a current yield of ____________ percent. A. 6.5

B. 6.3

C. 6.1

D. 6.0

E. 6.6

60/950 = 6.3.

Difficulty: Easy

7. If an 8% coupon bond is trading for $1025.00, it has a current yield of ____________ percent. A. 7.8

B. 8.7

C. 7.6

D. 7.9

E. 8.1

80/1025 = 7.8.

Difficulty: Easy

8. If a 7.5% coupon bond is trading for $1050.00, it has a current yield of ____________ percent. A. 7.0

B. 7.4

C. 7.1

D. 6.9

E. 6.7

75/1050 = 7.1.

Difficulty: Easy

9. A coupon bond pays annual interest, has a par value of $1,000, matures in 4 years, has a coupon rate of 10%, and has a yield to maturity of 12%. The current yield on this bond is ___________. A. 10.65%

B. 10.45%

C. 10.95%

D. 10.52%

E. none of the above

FV = 1000, n = 4, PMT = 100, i = 12, PV = 939.25; $100 / $939.25 = 10.65%.

Difficulty: Moderate

10. A coupon bond pays annual interest, has a par value of $1,000, matures in 4 years, has a coupon rate of 8.25%, and has a yield to maturity of 8.64%. The current yield on this bond is ___________. A. 8.65%

B. 8.45%

C. 7.95%

D. 8.36%

E. none of the above

FV = 1000, n = 4, PMT = 82.50, i = 8.64, PV = 987.26; $82.50 / $987.26 = 8.36%.

Difficulty: Moderate

11. A coupon bond pays annual interest, has a par value of $1,000, matures in 12 years, has a coupon rate of 11%, and has a yield to maturity of 12%. The current yield on this bond is ___________. A. 10.39%

B. 10.43%

C. 10.58%

D. 10.66%

E. none of the above

FV = 1000, n = 12, PMT = 110, i = 12, PV = 938.06; $100 / $938.06 = 10.66%.

Difficulty: Moderate

12. A coupon bond pays annual interest, has a par value of $1,000, matures in 12 years, has a coupon rate of 8.7%, and has a yield to maturity of 7.9%. The current yield on this bond is ___________. A. 8.39%

B. 8.43%

C. 8.83%

D. 8.66%

E. none of the above

FV = 1000, n = 12, PMT = 87, i = 8.9, PV = 985.61; $87 / $985.61 = 8.83%.

Difficulty: Moderate

13. Of the following four investments, ________ is considered the safest. A. commercial paper

B. corporate bonds

C. U.S. Agency issues

D. Treasury bonds

E. Treasury bills

Only Treasury issues are insured by the U.S. government; the shorter-term the instrument, the safer the instrument.

Difficulty: Easy

14. Of the following four investments, ________ is considered the least risky. A. Treasury bills

B. corporate bonds

C. U.S. Agency issues

D. Treasury bonds

E. commercial paper

Only Treasury issues are insured by the U.S. government; the shorter-term the instrument, the safer the instrument.

Difficulty: Easy

15. To earn a high rating from the bond rating agencies, a firm should have A. a low times interest earned ratio

B. a low debt to equity ratio

C. a high quick ratio

D. B...