【正文】 C) the same D) cannot be determined E) $1,000 Answer: B Difficulty: Moderate Rationale: This bond is a premium bond as interest rates have declined since the bond was issued. If interest rates remain constant, the price of a premium bond declines as the bond approaches maturity. Chapter 14 Bond Prices and Yields 315 56. A bond has a par value of $1,000, a time to maturity of 20 years, a coupon rate of 10% with interest paid annually, a current price of $850 and a yield to maturity of 12%. Intuitively and without the use calculations, if interest payments are reinvested at 10%, the realized pound yield on this bond must be ________. A) % B) % C) % D) % E) none of the above Answer: B Difficulty: Difficult Rationale: In order to earn yield to maturity, the coupons must be reinvested at the yield to maturity. However, as the bond is selling at discount the yield must be higher than the coupon rate. Therefore, B is the only possible answer. 57. A bond with a 12% coupon, 10 years to maturity and selling at 88 has a yield to maturity of _______. A) over 14% B) between 13% and 14% C) between 12% and 13% D) between 10% and 12% E) less than 12% Answer: A Difficulty: Moderate Rationale: YTM = %. 58. Using semiannual pounding, a 15year zero coupon bond that has a par value of $1,000 and a required return of 8% would be priced at approximately ______. A) $308 B) $315 C) $464 D) $555 E) none of the above Answer: A Difficulty: Moderate Rationale: FV = 1000, n = 30, I = 4, PV = Chapter 14 Bond Prices and Yields 316 59. The yield to maturity of a 20year zero coupon bond that is selling for $ with a value at maturity of $1,000 is ________. A) % B) % C) % D) % E) none of the above Answer: A Difficulty: Moderate Rationale: [$1,000/($]1/20 1 = %. 60. Which one of the following statements about convertibles is true? A) The longer the call protection on a convertible, the less the security is worth. B) The more volatile the underlying stock, the greater the value of the conversion feature. C) The smaller the spread between the dividend yield on the stock and the yieldtomaturity on the bond, the more the convertible is worth. D) The collateral that is used to secure a convertible bond is one reason convertibles are more attractive than the underlying stock. E) Convertibles are not callable. Answer: B Difficulty: Moderate Rationale: The longer the call protection the more attractive the bond. The smaller the spread (c), the less the bond is worth. Convertibles are debentures (unsecured bonds). All convertibles are callable at the option of the issuer. 61. Consider a $1,000 par value 20year zero coupon bond issued at a yield to maturity of 10%. If you buy that bond when it is issued and continue to hold the bond as yields decline to 9%, the imputed interest ine for the first year of that bond is A) zero. B) $. C) $. D) $. E) none of the above. Answer: B Difficulty: Moderate Rationale: $1,000/()20 = $。 $1,000/()19 = $。 $ $ = $. Chapter 14 Bond Prices and Yields 317 62. The bond indenture includes A) the coupon rate of the bond. B) the par value of the bond. C) the maturity date of the bond. D) all of the above. E) none of the above. Answer: D Difficulty: Easy Rationale: The bond indenture includes the coupon rate, par value and maturity date of the bond as well as any other contractual features. 63. A Treasury bond quoted at 107:16 107:18 has a bid price of _______ and an asked price of _____. A) $, $ B) $1, $1, C) $1, $1, D) $1, $1, E) $1, $1, Answer: C Difficulty: Moderate Rationale: Treasury bonds are quoted as a percentage of par value ($1,000) with the number after the colon representing the fractions of a point in 32nds. The bid price is quoted first and is the lower of the two. 64. Bearer bonds are A) bonds traded without any record of ownership. B) helpful to tax authorities in the enforcement of tax collection. C) rare in the United States today. D) all of the above. E) both A and C. Answer: E Difficulty: Moderate Rationale: Bearer bonds are not registered so there is no record of ownership. They are rare in the United States today. Tax authorities find registered bonds helpful in tax enforcement but not bearer bonds. Chapter 14 Bond Prices and Yields 318 65. Most corporate bonds are traded A) on a formal exchange operated by the New York Stock Exchange. B) by the issuing corporation. C) over the counter by bond dealers linked by a puter quotation system. D) on a formal exchange operated by the American Stock Exchange. E) on a formal exchange operated by the Philadelphia Stock Exchange. Answer: C Difficulty: Moderate Rationale: Most corporate bonds are traded in a loosely anized work of bond dealers linked by a puter quote system. Only a small proportion is traded on the New York Exchange. 66. The process of retiring highcoupon debt and issuing new bonds at a lower coupon to reduce interest payments is called A) deferral. B) reissue. C) repurchase. D) refunding. E) none of the above. Answer: D Difficulty: Moderate Rationale: The process of refunding refers to calling highcoupon bonds and issuing new, lower coupon debt. 67. Convertible bonds A) give their holders the ability to share in price appreciation of the underlying stock. B) offer lower coupon rates than similar nonconvertible bonds. C) offer higher coupon rates than similar nonconvertible bonds. D) both A and B are true. E) both A and C a