【正文】 price and yield on a bond are A) positively related. B) negatively related. C) sometimes positively and sometimes negatively related. E) not related. E) indefinitely related. Answer: B Difficulty: Easy Rationale: Bond prices and yields are inversely related. 18. The ______ is a measure of the average rate of return an investor will earn if the investor buys the bond now and holds until maturity. A) current yield B) dividend yield C) P/E ratio D) yield to maturity E) discount yield Answer: D Difficulty: Easy Rationale: The current yield is the annual interest as a percent of current market price。 $100 / $ = %. 8. Of the following four investments, ________ is considered the safest. A) mercial paper B) corporate bonds C) U. S. Agency issues D) Treasury bonds E) Treasury bills Answer: E Difficulty: Easy Rationale: Only Treasury issues are insured by the U. S. government。Chapter 14 Bond Prices and Yields 297 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 Answer: A Difficulty: Easy Rationale: A is current yield and is quoted as such in the financial press. 2. If a 7% coupon bond is trading for $, it has a current yield of ____________ percent. A) B) C) D) E) Answer: E Difficulty: Easy Rationale: 70/975 = . 3. If a 6% coupon bond is trading for $, it has a current yield of ____________ percent. A) B) C) D) E) Answer: B Difficulty: Easy Rationale: 60/950 = . Chapter 14 Bond Prices and Yields 298 4. If an 8% coupon bond is trading for $, it has a current yield of ____________ percent. A) B) C) D) E) Answer: A Difficulty: Easy Rationale: 80/1025 = . 5. If a % coupon bond is trading for $, it has a current yield of ____________ percent. A) B) C) D) E) Answer: C Difficulty: Easy Rationale: 75/1050 = . 6. 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) % B) % C) % D) % E) none of the above Answer: A Difficulty: Moderate Rationale: FV = 1000, n = 4, PMT = 100, i = 12, PV= 。 $100 / $ = %. Chapter 14 Bond Prices and Yields 299 7. 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) % B) % C) % D) % E) none of the above Answer: D Difficulty: Moderate Rationale: FV = 1000, n = 12, PMT = 110, i = 12, PV= 。 the shorterterm the instrument, the safer the instrument. 9. 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 and C E) A and C Answer: D Difficulty: Easy Rationale: High values for the times interest and quick ratios and a low debt to equity ratio are desirable indicators of safety. Chapter 14 Bond Prices and Yields 300 10. At issue, coupon bonds typically sell ________. A) above par value B) below par C) at or near par value D) at a value unrelated to par E) none of the above Answer: C Difficulty: Easy Rationale: If the investment banker has appraised the market and the quality of the bond correctly, the bond will sell at or near par (unless interest rates have changed very dramatically and very quickly around the time of issuance). 11. Accrued interest A) is quoted in the bond price in the financial press. B) must be paid by the buyer of the bond and remitted to the seller of the bond. C) must be paid to the broker for the inconvenience of selling bonds between maturity dates. D) A and B. E) A and C. Answer: B Difficulty: Moderate Rationale: Accrued interest must be paid by the buyer, but is not included in the quotations page price. 12. The invoice price of a bond that a buyer would pay is equal to A) the asked price plus accrued interest. B) the asked price less accrued interest. C) the bid price plus accrued interest. D) the bid price less accrued interest. E) the bid price. Answer: A Difficulty: Easy Rationale: The buyer of a bond will buy at the asked price and will also be invoiced for any accrued interest due to the seller. Chapter 14 Bond Prices and Yields 301 13. An 8% coupon U. S. Treasury note pays interest on May 30 and November 30 and is traded for settlement on August 15. The accrued interest on the $100,000 face value of this note is _________. A) $ B) $ C) $ D) $1, E) none of the above Answer: D Difficulty: Moderate Rationale: 76/183($4,000) = $1,. Approximation: .08/12*100,000= per month. * months = . 14. A coupon bond is reported as having an ask price of 113% of the $1,000 par value in the Wall Street Journal. If the last interest payment was made two months ago and the coupon rate is 12%, the invoice price of the bond will be ____________. A) $1,100 B) $1,110 C) $1,150 D) $1,160 E) none of the above Answer: C Difficulty: Moderate Rationale: $1,130 + $20 (accrued interest) = $1,150. 15. The bonds of Ford Motor Company have received a rating of D by Moody39。 the other choices do not apply to bonds. Chapter 14 B