投资学第7版TestBank答案14.docx
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投资学第7版TestBank答案14.docx
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投资学第7版TestBank答案14
2.
7.0
7.4
7.1
6.9
6.7
annualinterestdividedbythecurrentmarketpricetheyieldtomaturity
annualinterestdividedbytheparvalue
theinternalrateofreturnnoneoftheabove
Answer:
ADifficulty:
Easy
Rationale:
Aiscurrentyieldandisquotedassuchinthefinancialpress.Ifa7%couponbondistradingfor$975.00,ithasacurrentyieldof
percent.
A)
B)
C)
D)
E)
6.5
6.3
6.1
6.0
6.6
7.8
8.7
7.6
7.9
8.1
Answer:
ADifficulty:
EasyRationale:
80/1025=7.8.
Ifa7.5%couponbondistradingfor$1050.00,ithasacurrentyieldofpercent.
A)
B)
C)
D)
Answer:
CDifficulty:
EasyRationale:
75/1050=7.1.
E)
6.
10.65%
10.45%
10.95%
10.52%noneoftheabove
Acouponbondpaysannualinterest,hasaparvalueof$1,000,maturesin4years,hasacouponrateof10%,andhasayieldtomaturityof12%.Thecurrentyieldonthisbondis
A)
B)
C)
D)
E)
10.39%
10.43%
10.58%
10.66%noneoftheabove
Answer:
DDifficulty:
ModerateRationale:
FV=1000,n=12,PMT=110,i=12,PV=938.06;$100/$938.06=10.66%.
8.
isconsideredthesafest.
commercialpapercorporatebondsU.S.AgencyissuesTreasurybondsTreasurybills
Ofthefollowingfourinvestments,
A)
B)
C)
D)
E)Answer:
EDifficulty:
EasyRationale:
OnlyTreasuryissuesareinsuredbytheU.S.government;theshorter-termtheinstrument,thesafertheinstrument.
9.
Toearnahighratingfromthebondratingagencies,afirmshouldhave
alowtimesinterestearnedratioalowdebttoequityratio
ahighquickratio
BandC
AandC
A)
B)
C)
D)
E)Answer:
DDifficulty:
EasyRationale:
Highvaluesforthetimesinterestandquickratiosandalowdebttoequityratioaredesirableindicatorsofsafety.
Atissue,couponbondstypicallysell.
aboveparvaluebelowparatornearparvalueatavalueunrelatedtoparnoneoftheabove
A)
B)
C)
D)
E)
Answer:
CDifficulty:
Easy
Rationale:
Iftheinvestmentbankerhasappraisedthemarketandthequalityofthebondcorrectly,thebondwillsellatornearpar(uniessinterestrateshavechangedverydramaticallyandveryquicklyaroundthetimeofissuanee).
11.
Accruedinterest
isquotedinthebondpriceinthefinancialpress.
mustbepaidbythebuyerofthebondandremittedtothesellerofthebond.
mustbepaidtothebrokerfortheinconvenienceofsellingbondsbetweenmaturitydates.
AandB.
AandC.
A)
B)
C)
D)
E)
Answer:
BDifficulty:
Moderate
Rationale:
Accruedinterestmustbepaidbythebuyer,butisnotincludedinthequotationspageprice.
12.
theaskedpriceplusaccruedinterest.theaskedpricelessaccruedinterest.thebidpriceplusaccruedinterest.thebidpricelessaccruedinterest.thebidprice.
Theinvoicepriceofabondthatabuyerwouldpayisequalto
A)
B)
C)
D)
E)
Answer:
ADifficulty:
Easy
Rationale:
Thebuyerofabondwillbuyattheaskedpriceandwillalsobeinvoicedforanyaccruedinterestduetotheseller.
13.
An8%couponU.S.TreasurynotepaysinterestonMay30andNovember30andistradedforsettlementonAugust15.Theaccruedinterestonthe$100,000facevalueofthisnoteis.
$491.80
$800.00
$983.61
$1,661.20
noneoftheabove
A)
B)
C)
D)
E)
Answer:
DDifficulty:
Moderate
Rationale:
76/183($4,000)=$1,661.20.Approximation:
.08/12*100,000=666.67permonth.666.67/month*2.5months=
14.
Acouponbondisreportedashavinganaskpriceof113%ofthe$1,000parvalueinthe
WallStreetJournal.Ifthelastinterestpaymentwasmadetwomonthsagoandthecouponrateis12%,theinvoicepriceofthebondwillbe.
$1,100
$1,110
$1,150
$1,160
noneoftheabove
A)
B)
C)
D)
E)
Answer:
CDifficulty:
Moderate
Rationale:
$1,130+$20(accruedinterest)=$1,150.
ThebondsofFordMotorCompanyhavereceivedaratingof"D"byMoody's.The"D"
ratingindicatesA)B)C)D)E)
16.
Answer:
EDifficulty:
Easy
Rationale:
Dratingsareriskybonds,oftencalledjunkbonds(orhighyieldbondsbythosemarketingsuchbonds).
ThebondmarketA)B)C)D)E)
17.
positivelyrelated.negativelyrelated.sometimespositivelyandsometimesnegativelyrelated.notrelated.
indefinitelyrelated.
18.
currentyielddividendyieldP/Eratioyieldtomaturitydiscountyield
conversionratiocurrentratioP/Eratioconversionpremiumconvertiblefloor
thebondsareinsured
thebondsarejunkbonds
thebondsarereferredtoas"highyield"bondsAandB
BandC
canbequite"thin".
primarilyconsistsofanetworkofbonddealersintheoverthecountermarket.consistsofmanyinvestorsonanygivenday.
AandB.
BandC.
Answer:
DDifficulty:
Easy
Rationale:
Thebondmarket,unlikethestockmarket,canbeaverythinlytradedmarket.Inaddition,mostbondsaretradedbydealers.
Ceterisparibus,thepriceandyieldonabondare
A)
B)
C)E)E)
Answer:
BDifficulty:
EasyRationale:
Bondpricesandyieldsareinverselyrelated.Theisameasureoftheaveragerateofreturnaninvestorwillearniftheinvestor
buysthebondnowandholdsuntilmaturity.
A)
B)
C)
D)
E)Answer:
DDifficulty:
Easy
Rationale:
Thecurrentyieldistheannualinterestasapercentofcurrentmarketprice;theotherchoicesdonotapplytobonds.
Thegivesthenumberofsharesforwhicheachconvertiblebondcanbe
exchanged.
A)
B)
C)
D)
E)Answer:
ADifficulty:
Easy
Rationale:
Theconversionpremiumistheamountforwhichthebondsellsabove
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conversionvalue;thepriceofbondasastraightbondprovidesthefloor.Theothertermsarenotspecificallyrelevanttoconvertiblebonds.
20.
Acouponbondisabondthat.
paysinterestonaregularbasis(typicallyeverysixmonths)
doesnotpayinterestonaregularbasisbutpaysalumpsumatmaturitycanalwaysbeconvertedintoaspecificnumberofsharesofcommonstockintheissuingcompanyalwayssellsatparnoneoftheabove
A)
B)
C)
D)
E)
Answer:
ADifficulty:
Easy
21.
Rationale:
Acouponbondwillpaythecouponrateofinterestonasemiannualbasisuniessthefirmdefaultsonthebond.Convertiblebondsarespecifictypesofbonds.Abondisabondwherethebondholderhastherighttocashinthebond
callablecouponputTreasuryzero-coupon
beforematurityataspecifiedpriceafteraspecificdate.
A)
B)
C)
D)
E)
Answer:
CDifficulty:
Easy
Rationale:
Anybondmayberedeemedpriortomaturity,butallbondsotherthanputbondsareredeemedatapricedeterminedbytheprevailinginterestrates.
22.
Callablebonds
arecalledwheninterestratesdeclineappreciably.haveacallpricethatdeclinesastimepasses.
arecalledwheninterestratesincreaseappreciably.AandB.
BandC.
A)
B)
C)
D)
E)
Answer:
DDifficulty:
Easy
Rationale:
Callablebondsoftenarerefunded(called)wheninterestratesdeclineappreciably.Thecallpriceofthebond(approximatelyparandoneyear'scouponpayment)declinestoparastimepassesandmaturityisreached.
23.
1.0%and1.2%
0.7%and1.5%
1.2%and1.0%
0.8%and1.3%noneoftheabove
ATreasurybonddueinoneyearhasayieldof5.7%;aTreasurybondduein5yearshasayieldof6.2%.AbondissuedbyFordMotorCompanyduein5yearshasayieldof7.5%;abondissuedbyShellOildueinoneyearhasayieldof6.5%.ThedefaultriskpremiumsonthebondsissuedbyShellandFord,respectively,are
A)
B)
C)
D)
E)
Answer:
DDifficulty:
Moderate
Rationale:
Shell:
6.5%-5.7%=.8%;Ford:
7.5%-6.2%=1.3%.
ATreasurybonddueinoneyearhasayieldof4.6%;aTreasurybondduein5yearshasayieldof5.6%.AbondissuedbyLucentTechnologiesduein5yearshasayieldof
25.
Answer:
ADifficulty:
ModerateRationale:
Mobil:
6.2%-4.6%=1.6%;LucentTechnologies:
8.9%-5.6%=3.3%.ATreasurybonddueinoneyearhasayieldof6.2%;aTreasurybondduein5yearshasayieldof6.7%.AbondissuedbyXeroxduein5yearshasayieldof7.9%;abondissuedbyExxondueinoneyearhasayieldof7.2%.ThedefaultriskpremiumsonthebondsissuedbyExxonandXerox,respectively,are
A)
B)
C)
D)
E)
1.0%and1.2%
0.5%and.7%
1.2%and1.0%
0.7%and0.5%noneoftheabove
26.
B)
C)
D)
Answer:
ADifficulty:
ModerateRationale:
Exxon:
7.2%-6.2%=1.0%;Xerox:
7.9%-6.7%=1.2%.Floating-ratebondsaredesignedtowhileconvertiblebondsaredesigned
toA)
minimizetheholders'interestraterisk;givetheinvestortheabilitytoshareinthepriceappreciationofthecompany'sstock
maximizetheholders'interestraterisk;givetheinvestortheabilitytoshareinthepriceappreciationofthecompany'sstock
minimizetheholders'interestraterisk;givetheinvestortheabilitytobenefitfrominterestratechanges
maximizetheholders'interestraterisk;giveinvestortheabilitytoshareintheprofitsoftheissuingcompanynoneoftheabove
E)Answer:
ADifficulty:
ModerateRationale:
Floatingratebondsallowtheinvestortoearnarateofinterestincometiedtocurrentinterestrates,thusnegatingoneofthemajordisadvantagesoffixedincomeinvestments.Convertiblebondsallowtheinvestortobenefitfromtheappreciationofthestockprice,eitherbyconvertingtostockorholdingthebond,whichwillincreaseinpriceasthestockpriceincreases.
Acouponbondthatpaysinterestannuallyissellingatparvalueof$1,000,maturesin5years,andhasacouponrateof9%.Theyieldtomaturityonthisbondis:
A)
B)
C)
D)
8.0%
8.3%
9.0%
10.0%
noneoftheabove
Answer:
CDifficulty:
Easy
E)
Rationale:
Whenabondsellsatparvalue,thecouponrateisequaltotheyieldtomaturity.
28.
Acouponbondthatpa
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