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Bond Exam Questions: Interest, Yield to Call, Forward Rates, and Dividend Model, Study notes of Business and Labour Law

West Chester University of Pennsylvania (WCUPA)Business and Labour Law

A set of 12 multiple-choice questions related to bond pricing, accrued interest, yield to call, forward rates, and the dividend discount model. Topics covered include calculating accrued interest, determining yield to call, finding implied forward rates, and applying the dividend discount model to value stocks.

Typology: Study notes

2010/2011

Uploaded on 05/03/2011

bbrian189
bbrian189 🇺🇸

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Exam 2 Exercise Problems
1. A bond pays a semi-annual coupon and the last coupon was paid 61 days ago. If the
annual coupon payment is $75, what is the accrued interest?
A. $13.21
B. $12.57
C. $15.44
D. $16.32
2. If you are holding a premium bond you must expect a _______ each year until maturity.
If you are holding a discount bond you must expect a _______ each year until maturity.
A. capital gain; capital loss
B. capital gain; capital gain
C. capital loss; capital gain
D. capital loss; capital loss
3. A callable bond pays annual interest of $60, has a par value of $1,000, matures in 20 years
but is callable in 10 years at a price of $1,100, and has a value today of $1055.84. The yield
to call on this bond is _________.
A. 6.00%
B. 6.58%
C. 7.20%
D. 8.00%
4. One, two and three year maturity, default-free, zero-coupon bonds have yields-to-maturity
of 7%, 8% and 9% respectively. What is the implied one-year forward rate, one year from
today?
A. 2.0%
B. 8.0%
C. 9.0%
D. 11.1%
pf3

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Download Bond Exam Questions: Interest, Yield to Call, Forward Rates, and Dividend Model and more Study notes Business and Labour Law in PDF only on Docsity!

Exam 2 Exercise Problems

  1. A bond pays a semi-annual coupon and the last coupon was paid 61 days ago. If the annual coupon payment is $75, what is the accrued interest? A. $13. B. $12. C. $15. D. $16.
  2. If you are holding a premium bond you must expect a _______ each year until maturity. If you are holding a discount bond you must expect a _______ each year until maturity. A. capital gain; capital loss B. capital gain; capital gain C. capital loss; capital gain D. capital loss; capital loss
  3. A callable bond pays annual interest of $60, has a par value of $1,000, matures in 20 years but is callable in 10 years at a price of $1,100, and has a value today of $1055.84. The yield to call on this bond is _________. A. 6.00% B. 6.58% C. 7.20% D. 8.00%
  4. One, two and three year maturity, default-free, zero-coupon bonds have yields-to-maturity of 7%, 8% and 9% respectively. What is the implied one-year forward rate, one year from today? A. 2.0% B. 8.0% C. 9.0% D. 11.1%
  1. If the currency of your country is depreciating, this should __________ exports and __________ imports. A. stimulate; stimulate B. stimulate; discourage C. discourage; stimulate D. discourage; discourage
  2. Increases in the money supply will cause demand for investment and consumption goods to __________ in the short run and may cause prices to __________ in the long run. A. increase; increase B. increase; decrease C. decrease; increase D. decrease; decrease
  3. An example of a highly cyclical industry is _________. A. the automobile industry B. the tobacco industry C. the pharmaceutical industry D. the utility industry
  4. Which one of the following is a common term for the market consensus value of the required return on a stock? A. Dividend payout ratio B. Intrinsic value C. Market capitalization rate D. Plowback ratio
  5. Rose Hill Trading Company is expected to have EPS in the upcoming year of $6.00. The expected ROE is 18.0%. An appropriate required return on the stock is 14%. If the firm has a plowback ratio of 70%, its intrinsic value should be _________. A. $20. B. $69. C. $128. D. $150.