1. Which of the following statements concerning bonds is incorrect?
a. They involve blended payments of principal and interest.
b. They have a fixed maturity date, at which time the issuer repays the full principal amount.
c. Bondholders are paid a series of fixed periodic amounts before the maturity date.
d. The bond indenture is a legal document, specifying payment requirements and so on.
2. Which of the following statements is incorrect?
a. Callable bonds give the bond issuer an option to call the bond at a predetermined price.
b. All debentures are secured bonds.
c. Extendible bonds allow bondholders to extend the maturity date.
d. Convertible bonds give the bondholders an option to convert into common shares at a predetermined conversion ratio.
3. What is the price of a 10-year, 8-percent, annual coupon bond when the market rate is 10 percent? The face value is $100.
4. Which of the following bond prices is most sensitive to market rate changes? The par value
is $100 for all.
a. 5-year, 5-percent coupon rate, yield 5.5 percent
b. 3-year, 8-percent coupon rate, yield 5.6 percent
c. 7.5-year, 4.5-percent coupon rate, yield 5.5 percent
d. 10-year, 4.5-percent coupon rate, yield 5.5 percent
5. What is the yield to maturity on an eight-year, 9-percent bond that pays interest semi- annually, which is now priced at $980? Use a financial calculator.
a. 9.05 percent
b. 9 percent
c. 4.68 percent
d. 9.36 percent
6. Which of the following statements is correct?
a. Current yield is the ratio of annual coupon payment divided by the par value.
b. When the coupon rate is higher than the market rate, the bond is priced at a discount.
c. When the market rate is higher than the coupon rate, the bond is priced at a premium.
d. If a bond is at a discount, the coupon rate is less than the current yield, which is less than YTM.
7. Which statement is incorrect?
a. The liquidity preference theory states that investors prefer short-term debt.
b. According to the expectations theory, a downward-sloping yield curve implies that interest rates are expected to decline in the future.
c. The risk premium in the bond yield reflects default risk, liquidity risk, and issue-specific features.
d. A debt rating of AAA is a worse rating than BB for S&P.
8. What is the quoted price of a 182-day Canadian T-bill that has a face value of $10,000 and a quoted yield of 4 percent?
9. Which of the following statements is false?
a. Zero coupon bonds are deep-discount bonds.
b. Zero coupon bonds are often created when cash flows are stripped from traditional bonds.
c. Floating rate bonds provide protection against decreasing interest rates.
d. There are two forms of return available for Canada Savings Bond buyers: regular interest and compound interest
10. Which statement is correct according to interest rate parity (IRP) theory?
a. IRP states that differences in interest rates between countries cannot be totally offset by expected changes in exchange rates.
b. Forward exchange rates may be locked in today to eliminate foreign exchange risk and ensure investors can profit from moving capital to countries with higher interest rates.
c. Inflation differentials between countries affect both interest rates and currency exchange rates.
d. The country with a higher inflation rate will see its currency appreciate against another country with a lower inflation rate.