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Question(s) / Instruction(s):

AB Builders, Inc. has 12-year bonds outstanding with a face value of $1,000 and a market price of $974. The bonds pay interest annually and have a yield to maturity of 4.03 percent. What is the coupon rate?

a.            3.75 percent

b.            7.50 percent

c.             4.20 percent

d.            4.25 percent

e.            8.40 percent

 

2.

A bond for which no specific property has been pledged as security is classified as a:

a.            Sinking fund bond.

b.            Trust deed bond.

c.             Bearer bond.

d.            Registered bond.

e.            Debenture.

 

3.

The Outlet needs to raise $3.2 million for an expansion project. The firm wants to raise this money by selling zero coupon bonds with a par value of $1,000 that mature in 20 years. The market yield on similar bonds is 7.8 percent. How many bonds must The Outlet sell to raise the money it needs? (Assume semi-annual compounding.)

a.            3,200 bond

b.            3,450 bond

c.             13,797 bond

d.            11,508 bond

e.            14,783 bonds

 

4.

A bond yielded a real rate of return of 3.87 percent for a time period when the inflation rate was 4.75 percent. What was the actual nominal rate of return?

a.            9.28 percent

b.            9.36 percent

c.             8.60 percent

d.            8.58 percent

e.            8.80 percent

 

5.

Which one of the following terms denotes for certain that a bond is unsecured?

a.            Blanket mortgage

b.            Debenture

c.             Bearer form

d.            Sinking fund

e.            Call provision

 

6.

Which one of the following is a unique characteristic of an income bond?

a.            Coupon payments can be converted into equity shares

b.            Coupon payments are paid on a regular monthly basis

c.             Interest income is tax-free

d.            Coupon payments are dependent upon the issuer's income

e.            Interest income is paid at the time of issuance

 

7.

A bond that pays interest annually yields a 8.25 percent rate of return. The inflation rate for the same period is 3.25 percent. What is the real rate of return on this bond?

a.            4.84 percent

b.            4.97 percent

c.             3.25 percent

d.            3.33 percent

e.            5.00 percent

 

8.

Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value?

a.            Taxability premium

b.            Inflation premium

c.             Interest rate risk premium

d.            Liquidity premium

e.            Default risk premium

 

 

10.

The outstanding bonds of Roy Thomas, Inc. provide a real rate of return of 3.40 percent. The current rate of inflation is 2.20 percent. What is the nominal rate of return on these bonds? 

a.            5.62 percent

b.            5.65 percent

c.             5.60 percent

d.            5.70 percent

e.            5.67 percent

 

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