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Chapter 14 Bond Prices and Yields Test Bank

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Chapter 14
Bond Prices and Yields

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
A is current yield and is quoted as such in the financial press.

Difficulty: Easy 2. If a 7% coupon bond is trading for $975.00, it has a current yield of ____________ percent.
A. 7.00
B. 6.53
C. 7.24
D. 8.53
E. 7.18
70/975 = 7.18.

Difficulty: Easy

3. If a 7.25% coupon bond is trading for $982.00, it has a current yield of ____________ percent.
A. 7.38
B. 6.53
C. 7.25
D. 8.53
E. 7.18
72.50/982 = 7.38.

Difficulty: Easy 4. If a 6.75% …show more content…

a low debt to equity ratio
C. a low quick ratio
D. B and C
E. A and C
High values for the times interest and quick ratios and a low debt to equity ratio are desirable indicators of safety.

Difficulty: Easy 17. 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
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).

Difficulty: Easy

18. 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.
Accrued interest must be paid by the buyer, but is not included in the quotations page price.

Difficulty: Moderate 19. 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.
The buyer of a bond will buy at the asked price and will also be invoiced for any accrued interest due to the seller.

Difficulty: Easy 20. An 8% coupon U.S. Treasury note pays interest on May 30 and November 30

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