Chapter 4 Valuing Bonds Chemistry Worksheet With Answers Page 12
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21a. the value of the put increases as interest rates increase.
b. the value of the put increases as interest rates decrease.
c. the value of the put increases as the value of the stock decreases.
d.
none of the above.
ANS: A
DIF: M
REF: 4.2 Bond Prices and Interest Rates
45. You notice that the price of a 4.0% coupon, 12-year Treasury Note is priced at 90:16 in the Wall Street
Journal. What is the bonds yield to maturity?
a. 2.56%
b. 2.565%
c. 5.07%
d. 5.13%
ANS: C
90:16 = 90 + 16/32 = 90.5 ====> $905
-24
-24
20 ( (1/y) - ((1/.y)
(1+ y)
) ) + 1,000 (1 + y)
= 905
y = .02535====> 2
y = 5.07%
DIF: H
REF: 4.2 Bond Prices and Interest Rates
46. You read in the financial press that a company’s Moody’s debt rating is one step above junk. What is
the rating?
a. Ba1
b. BB+
c. Baa3
d. BBB-
ANS: C
DIF: H
REF: 4.2 Bond Prices and Interest Rates, Bond Ratings
47. You are trying to find the correct yield spread for a Standard and Poor’s rated A+, 7-year maturity
bond. You find that a 7-year maturity, AA- bond’s spread is 65 basis points while that of a 7-year
maturity A bond’s spread is 80 basis points. Which of the following should be a possibility for the
spread of the A+ rated bond?
64 basis points
a.
b.
70 basis points
c.
80 basis points
d.
both b and c are possible spreads for the bond.
ANS: B
DIF: M
REF: 4.4 Bond Markets, Bond Ratings
48. The relationship between time to maturity and yield to maturity for bonds of equal risk is referred to as
a. the term structure of interest rates.
b. the forward rate.
c. the spot curve.
d. the forward curve.
ANS: A
DIF: E
REF: 4.5 Advanced Bond Valuation - The Term Structure of Interest Rates
49. You find that the yield on a 4-year bond is 10% while that of a 2-year bond is 8%. What should be
the yield on a 2-year bond beginning two years from now as predicted by the expectations theory?
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