投资学investment题库Chap14.docx
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投资学investment题库Chap14
MultipleChoiceQuestions
1.Thecurrentyieldonabondisequalto________.
A）annualinterestdividedbythecurrentmarketprice
B）theyieldtomaturity
C）annualinterestdividedbytheparvalue
D）theinternalrateofreturn
E）noneoftheabove
Answer:
ADifficulty:
Easy
Rationale:
Aiscurrentyieldandisquotedassuchinthefinancialpress.
3.Ifa6%couponbondistradingfor$950.00,ithasacurrentyieldof____________percent.
A）6.5
B）6.3
C）6.1
D）6.0
E）6.6
Answer:
BDifficulty:
Easy
Rationale:
60/950=6.3.
6.Acouponbondpaysannualinterest,hasaparvalueof$1,000,maturesin4years,hasacouponrateof10%,andhasayieldtomaturityof12%.Thecurrentyieldonthisbondis___________.
A）10.65%
B）10.45%
C）10.95%
D）10.52%
E）noneoftheabove
Answer:
ADifficulty:
Moderate
Rationale:
FV=1000,n=4,PMT=100,i=12,PV=939.25;$100/$939.25=10.65%.
8.Ofthefollowingfourinvestments,________isconsideredthesafest.
A）commercialpaper
B）corporatebonds
C）U.S.Agencyissues
D）Treasurybonds
E）Treasurybills
Answer:
EDifficulty:
Easy
Rationale:
OnlyTreasuryissuesareinsuredbytheU.S.government;theshorter-termtheinstrument,thesafertheinstrument.
9.Toearnahighratingfromthebondratingagencies,afirmshouldhave
A）alowtimesinterestearnedratio
B）alowdebttoequityratio
C）ahighquickratio
D）BandC
E）AandC
Answer:
DDifficulty:
Easy
Rationale:
Highvaluesforthetimesinterestandquickratiosandalowdebttoequityratioaredesirableindicatorsofsafety.
10.Atissue,couponbondstypicallysell________.
A）aboveparvalue
B）belowpar
C）atornearparvalue
D）atavalueunrelatedtopar
E）noneoftheabove
Answer:
CDifficulty:
Easy
Rationale:
Iftheinvestmentbankerhasappraisedthemarketandthequalityofthebondcorrectly,thebondwillsellatornearpar（unlessinterestrateshavechangedverydramaticallyandveryquicklyaroundthetimeofissuance）.
11.Accruedinterest
A）isquotedinthebondpriceinthefinancialpress.
B）mustbepaidbythebuyerofthebondandremittedtothesellerofthebond.
C）mustbepaidtothebrokerfortheinconvenienceofsellingbondsbetweenmaturitydates.
D）AandB.
E）AandC.
Answer:
BDifficulty:
Moderate
Rationale:
Accruedinterestmustbepaidbythebuyer,butisnotincludedinthequotationspageprice.
12.Theinvoicepriceofabondthatabuyerwouldpayisequalto
A）theaskedpriceplusaccruedinterest.
B）theaskedpricelessaccruedinterest.
C）thebidpriceplusaccruedinterest.
D）thebidpricelessaccruedinterest.
E）thebidprice.
Answer:
ADifficulty:
Easy
Rationale:
Thebuyerofabondwillbuyattheaskedpriceandwillalsobeinvoicedforanyaccruedinterestduetotheseller.
13.An8%couponU.S.TreasurynotepaysinterestonMay30andNovember30andistradedforsettlementonAugust15.Theaccruedinterestonthe$100,000facevalueofthisnoteis_________.
A）$491.80
B）$800.00
C）$983.61
D）$1,661.20
E）noneoftheabove
Answer:
DDifficulty:
Moderate
Rationale:
76/183（$4,000）=$1,661.20.Approximation:
.08/12*100,000=666.67permonth.666.67/month*2.5months=1.666.67.
14.Acouponbondisreportedashavinganaskpriceof113%ofthe$1,000parvalueintheWallStreetJournal.Ifthelastinterestpaymentwasmadetwomonthsagoandthecouponrateis12%,theinvoicepriceofthebondwillbe____________.
A）$1,100
B）$1,110
C）$1,150
D）$1,160
E）noneoftheabove
Answer:
CDifficulty:
Moderate
Rationale:
$1,130+$20（accruedinterest）=$1,150.
15.ThebondsofFordMotorCompanyhavereceivedaratingof"D"byMoody's.The"D"ratingindicates
A）thebondsareinsured
B）thebondsarejunkbonds
C）thebondsarereferredtoas"highyield"bonds
D）AandB
E）BandC
Answer:
EDifficulty:
Easy
Rationale:
Dratingsareriskybonds,oftencalledjunkbonds（orhighyieldbondsbythosemarketingsuchbonds）.
16.Thebondmarket
A）canbequite"thin".
B）primarilyconsistsofanetworkofbonddealersintheoverthecountermarket.
C）consistsofmanyinvestorsonanygivenday.
D）AandB.
E）BandC.
Answer:
DDifficulty:
Easy
Rationale:
Thebondmarket,unlikethestockmarket,canbeaverythinlytradedmarket.Inaddition,mostbondsaretradedbydealers.
17.Ceterisparibus,thepriceandyieldonabondare
A）positivelyrelated.
B）negativelyrelated.
C）sometimespositivelyandsometimesnegativelyrelated.
E）notrelated.
E）indefinitelyrelated.
Answer:
BDifficulty:
Easy
Rationale:
Bondpricesandyieldsareinverselyrelated.
18.The______isameasureoftheaveragerateofreturnaninvestorwillearniftheinvestorbuysthebondnowandholdsuntilmaturity.
A）currentyield
B）dividendyield
C）P/Eratio
D）yieldtomaturity
E）discountyield
Answer:
DDifficulty:
Easy
Rationale:
Thecurrentyieldistheannualinterestasapercentofcurrentmarketprice;theotherchoicesdonotapplytobonds.
19.The_________givesthenumberofsharesforwhicheachconvertiblebondcanbeexchanged.
A）conversionratio
B）currentratio
C）P/Eratio
D）conversionpremium
E）convertiblefloor
Answer:
ADifficulty:
Easy
Rationale:
Theconversionpremiumistheamountforwhichthebondsellsaboveconversionvalue;thepriceofbondasastraightbondprovidesthefloor.Theothertermsarenotspecificallyrelevanttoconvertiblebonds.
20.Acouponbondisabondthat_________.
A）paysinterestonaregularbasis（typicallyeverysixmonths）
B）doesnotpayinterestonaregularbasisbutpaysalumpsumatmaturity
C）canalwaysbeconvertedintoaspecificnumberofsharesofcommonstockintheissuingcompany
D）alwayssellsatpar
E）noneoftheabove
Answer:
ADifficulty:
Easy
Rationale:
Acouponbondwillpaythecouponrateofinterestonasemiannualbasisunlessthefirmdefaultsonthebond.Convertiblebondsarespecifictypesofbonds.
21.A___________bondisabondwherethebondholderhastherighttocashinthebondbeforematurityataspecifiedpriceafteraspecificdate.
A）callable
B）coupon
C）put
D）Treasury
E）zero-coupon
Answer:
CDifficulty:
Easy
Rationale:
Anybondmayberedeemedpriortomaturity,butallbondsotherthanputbondsareredeemedatapricedeterminedbytheprevailinginterestrates.
22.Callablebonds
A）arecalledwheninterestratesdeclineappreciably.
B）haveacallpricethatdeclinesastimepasses.
C）arecalledwheninterestratesincreaseappreciably.
D）AandB.
E）BandC.
Answer:
DDifficulty:
Easy
Rationale:
Callablebondsoftenarerefunded（called）wheninterestratesdeclineappreciably.Thecallpriceofthebond（approximatelyparandoneyear'scouponpayment）declinestoparastimepassesandmaturityisreached.
23.ATreasurybonddueinoneyearhasayieldof5.7%;aTreasurybondduein5yearshasayieldof6.2%.AbondissuedbyFordMotorCompanyduein5yearshasayieldof7.5%;abondissuedbyShellOildueinoneyearhasayieldof6.5%.ThedefaultriskpremiumsonthebondsissuedbyShellandFord,respectively,are
A）1.0%and1.2%
B）0.7%and1.5%
C）1.2%and1.0%
D）0.8%and1.3%
E）noneoftheabove
Answer:
DDifficulty:
Moderate
Rationale:
Shell:
6.5%-5.7%=.8%;Ford:
7.5%-6.2%=1.3%.
24.ATreasurybonddueinoneyearhasayieldof4.6%;aTreasurybondduein5yearshasayieldof5.6%.AbondissuedbyLucentTechnologiesduein5yearshasayieldof8.9%;abondissuedbyMobildueinoneyearhasayieldof6.2%.ThedefaultriskpremiumsonthebondsissuedbyMobilandLucentTechnologies,respectively,are:
A）1.6%and3.3%
B）0.5%and.7%
C）3.3%and1.6%
D）0.7%and0.5%
E）noneoftheabove
Answer:
ADifficulty:
Moderate
Rationale:
Mobil:
6.2%-4.6%=1.6%;LucentTechnologies:
8.9%-5.6%=3.3%.
25.ATreasurybonddueinoneyearhasayieldof6.2%;aTreasurybondduein5yearshasayieldof6.7%.AbondissuedbyXeroxduein5yearshasayieldof7.9%;abondissuedbyExxondueinoneyearhasayieldof7.2%.ThedefaultriskpremiumsonthebondsissuedbyExxonandXerox,respectively,are
A）1.0%and1.2%
B）0.5%and.7%
C）1.2%and1.0%
D）0.7%and0.5%
E）noneoftheabove
Answer:
ADifficulty:
Moderate
Rationale:
Exxon:
7.2%-6.2%=1.0%;Xerox:
7.9%-6.7%=1.2%.
26.Floating-ratebondsaredesignedto___________whileconvertiblebondsaredesignedto__________.
A）minimizetheholders'interestraterisk;givetheinvestortheabilitytoshareinthepriceappreciationofthecompany'sstock
B）maximizetheholders'interestraterisk;givetheinvestortheabilitytoshareinthepriceappreciationofthecompany'sstock
C）minimizetheholders'interestraterisk;givetheinvestortheabilitytobenefitfrominterestratechanges
D）maximizetheholders'interestraterisk;giveinvestortheabilitytoshareintheprofitsoftheissuingcompany
E）noneoftheabove
Answer:
ADifficulty:
Moderate
Rationale:
Floatingratebondsallowtheinvestortoearnarateofinterestincometiedtocurrentinterestrates,thusnegatingoneofthemajordisadvantagesoffixedincomeinvestments.Convertiblebondsallowtheinvestortobenefitfromtheappreciationofthestockprice,eitherbyconvertingtostockorholdingthebond,whichwillincreaseinpriceasthestockpriceincreases.
27.Acoupon
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