LOS b, (Part 1): Compute and interpret the traditional yield measures for fixed-rate bonds.

Q1. A bond is selling at a discount relative to its par value. Which of the following relationships holds?

A)   yield to maturity < coupon rate < current yield.

B)   coupon rate < current yield < yield to maturity.

C)   current yield < coupon rate < yield to maturity.

Q2. PG&E has a bond outstanding with a 7% semiannual coupon that is currently priced at $779.25. The bond has remaining maturity of 10 years but has a first put date in 4 years at the par value of $1,000. Which of the following is closest to the yield to first put on the bond?

A)   7.73%.

B)   14.92%.

C)   14.46%.

Q3. Harmon Moving has a 13.25% coupon semiannual coupon bond currently trading in the market at $1,229.50. The bond has eight years remaining until maturity, but only two years until first call on the issue at 107.50% of $1,000 par value. Which of the following is closest to the yield to first call on the bond?

A)   4.72%.

B)   5.16%.

C)   9.14%.

Q4. Suppose that IBM has a $1,000 par value bond outstanding with a 12% semiannual coupon that is currently trading at 102.25 with seven years to maturity. Which of the following is closest to the yield to maturity (YTM) on the bond?

A)   11.21%.

B)   11.91%.

C)   11.52%.

Q5. A five-year bond with a 7.75% semiannual coupon currently trades at 101.245% of a par value of $1,000. Which of the following is closest to the current yield on the bond?

A)   7.53%.

B)   7.65%.

C)   7.75%.

Q6. The yield to call is a less conservative yield measure than the yield to maturity whenever the price of a callable bond is quoted at a value:

A)   equal to or greater than par value plus one year's interst.

B)   more than par.

C)   equal to par value less one year's interest.

[此贴子已经被作者于2009-3-3 17:50:15编辑过]

LOS b, (Part 1): Compute and interpret the traditional yield measures for fixed-rate bonds.fficeffice" />

Q1. A bond is selling at a discount relative to its par value. Which of the following relationships holds?

A)   yield to maturity < coupon rate < current yield.

B)   coupon rate < current yield < yield to maturity.

C)   current yield < coupon rate < yield to maturity.

Correct answer is B)

When a bond is selling at a discount, it means that the bond has a larger YTM (discount rate that will equate the PV of the bond's cash flows to its current price) than its current yield (coupon payment/current market bond price) and coupon payment.

Q2. PG&E has a bond outstanding with a 7% semiannual coupon that is currently priced at $779.25. The bond has remaining maturity of 10 years but has a first put date in 4 years at the par value of $1,000. Which of the following is closest to the yield to first put on the bond?

A)   7.73%.

B)   14.92%.

C)   14.46%.

Correct answer is C)

To compute yield to first put, enter: FV = $1,000; N = 2 × 4 = 8; PMT = $35; PV = -$779.25; CPT → I/Y = 7.23%, annualized as (7.23)(2) = 14.46%.

Q3. Harmon Moving has a 13.25% coupon semiannual coupon bond currently trading in the market at $1,229.50. The bond has eight years remaining until maturity, but only two years until first call on the issue at 107.50% of $1,000 par value. Which of the following is closest to the yield to first call on the bond?

A)   4.72%.

B)   5.16%.

C)   9.14%.

Correct answer is A)

To compute yield to first call, enter: FV = $1,075; N = 2 × 2 = 4; PMT = $66.25; PV = –1,229.50, CPT → I/Y = 2.36%, annualized as (2.36)(2) = 4.72%.

Q4. Suppose that IBM has a $1,000 par value bond outstanding with a 12% semiannual coupon that is currently trading at 102.25 with seven years to maturity. Which of the following is closest to the yield to maturity (YTM) on the bond?

A)   11.21%.

B)   11.91%.

C)   11.52%.

Correct answer is C)        

To find the YTM, enter PV = –$1,022.50; PMT = $60; N = 14; FV = $1,000; CPT → I/Y = 5.76%. Now multiply by 2 for the semiannual coupon payments: (5.76)(2) = 11.52%.

Q5. A five-year bond with a 7.75% semiannual coupon currently trades at 101.245% of a par value of $1,000. Which of the following is closest to the current yield on the bond?

A)   7.53%.

B)   7.65%.

C)   7.75%.

Correct answer is B)

The current yield is computed as: (Annual Cash Coupon Payment) / (Current Bond Price). The annual coupon is: ($1,000)(0.0775) = $77.50. The current yield is then: ($77.50) / ($1,012.45) = 0.0765 = 7.65%.

Q6. The yield to call is a less conservative yield measure than the yield to maturity whenever the price of a callable bond is quoted at a value:

A)   equal to or greater than par value plus one year's interst.

B)   more than par.

C)   equal to par value less one year's interest.

Correct answer is C)

The more conservative yield measure is the one that results in a lower yield. The YTM on a discount bond will always be less than its yield to call.

[此贴子已经被作者于2009-3-3 17:50:48编辑过]

thanks