Q38. A coupon bond pays annual interest, has a par value of $1,000, matures in 4 years, has a coupon rate of $100, and a yield to maturity of 12%. The current yield on this bond is:

A)   11.25%.

B)   9.50%.

C)   10.65%.

Q39. If interest rates and risk factors remain constant over the remainder of a coupon bond's life, and the bond is trading at a discount today, it will have a:

A)   negative current yield and a capital gain.

B)   positive current yield and a capital gain.

C)   positive current yield, only.

Q40. A 20-year bond with a par value of $1,000 and an annual coupon rate of 6% currently trades at $850. It has a promised yield of:

A)   7.9%.

B)   7.5%.

C)   6.8%.

Q41. What is the yield to call on a bond that has an 8% coupon paid annually, $1,000 face value, 10 years to maturity and is first callable in 6 years? The current market price is $1,100. The call price is the face value plus 1-year’s interest.

A)   7.14%.

B)   6.00%.

C)   7.02%.

Q42. A $1,000 bond with an annual coupon rate of 10% has 10 years to maturity and is currently priced at $800. What is the bond's approximate yield-to-maturity?

A)   12.6%.

B)   13.8%.

C)   11.7%.

Q43. Which of the following describes the yield to worst? The:

A)   lowest of all possible yields to call and yields to put.

B)   yield given default on the bond.

C)   lowest of all possible prices on the bond.

Q44. When a bond's coupon rate is greater than its current yield, and its current yield is greater than its yield to maturity, the bond is a:

A)   discount bond.

B)   par value bond.

C)   premium bond.

Q45. Calculate the current yield and the yield-to-first call on a bond with the following characteristics:

• 5 years to maturity
• $1,000 face value
• 8.75% semi-annual coupon
• Priced to yield 9.25%
• Callable at $1,025 in two years

       Current Yield           Yield-to-Call

A)   8.93%                                    5.51%

B)   8.93%                                    11.02%

C)   9.83%                                    19.80%

Q38. A coupon bond pays annual interest, has a par value of $1,000, matures in 4 years, has a coupon rate of $100, and a yield to maturity of 12%. The current yield on this bond is:fficeffice" />

A)   11.25%.

B)   9.50%.

C)   10.65%.

Correct answer is C)

FV = 1,000; N = 4; PMT = 100; I = 12; CPT → PV = 939.25.

Current yield = coupon / current price

100 / 939.25 × 100 = 10.65

Q39. If interest rates and risk factors remain constant over the remainder of a coupon bond's life, and the bond is trading at a discount today, it will have a:

A)   negative current yield and a capital gain.

B)   positive current yield and a capital gain.

C)   positive current yield, only.

Correct answer is B)

A coupon bond will have a positive current yield. If it is trading at a discount, it will have a capital gain because its value at maturity will be greater than its price today.

Q40. A 20-year bond with a par value of $1,000 and an annual coupon rate of 6% currently trades at $850. It has a promised yield of:

A)   7.9%.

B)   7.5%.

C)   6.8%.

Correct answer is B)

N = 20; FV = 1,000; PMT = 60; PV = -850; CPT → I = 7.5

Q41. What is the yield to call on a bond that has an 8% coupon paid annually, $1,000 face value, 10 years to maturity and is first callable in 6 years? The current market price is $1,100. The call price is the face value plus 1-year’s interest.

A)   7.14%.

B)   6.00%.

C)   7.02%.

Correct answer is C)

N = 6; PV = -1,100.00; PMT = 80; FV = 1,080; Compute I/Y = 7.02%.

Q42. A $1,000 bond with an annual coupon rate of 10% has 10 years to maturity and is currently priced at $800. What is the bond's approximate yield-to-maturity?

A)   12.6%.

B)   13.8%.

C)   11.7%.

Correct answer is B)

FV = 1,000, PMT = 100, N = 10, PV = -800

Compute I = 13.8

Q43. Which of the following describes the yield to worst? The:

A)   lowest of all possible yields to call and yields to put.

B)   yield given default on the bond.

C)   lowest of all possible prices on the bond.

Correct answer is A)        

Yield to worst involves the calculation of yield to call and yield to put for every possible call or put date, and determining which of these results in the lowest expected return.

Q44. When a bond's coupon rate is greater than its current yield, and its current yield is greater than its yield to maturity, the bond is a:

A)   discount bond.

B)   par value bond.

C)   premium bond.

Correct answer is C)

For a premium bond, coupon rate > current yield > yield to maturity.
For a par bond, coupon rate = current yield = yield to maturity.
For a discount bond, coupon rate < current yield < yield to maturity.

Q45. Calculate the current yield and the yield-to-first call on a bond with the following characteristics:

• 5 years to maturity
• $1,000 face value
• 8.75% semi-annual coupon
• Priced to yield 9.25%
• Callable at $ffice:smarttags" />1,025 in two years

       Current Yield           Yield-to-Call

A)   8.93%                                    5.51%

B)   8.93%                                    11.02%

C)   9.83%                                    19.80%

Correct answer is B)

To calculate the CY and YTC, we first need to calculate the present value of the bond: FV = 1,000; N = 5 × 2 = 10; PMT = (1000 × 0.0875) / 2 = 43.75; I/Y = (9.25 / 2) = 4.625; CPT → PV = -980.34 (negative sign because we entered the FV and payment as positive numbers). Then, CY = (Face value × Coupon) / PV of bond = (1,000 × 0.0875) / 980.34 = 8.93%.

And the YTC calculation is: FV = 1,025 (price at first call); N = (2 × 2) = 4; PMT = 43.75 (same as above); PV = –980.34 (negative sign because we entered the FV and payment as positive numbers); CPT → I/Y = 5.5117 (semi-annual rate, need to multiply by 2) = 11.02%.

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