Reading 60: Features of Debt Securities LOSb习题精选 2010, represents, following, features

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LOS b, (Part 1): Describe the basic features of a bond.

Which one of the following alternatives represents the correct series of payments made by a typical 6% U.S. Treasury note with a par value of $100,000 issued today with five years to maturity?

Number and size of each intermediate payment

Payment made at maturity

A) 4 annual payments of $6,000 $106,000

B) 9 semiannual payments of $3,000 $103,000

C) 9 semiannual payments of $3,000 $100,000

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Payments for U.S. Treasury bonds and notes are semiannual and are fixed for the life of each bond or note. The coupon rate is quoted on an annual basis but each payment is made on the basis of one half the annual rate multiplied by the maturity or par value.

 

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A bond has a par value of $5,000 and a coupon rate of 8.5% payable semi-annually. The bond is currently trading at 112.16. What is the dollar amount of the semi-annual coupon payment?

A) $238.33.

B) $425.00.

C) $212.50.

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The dollar amount of the coupon payment is computed as follows:

Coupon in $ = $5,000 × 0.085 / 2 = $212.50

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Which one of the following combinations represents an accurate classification of security owner options and security issuer options?

Security Owner Options

Security Issuer Options

A) A call provision  A prepayment option

B) A floor A prepayment option

C) A cap An accelerated sinking fund

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A floor sets a minimum coupon rate for a floating-rate bond and protects the security owner from decreases in rates. A prepayment option is included in many amortizing securities and allows the holder of the option to make additional payments against outstanding principal.

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A bond issued by the government of Italy is likely to be denominated in which one of the following currencies?

A) Euros.

B) U.S. dollars.

C) Swiss francs.

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Bonds issued by governments are likely to be denominated in the currency of the country where the bond is issued. In this case, the Euro is the Italian currency and bonds issued by the Italian government would normally be issued in Euros.

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Interest rates have fallen over the seven years since a $1,000 par, 10-year bond was issued with a coupon of 7%. What is the present value of this bond if the required rate of return is currently four and one-half percent? (For simplicity, assume annual payments.)

A) $1,052.17.

B) $1,068.72

C) $1,044.33.

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Each of the remaining cash flows on the bond is discounted at the annual rate of 4.5%.

Period	Payment	Discount	PV
1	$1,000 × 7% = $70	(1.045)1	$ 66.99
2	$1,000 × 7% = $70	(1.045)2	$ 64.10
3	$1,000 × 7% = $70	(1.045)3	$ 61.34
3	$1,000 principal	(1.045)3	$ 876.30
Total Present Value of Cash Flows			$1,068.73

The present value can also be determined with a financial calculator. N = 3, I = 4.5%, PMT = $1,000 × 7%, FV = $1,000. Solve for PV = $1,068.724.

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LOS b, (Part 2): Describe the various coupon rate structures.

Which of the following statements regarding zero-coupon bonds and spot interest rates is most accurate?

A) Price appreciation creates only some of the zero-coupon bond's return.

B) Spot interest rates will never vary across time.

C) A coupon bond can be viewed as a collection of zero-coupon bonds.

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Zero-coupon bonds are quite special. Because zero-coupon bonds have no coupons (all of the bond’s return comes from price appreciation), investors have no uncertainty about the rate at which coupons will be invested. Spot rates are defined as interest rates used to discount a single cash flow to be received in the future. Any bond can be viewed as the sum of the present value of its individual cash flows where each of those cash flows are discounted at the appropriate zero-coupon bond spot rate.

 

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Which of the following statements regarding spot rates and zero-coupon bonds is least accurate?

A) The graph of current corporate bond yields is called the spot yield curve.

B) With zero coupon bonds, investors have no reinvestment risk.

C) The yield to maturity on a zero coupon bond is called the spot interest rate.

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The graph of yields on zero-coupon bonds (spot rates) is called the spot yield curve. Note that the return on zero-coupon bonds is based entirely on price appreciation. An investor in a default-free zero-coupon bond will not have to worry about reinvesting coupons to realize the yield to maturity.

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Which of the following statements regarding zero-coupon bonds and spot interest rates is TRUE?

A) If the yield to maturity on a 2-year zero coupon bond is 6%, then the 2-year spot rate is 3%.

B) Price appreciation creates all of the zero-coupon bond's return.

C) Spot interest rates will never vary across the term structure.

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Zero-coupon bonds are quite special. Because zero-coupon bonds have no coupons (all of the bond’s return comes from price appreciation), investors have no uncertainty about the rate at which coupons will be invested. Spot rates are defined as interest rates used to discount a single cash flow to be received in the future. If the yield to maturity on a 2-year zero is 6%, we can say that the 2-year spot rate is 6%.

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Which of the following statements regarding zero-coupon bonds is TRUE?

A) Zero-coupon bonds have substantial amount of coupon reinvestment risk.

B) An investor who holds a zero-coupon bond until maturity will receive an annuity of coupon payments plus recovery of principal at maturity.

C) An investor who holds a zero-coupon bond until maturity will receive a return equal to the bond's effective annual yield.

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Zero-coupon bonds are quite special. Because zero-coupon bonds have no coupons (all of the bond’s return comes from price appreciation), investors have no uncertainty about the rate at which coupons will be invested. An investor who holds a zero-coupon bond until maturity will receive a return equal to the bond’s effective annual yield.

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A coupon bond:

A) does not pay interest on a regular basis, but pays a lump sum at maturity.

B) pays interest on a regular basis (typically semi-annually).

C) always sells at par.

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This choice accurately describes a coupon bond.

With an accrual bond, payments are deferred to maturity and then disbursed along with the par value at maturity. Unlike a normal zero-coupon bond, these issues are sold at (or near) their par values and then the interest accrues at a compound rate on top of that. So, they start at $1,000 and then appreciate from there.