1. Finding a bond's yield-to-maturity is the same as finding its
(a) NPV. (b) Return on Assets. (c) IRR. (d) Profitability Index. (e) Payback Period.
2. The most common measure of return on a callable bond would be its
(a) current yield. (b) return on average investment. (c) yield-to-maturity. (d) coupon yield. (e) yield-to-call.
3 A one year Treasure bill has a yield of 5%. A bond will pay $40 at the end of year one and $1,040 at the end of year 2. If its market value is $946.50, the two-year spot rate is:
(a) 9%. (b) 5%. (c) 7%. (d) 6%. (e) 8%.
4. A one-year Treasury bill has a yield of 6%. A bond will pay $70 at the end of year 1 and $1,070 at the end of year 2. If its market value is $1,036.50, the two-year spot rate is:
(a) 6%. (b) 9%. (c) 7%. (d) 5%. (e) 8%.
5. If there is a one-year spot rate of 6% and two-year spot rate of 8%, the forward rate from year 1 to 2 is:
(a) 9.06%. (b) 9.72%. (c) 8.12%. (d) 7.06%. (e) 10.04%.
6. The spot rate for year 1 is 7.5% and the forward rate for year one to two is 8%. The two-year discount factor is:
(a) 0.845. (b) 0.861. (c) 0.852. (d) 0.888. (e) 0.874.
8. The yield-to-maturity for corporate bonds is typically done by assuming that compounding is:
(a) semi-annual. (b) monthly. (c) annually. (d) quarterly. (e) continuous.
9. An investor feels that the future spot rate for year 2 will be 7%. Presently, he can invest for one year at 6% or two years at 7%. His liquidity premium for year two is
(a) 0.51%. (b) 2.01%. (c) 1.0%. (d) 0%. (e) 0.01%.
10. A bond will pay $75 in interest at the end of each of the next four years plus the $1,000 principal at the end of four years. If the yield-to-maturity should be 6%, the bond's intrinsic value is:
(a) $1,052. (b) $1,123. (c) $848. (d) $1,014. (e) $987.
11. A bond will pay $50 in interest at the end of each of the next four years, plus the principal of $1,000 at the end of the fourth year. If the required yield-to-maturity is 6% and the present price is $980, the bond's NPV is:
(a) - $41. (b) + $41. (c) - $15. (d) - $33. (e) + $15.
12. A bond will pay $80 in interest at the end of each of the next six years, plus the $1,000 principal at the end of the sixth year. If the required yield-to-maturity is 10%, the intrinsic value is:
(a) $874. (b) $913. (c) $952. (d) $988. (e) $1,012.
13. Bond A has a yield-to-maturity of 8%; Bond B at 6.5%. The yield spread in basis points is:
(a) 1500. (b) 15. (c) 0.15. (d) 150. (e) 1.5.
14. A bond will pay $40 of interest at the end of each of the next five years, plus the principal of $1,000 at the end of year five. If the required yield-to-maturity is 5% and the present market price is $935, the NPV is:
(a) - $22. (b) - $41. (c) + $8. (d) + $22. (e) - $41.