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1、Chapter EightValuation of Known Cash Flows: BondsThis chapter contains 50 multiple choice questions, 18 short problems and 9 longer problems.Multiple Choice1. A _ is a quantitative method used to infer an assets value from market information about the prices of other assets and market interest rates
2、.(a) fixed model(b) perpetual valuation model(c) valuation model(d) variable modelAnswer: (c)2. _ are examples of fixed-income securities.(a) Common stock and pension funds(b) Mortgages and pension annuities(c) Mutual funds and common stock(d) Preferred stock and common stockAnswer: (b)3. Consider a
3、 fixed-income security that promises to pay $150 each year for the next five years. How much is this five-year annuity worth if the appropriate discount rate is 7% per year?(a) $534.74(b) $615.03(c) $802.50(d) $867.96Answer: (b)4. Consider a fixed-income security that promises to pay $120 each year
4、for the next four years. Calculate the value of this four-year annuity if the appropriate discount rate is 6% per year.(a) $415.81(b) $508.80(c) $531.85(d) $629.06Answer: (a)5. The price of any existing fixed-income security _ when market interest rates rise because investors will only be willing to
5、 _ them if they offer a competitive yield.(a) rises; buy(b) rises; sell(c) falls; buy(d) falls; sellAnswer: (c)6. A fall in interest rates causes a _ in the market value of a fixed-income security.(a) a rise(b) a fall(c) no change(d) it cannot be determined from the information givenAnswer: (a)7. A
6、change in market interest rates causes _ in the market values of all existing contracts promising fixed payments in the future.(a) a change in the same direction(b) a change in the opposite direction(c) no change(d) an unpredictable variationAnswer: (b)8. What happens to the value of a four-year fix
7、ed-income security promising $100 per year if the market interest rate rises from 5% to 6% per year?(a) A rise of 1% causes a drop of $4.87 in market value.(b) A rise of 1% causes a rise of $4.87 in market value.(c) A rise of 1% causes a drop of $8.09 in market value.(d) A rise of 1% causes a rise o
8、f $8.09 in market value.Answer: (c)9. What happens to the value of a four-year fixed-income security promising $100 per year if the market interest rate falls from 6% to 5% per year?(a) A fall of 1% causes a drop of $4.87 in market value.(b) A fall of 1% causes a rise of $4.87 in market value.(c) A
9、fall of 1% causes a drop of $8.09 in market value.(d) A fall of 1% causes a rise of $8.09 in market value.Answer: (d)10. A zero-coupon bond is also known as _.(a) a perpetual bond(b) a pure discount bond(c) a market rebate(d) an infinite bondAnswer: (b)11. The promised cash payment on a pure discoun
10、t bond is called its _.(a) face value(b) par value(c) fixed interest(d) both a and bAnswer: (d)12. What is the yield of a 1-year pure discount bond with a price of $850 and a face value of $1,000?(a) 8.50%(b) 9.09%(c) 15.00%(d) 17.65%Answer: (d)13. What is the yield of a 1-year pure discount bond wi
11、th a price of $900 and a face value of $1,000? (a) 5.26%(b) 10.00%(c) 11.11%(d) 15.79%Answer: (c)14. Consider a four-year pure discount bond with a face value of $1,000. If its current price is $850, compute its annualized yield.(a) 1.17%(b) 4.15%(c) 5.57%(d) 17.60%Answer: (b)15. Consider a three-ye
12、ar pure discount bond with a face value of $1,000. If its current price is $900, compute its annualized yield.(a) 1.036%(b) 1.111%(c) 3.57%(d) 5.41%Answer: (c)16. Consider a five-year pure discount bond with a face value of $1,000. If its current price is $780, what is its annualized yield?(a) 5.09%
13、(b) 2.82%(c) 1.28%(d) 1.05%Answer: (a)17. A _ obligates the issuer to make periodic payments of interest to the bondholder for the life of the bond and then to pay the face value of the bond when the bond matures.(a) pure discount(b) zero-coupon(c) perpetual bond(d) coupon bondAnswer: (d)18. The _ o
14、f the bond is interest rate applied to the _ of the bond to compute the periodic payment.(a) coupon rate; face value(b) maturity rate; face value(c) coupon rate; price(d) maturity rate; priceAnswer: (a)19. For a bond with a face value of $1,000 and coupon rate of 11%, what is the annual coupon payment?(a) $100(b) $110(c) $1,000(d) $1,100Answer: (b)20. For a bond with a face value of $1,000 and a coupon rate of 9%, what is the annual coupon payment?(a) $90(b) $99(c) $1,000(d) $1,190Answer: (a)21. If the market price of a coupon bond equals its face value, it is also termed a _
