FIN 303 Samples of Possible Exam Questions (for Chapter 7)
1.)
The Carter Company's bonds mature in 10 years have a par value of
$1,000 and an annual coupon payment of $80. The market interest
rate for the bonds is 9%. What is the price of these bonds?
a.
b.
c.
d.
e.
$935.82
$941.51
$958.15
$964.41
$979.53
Correct answer: a.
2.)
Ken Williams Ventures' recently issued bonds that mature in 15
years. They have a par value of $1,000 and an annual coupon of
6%.
If the current market interest rate is 8%, at what price
should the bonds sell?
a.
b.
c.
d.
e.
$801.80
$814.74
$828.81
$830.53
$847.86
Correct answer: c.
3.)
Brown Enterprises’ bonds currently sell for $1,025. They have a
9-year maturity, an annual coupon of $80, and a par value of
$1,000. What is their yield to maturity?
a.
b.
c.
d.
e.
6.87%
7.03%
7.21%
7.45%
7.61%
Correct answer: e.
4.)
Highfield Inc's bonds currently sell for $1,275 and have a par
value of $1,000.
They pay a $120 annual coupon and have a 20year maturity, but they can be called in 5 years at $1,120. What
is their yield to call (YTC)?
a.
b.
c.
d.
e.
7.00%
7.13%
7.28%
7.31%
7.42%
Correct answer: d.
5.)
Brown Enterprises’ bonds currently sell for $1,025. They have a
9-year maturity, an annual coupon of $80, and a par value of
$1,000. What is their current yield?
a.
b.
c.
d.
e.
7.80%
7.90%
9.00%
9.10%
9.20%
Correct answer: a.
6.)
Leggio Corporation issued 20-year, 7% annual coupon bonds at their
par value of $1,000 one year ago.
Today, the market interest
rate on these bonds has dropped to 6%. What is the new price of
the bonds, given that they now have 19 years to maturity?
a.
b.
c.
d.
e.
$1,046.59
$1,111.58
$1,133.40
$1,177.78
$1,189.04
Correct answer: b.
7.)
Which of the following events would make it more likely that a
company would choose to call its outstanding callable bonds?
a.
b.
c.
d.
e.
Market interest rates decline sharply.
The company’s bonds are downgraded.
Market interest rates rise sharply.
Inflation increases significantly.
The company's financial situation deteriorates significantly.
Correct answer: a.
8.)
Which of the following would be most likely to increase the coupon
rate that is required to enable a bond to be issued at par?
a. Adding a call provision.
b. Adding
additional
restrictive
covenants
that
limit
management's actions.
c. Adding a sinking fund.
d. The rating agencies change the bond's rating from Baa to Aaa.
e. Making the bond a first mortgage bond rather than a debenture.
Correct answer: a.