FINANCE

81. A 5 1/8% TIPS has an original reference CPI of 191.8. If the current CPI is 188.3, what is the par value of the TIPS?
A. \$981.75
B. \$1,018.60
C. \$992.75
D. \$1,042.95

82. A 7.5% coupon bond with 9 years left to maturity is priced to offer a 10.4% yield to maturity. You believe that in one year, the yield to maturity will be 8%. What is the change in price the bond will experience in dollars? (Assume interest payments are semiannual and par value is \$1,000.)
A. \$97.75
B. \$101.50
C. \$129.25
D. \$137.75

83. A 6.75% coupon bond with 13 years left to maturity can be called in 2 years. The call premium is one year of coupon payments. It is offered for sale at \$919.75. What is the yield to call of the bond? Assume interest payments are paid semi-annually and par value is \$1,000.
A. 12.14%
B. 7.27%
C. 14.54%
D. 8.29%

84. A 5.5% coupon municipal bond has 16 years left to maturity and has a price quote of 92.55. The bond can be called in 9 years. The call premium is one year of coupon payments. Compute the bond’s current yield. Assume interest payments are paid semi-annually and a par value of \$5,000.
A. 5.94%
B. 11.89%
C. 12.19%
D. 13.14%

85. A 5.5% coupon municipal bond has 16 years left to maturity and has a price quote of 92.55. The bond can be called in 9 years. The call premium is one year of coupon payments. Compute the bond’s yield to maturity and yield to call. Assume interest payments are paid semi-annually and a par value of \$5,000.
A. YTM = 6.91%; YTC = 7.52%
B. YTM = 6.24%; YTC = 7.08%
C. YTM = 5.78%; YTC = 6.61%
D. YTM = 5.92%; YTC = 6.85%

86. An 8% coupon municipal bond has 15 years left to maturity and has a price quote of 98.5. The bond can be called in 6 years. The call premium is one year of coupon payments. Compute the bond’s yield to call and determine if the bond will be called. Assume interest payments are paid semi-annually and a par value of \$5,000.
A. 4.68%; yes, the bond will be called
B. 9.36%; yes, the bond will be called
C. 9.36%; no, the bond will not be called
D. 10.71%; no, the bond will not be called

87. An 8% coupon municipal bond has 15 years left to maturity and has a price quote of 102.0. The bond can be called in 6 years. The call premium is one year of coupon payments. Compute the bond’s yield to call and determine if the bond will be called. Assume interest payments are paid semi-annually and a par value of \$5,000.
A. 4.31%; yes, the bond will be called
B. 8.62%; yes, the bond will be called
C. 8.62%; no, the bond will not be called
D. 11.21%; no the bond will not be called

88. A corporate bond with a 5% coupon has 10 years left to maturity. It has had a credit rating of BBB and a yield to maturity of 8.0%. The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BB. The new appropriate discount rate will be 9%. What will be the change in the bond’s price in dollars? Assume interest payments are paid semi-annually and par value is \$1,000.
A. -\$43.61
B. -\$51.07
C. -\$62.43
D. -\$56.31

89. A corporate bond with an 8.5% coupon has 10 years left to maturity. It has had a credit rating of A and a yield to maturity of 10%. The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BBB. The new appropriate discount rate will be 11.5%. What will be the change in the bond’s price in dollars? Assume interest payments are paid semi-annually and par value is \$1,000.
A. -\$82.13
B. -\$95.19
C. -\$101.37
D. -\$69.85

90. Junk bonds are those bonds with a credit rating of _____________.
A. BB and lower
B. B and lower
C. BBB and lower
D. None of these.

91. Which of following are backed only by the reputation and financial stability of the corporation?
A. Debentures
B. Unsecured bonds
C. Both a and b
D. None of these.

92. Investment grade bonds include those bonds with ratings _____________.
A. From AAA to BB
B. From AAA to BBB
C. From AAA to B
D. From AAA to A

93. Which of the following statements is correct?
A. Michael Milken pioneered an active high-yield bond market in the late 1970s that provided much needed capital to entrepreneurs and financial innovators.
B. Prior to Milken, the only junk bonds were those issued by once financially stable firms that had fallen on hard times.
C. Milken showed investors that, historically, junk bonds rarely defaulted and offered a very high return to those willing to assume the risk of owning them.
D. All of these statements are correct.

94. Which of the following statements is correct?
A. Yield spreads between bonds of different quality remain static over time.
B. Yield spreads are set by the Securities Exchange Commission.
C. Yield spreads between bonds of different quality change over time.
D. None of these statements is correct.

95. Sally is choosing between two bonds both of which mature in 15 years and have the same level of risk. Bond A is a municipal bond that yields 5.25%. Bond B is a corporate bond that yields 7.75%. If Sally is in the 30% tax bracket, which bond should she select and why?
A. Sally should select Bond A because its interest income is not taxable.
B. Sally should select Bond B is better because it has lower risk.
C. Sally should select Bond A because its taxable equivalent yield is greater than the yield of Bond B.
D. Sally should select Bond B because the taxable equivalent yield of Bond A is less than the yield of Bond B.

96. Sally is choosing between two bonds both of which mature in 15 years and have the same level of risk. Bond A is a municipal bond that yields 5.75%. Bond B is a corporate bond that yields 7.75%. If Sally is in the 28% tax bracket, which bond should she select and why?
A. Sally should select Bond A because its interest income is not taxable.
B. Sally will be indifferent between Bond A and B since the taxable equivalent yield of Bond A equals the yield of Bond B.
C. Sally should select Bond A because its TEY is greater than the yield of Bond B.
D. Sally should select Bond B because the TEY of Bond A is less than the yield of Bond B.

97. Sally is choosing between two bonds both of which mature in 15 years and have the same level of risk. Bond A is a municipal bond that yields 5.15%. Bond B is a corporate bond that yields 7.15%. If Sally is in the 28% tax bracket, which bond should she select and why?
A. Sally should select Bond A because its interest income is not taxable.
B. Sally will be indifferent between Bond A and B since the taxable equivalent yield of Bond A equals the yield of Bond B.
C. Sally should select Bond A because its taxable equivalent yield is greater than the yield of Bond B.
D. Sally should select Bond B because the taxable equivalent yield of Bond A is less than the yield of Bond B.

98. A bond with 14 years to maturity is selling for \$1070 and has a yield to maturity of 10.06%. If this bond pays its coupon payments semi-annually and par value is \$1,000, what is the bond’s annual coupon rate?
A. 5.50%
B. 8.19%
C. 9.57%
D. 11.00%

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