8-1ChapterEightValuationofKnownCashFlows:BondsThischaptercontains50multiplechoicequestions,18shortproblemsand9longerproblems.MultipleChoice1.A________isaquantitativemethodusedtoinferanasset'svaluefrommarketinformationaboutthepricesofotherassetsandmarketinterestrates.(a)fixedmodel(b)perpetualvaluationmodel(c)valuationmodel(d)variablemodelAnswer:(c)2.________areexamplesoffixed-incomesecurities.(a)Commonstockandpensionfunds(b)Mortgagesandpensionannuities(c)Mutualfundsandcommonstock(d)PreferredstockandcommonstockAnswer:(b)3.Considerafixed-incomesecuritythatpromisestopay$150eachyearforthenextfiveyears.Howmuchisthisfive-yearannuityworthiftheappropriatediscountrateis7%peryear?(a)$534.74(b)$615.03(c)$802.50(d)$867.96Answer:(b)8-24.Considerafixed-incomesecuritythatpromisestopay$120eachyearforthenextfouryears.Calculatethevalueofthisfour-yearannuityiftheappropriatediscountrateis6%peryear.(a)$415.81(b)$508.80(c)$531.85(d)$629.06Answer:(a)5.Thepriceofanyexistingfixed-incomesecurity________whenmarketinterestratesrisebecauseinvestorswillonlybewillingto________themiftheyofferacompetitiveyield.(a)rises;buy(b)rises;sell(c)falls;buy(d)falls;sellAnswer:(c)6.Afallininterestratescausesa________inthemarketvalueofafixed-incomesecurity.(a)arise(b)afall(c)nochange(d)itcannotbedeterminedfromtheinformationgivenAnswer:(a)7.Achangeinmarketinterestratescauses________inthemarketvaluesofallexistingcontractspromisingfixedpaymentsinthefuture.(a)achangeinthesamedirection(b)achangeintheoppositedirection(c)nochange(d)anunpredictablevariationAnswer:(b)8-38.Whathappenstothevalueofafour-yearfixed-incomesecuritypromising$100peryearifthemarketinterestraterisesfrom5%to6%peryear?(a)Ariseof1%causesadropof$4.87inmarketvalue.(b)Ariseof1%causesariseof$4.87inmarketvalue.(c)Ariseof1%causesadropof$8.09inmarketvalue.(d)Ariseof1%causesariseof$8.09inmarketvalue.Answer:(c)9.Whathappenstothevalueofafour-yearfixed-incomesecuritypromising$100peryearifthemarketinterestratefallsfrom6%to5%peryear?(a)Afallof1%causesadropof$4.87inmarketvalue.(b)Afallof1%causesariseof$4.87inmarketvalue.(c)Afallof1%causesadropof$8.09inmarketvalue.(d)Afallof1%causesariseof$8.09inmarketvalue.Answer:(d)10.Azero-couponbondisalsoknownas________.(a)aperpetualbond(b)apurediscountbond(c)amarketrebate(d)aninfinitebondAnswer:(b)11.Thepromisedcashpaymentonapurediscountbondiscalledits________.(a)facevalue(b)parvalue(c)fixedinterest(d)bothaandbAnswer:(d)8-412.Whatistheyieldofa1-yearpurediscountbondwithapriceof$850andafacevalueof$1,000?(a)8.50%(b)9.09%(c)15.00%(d)17.65%Answer:(d)13.Whatistheyieldofa1-yearpurediscountbondwithapriceof$900andafacevalueof$1,000?(a)5.26%(b)10.00%(c)11.11%(d)15.79%Answer:(c)14.Considerafour-yearpurediscountbondwithafacevalueof$1,000.Ifitscurrentpriceis$850,computeitsannualizedyield.(a)1.17%(b)4.15%(c)5.57%(d)17.60%Answer:(b)15.Considerathree-yearpurediscountbondwithafacevalueof$1,000.Ifitscurrentpriceis$900,computeitsannualizedyield.(a)1.036%(b)1.111%(c)3.57%(d)5.41%Answer:(c)8-516.Considerafive-yearpurediscountbondwithafacevalueof$1,000.Ifitscurrentpriceis$780,whatisitsannualizedyield?(a)5.09%(b)2.82%(c)1.28%(d)1.05%Answer:(a)17.A________obligatestheissuertomakeperiodicpaymentsofinteresttothebondholderforthelifeofthebondandthentopaythefacevalueofthebondwhenthebondmatures.(a)purediscount(b)zero-coupon(c)perpetualbond(d)couponbondAnswer:(...
