Chapter 14 Bond Prices and Yields Test Bank

Chapter 14
Bond Prices and Yields

Multiple Choice Questions 1. The current yield on a bond is equal to ________.
A. annual interest divided by the current market price
B. the yield to maturity
C. annual interest divided by the par value
D. the internal rate of return
E. none of the above
A is current yield and is quoted as such in the financial press.

Difficulty: Easy 2. If a 7% coupon bond is trading for $975.00, it has a current yield of ____________ percent.
A. 7.00
B. 6.53
C. 7.24
D. 8.53
E. 7.18
70/975 = 7.18.

Difficulty: Easy

3. If a 7.25% coupon bond is trading for $982.00, it has a current yield of ____________ percent.
A. 7.38
B. 6.53
C. 7.25
D. 8.53
E. 7.18
72.50/982 = 7.38.

Difficulty: Easy 4. If a 6.75% coupon bond is trading for $1016.00, it has a current yield of ____________ percent.
A. 7.38
B. 6.64
C. 7.25
D. 8.53
E. 7.18
67.50/1016 = 6.6437.

Difficulty: Easy 5. If a 7.75% coupon bond is trading for $1019.00, it has a current yield of ____________ percent.
A. 7.38
B. 6.64
C. 7.25
D. 7.61
E. 7.18
77.50/1019 = 7.605.

Difficulty: Easy

6. If a 6% coupon bond is trading for $950.00, it has a current yield of ____________ percent.
A. 6.5
B. 6.3
C. 6.1
D. 6.0
E. 6.6
60/950 = 6.3.

Difficulty: Easy 7. If an 8% coupon bond is trading for $1025.00, it has a current yield of ____________ percent.
A. 7.8
B. 8.7
C. 7.6
D. 7.9
E. 8.1
80/1025 = 7.8.

Difficulty: Easy 8. If a 7.5% coupon bond is trading for $1050.00, it has a current yield of ____________ percent.
A. 7.0
B. 7.4
C. 7.1
D. 6.9
E. 6.7
75/1050 = 7.1.

Difficulty: Easy

9. A coupon bond pays annual interest, has a par value of $1,000, matures in 4 years, has a coupon rate of 10%, and has a yield to maturity of 12%. The current yield on this bond is ___________.
A. 10.65%
B. 10.45%
C. 10.95%
D. 10.52%
E. none of the above
FV = 1000, n = 4, PMT = 100, i = 12, PV = 939.25; $100 / $939.25 = 10.65%.

Difficulty: Moderate 10. A coupon bond pays annual