Finance 301 Final Exam Questions with Correct Answers

Which type of bond has a coupon rate that is equal to the market yield? A) Par bond B) Fixed-rate premium bond C) Zero coupon bond D) All bonds E) Fixed-rate discount bond Correct Answer A) Par bond Which of the following bonds does not have reinvestment risk? A) Fixed-rate discount bond B) Zero coupon bond C) Fixed-rate bond with call option D) Fixed-rate premium bond E) Fixed-rate par bond Correct Answer B) Zero coupon bond The risk that the issuer of a bond will not be able to repay its creditors is: A) Default risk B) Reinvestment risk C) Market risk D) Prepayment risk E) Interest rate risk Correct Answer A) Default risk The risk that the issuer of a bond will call a bond prior to maturity is: A) Default risk B) Prepayment risk C) Reinvestment risk D) Market risk E) Interest rate risk Correct Answer B) Prepayment risk Calculate the value of a non-callable 30-year bond with a face value of $1,000 and a coupon rate of 8% compounded semi-annually if you expect 5% yield on the bond. A) $1,577 B) $1,464 C) $776 D) $592 E) $1,821 Correct Answer B) $1,464 Calculate the spread to treasuries on a 2 year corporate bond with a coupon rate of 3.25% using the following yields: 2 year treasury: 1.75% 10 year treasury: 3.0% 10 year municipal: 2.25% 30 year treasury: 4.75% Federal funds rate: 0.25% A) 1.5% B) 0.25%