FIN 3400 EXAM QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026

FIN 3400 EXAM QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026 T/F A fairly priced bond with a coupon less than the expected return must sell at a discount from par - Answers True T/F Suppose two bonds of equivalent risk and maturity have different prices such that one is a premium bond and one is a discount bond. The premium bond must have a greater expected return than the discount bond. - Answers False T/F Any security that returns a greater percentage of the price sooner is less price-volatile - Answers True T/F The higher a bond's coupon, the lower the bond's price volatility. - Answers True T/F . Higher interest rates lead to lower bond convexity, ceteris paribus. - Answers True Which of the following bond terms are generally positively related to bond price volatility? I. Coupon rate II. Maturity III. YTM IV. Payment frequency - Answers ll only T/F For a given interest rate change, a 20-year bond's price change will be twice that of a 10-year bond's price change. - Answers False A security has an expected return less than its required return. This security is A. selling at a premium to par. B. selling at a discount to par. C. selling for more than its PV. D. selling for less than its PV. E. a zero coupon bond - Answers C You would want to purchase a security if current market price ____________ fair present value or expected rate of return ____________ required rate of return. A. ≥; ≤ B. ≥; ≥ C. ≤; ≥ D. ≤; ≤ - Answers C 10-year annual payment corporate bond has a market price of $1,050. It pays annual interest of $100 and its required rate of return is 9 percent. By how much is the bond mispriced? A. $0.00 B. Overpriced by $14.18 C. Underpriced by $14.18 D. Overpriced by $9.32 E. Underpriced by $9.32 - Answers C PV= ? PMT=100 I=9 FV=1000 N=10 PV=-1064.18 Misprice: .18= -14.18 An eight-year corporate bond has a 7 percent coupon rate. What should be the bond's price if the required return is 6 percent and the bond pays interest semiannually? A. $1,062.81 B. $1,062.10 C. $1,053.45 D. $1,052.99 E. $1,049.49 - Answers A N=8×2=16 I=6/2 PMT=7%×1000/2=35 FV=1000 PV=? -1062.81 A six-year annual payment corporate bond has a required return of 9.5 percent and an 8 percent coupon. Its market value is $20 over its PV. What is the bond's E(r)? A. 8.00 percent B. 10.21 percent C. 9.98 percent D. 9.03 percent E. 3.53 percent - Answers D I=9.5 N=6 PMT=8%×1000=80 FV=1000 PV=? -933.70 Market price=933.70+20=953.70 N=6 PMT=8%×1000=80 FV=1000 PV=-953.70 I=? 9.03 A corporate bond returns 12 percent of its cost (in PV terms) in the first year, 11 percent in the second year, 10 percent in the third year and the remainder in the fourth year. What is the bond's duration in years? A. 3.68 years B. 2.50 years C. 4.00 years D. 3.75 years E. 3.32 years - Answers E 3.32 = (12% × 1) + (11% × 2) + (10% × 3) + (67% × 4) A bond that pays interest annually has a 6 percent promised yield and a price of $1,025. Annual interest rates are now projected to fall 50 basis points. The bond's duration is six years. What is the predicted new bond price after the interest rate change? (Watch your rounding.) A. $1,042.33 B. $995.99 C. $1,054.01 D. $987.44 E. None of the options presented - Answers C 1,025 + [-6 × (-0.0050/1.06) × $1,025] A bond that pays interest semiannually has a 6 percent promised yield and a price of $1,045. Annual interest rates are now projected to increase 50 basis points. The bond's duration is five years. What is the predicted new bond price after the interest rate change? (Watch your rounding.) A. $1,020.35 B. $1,069.65 C. $1,070.36 D. $1,019.64 E. None of the options presented - Answers D ((-5/1.03) × 0.0050 × $1,045) + $1,045 . A 12% coupon bond, semi-annual payments, is callable in five years. The call price is $1,120; if the bond is selling today for $1,110, what is the yield to call? A. 12.03% B. 10.86% C. 10.95% D. 9.14% E. None of the options - Answers C FV = 1120, N= 10, PMT =12%×1000/2= 60, PV =-1110, I = ? 5.48 @ half year, 5.48 × 2 = 10.95 @ year. T/F An unsecured bond that has no specific collateral other than the general creditworthiness of the issuing firm is called a debenture. - Answers TRUE Revenue bonds are backed by the full revenue of the municipality. - Answers False Callable bonds have lower required yields than similar convertible bonds, ceteris paribus. - Answers False On September 1, 2012, an investor purchases a $10,000 par T-bond that matures in 12 years. The coupon rate is 6 percent and the investor buys the bond 70 days after the last coupon payment (110 days before the next). The ask yield is 7 percent. The dirty price of the bond is A. $9,295.45. B. $9,300.55. C. $9,313.75. D. $9,321.82. E. $9,333.24. - Answers C Clean price: FV=10000 N=24 I=7/2 PMT=6%×10000/2=300 PV=? -9197.08 Accrued interest: 300×(70/180) = 116.67; Dirty price: 9,197.08 + 116.67 = 9,313.75 You buy a principal STRIP maturing in five years. The price quote per hundred of par for the STRIP is 75.75 percent. Using semiannual compounding, what is the promised yield to maturity on the STRIP? A. 5.632 percent B. 5.712 percent C. 2.816 percent D. 2.945 percent E. 4.566 percent - Answers A N=10 PV=-75.75 FV=100 PMT=0 I=2.82 @ half year 2.816 x 2=5.632 @ year A Treasury security in which periodic coupon interest payments can be separated from each other and from the principal payment is called a A. STRIP. B. T-note. C. T-bond. D. G.O. bond. E. Revenue bond. - Answers A Which one of the following bonds is likely to have the highest required rate of return, ceteris paribus? A. AAA-rated non-callable corporate bond with a sinking fund B. AA-rated callable corporate bond with a sinking fund C. AAA-rated callable corporate bond with a sinking fund D. High-quality municipal bond E. AA-rated callable corporate bond without a sinking fund - Answers E An investor is in the 28 percent federal tax bracket and pays a 9 percent state tax rate and 4 percent in local income taxes. For this investor a municipal bond paying 6 percent interest is equivalent to a corporate bond paying _____ interest.