HS 328-9 Exam Questions With
Answers 100% Pass
Par = $______ - ANSWER 1,000
Coupon payment - ANSWER Annual interest on a bond
Coupon rate - ANSWER Annual interest payment divided by the par value
coupon rate = cOOpOn - ANSWER three zero's in coupon to remind you to multiply by
1,000. Coupons apply to payments
Any bond with a coupon rate LESS than its discount rate will sell at a _____ , meaning for
LESS than $1,000. - ANSWER discount (lee equals less)
Any bond with a coupon rate HIGHER than the discount rate will sell at a ______ ,
meaning for MORE than $1,000. - ANSWER premium (more equals more)
Any bond with a coupon rate EQUAL to the discount rate will sell at ____, meaning
EQUAL to $1,000. - ANSWER par (equality)
N always equals the total number of payments in the equation, so if you are getting paid
quarterly for 3 years that number will be 3 x 4 (12)
Once you do that, you are always going to have to adjust the remaining numbers for I/YR
and PMNT by dividing by the number of periods in a year. (I/YR and PMNT assume "n" is
the number of years, unless corrected.) - ANSWER Calculation logic
If a problem asks you to calculate for BEGINNING of each period, you need to change
the calculator you need to press SHIFT and BEG/END. "Begin" will be shown on the LED
screen, when changed to begin. If you don't see "begin" (you won't see anything) it is set
to END. Ending period calculations are the default setting. - ANSWER Calculation logic
When calculating time value of money calculations, always use the "five key approach".
Enter figures for all five keys, going from left to right, entering a "0" if there is no number
provided for that item. If you have TWO NON-zero numbers for any of the last three keys
(PV, PMT, FV) you will need to use the +/- key for one of the numbers to reflect a cash
OUTflow. - ANSWER Calculation logic
Positive numbers are cash INflows - ANSWER
Negative numbers are cash OUTflows - ANSWER To enter a NEGATIVE cash flow
number use the +/- key, not the - key!!
The plus/minus key on the calculator creates a ______ number. - ANSWER negative
, 72 divided by the interest rate equals the number of years needed to _______ the present
value - ANSWER double
The rule of 72 calculates time needed to double (or half) a value. If you see the words
double, half or halves, use the rule of 72! Divide 72 by interest rate shown. - ANSWER
Test tip
For an annuity DUE, add the "beg/end" key to the equation. ADB - ANSWER Annuity DUE
= BEGINNING key
A coupon rate is the yield paid by a fixed income security. A fixed income security's
coupon rate is simply just the annual coupon payments paid by the issuer relative to the
bond's face or par value. - ANSWER like a fixed rate CD
When computing the price of a bond that pays interest semiannually, one uses the
semiannual coupon payment, one-half the discount rate, and double the number of time
periods. - ANSWER Calculation logic
For all discount bonds, the coupon rate will be _____ than the current yield. - ANSWER
lower
When computing the realized compound yield to maturity (RCYTM), if the reinvestment
rate equals the yield to maturity, the RCYTM will also equal the yield to maturity. -
ANSWER
Yield-to-call computations are identical to yield-to-maturity calculations except that the
call price is substituted for the par value. The coupon payments stay the same. the
number of periods until the earliest call date is substituted for the number of periods
until maturity. - ANSWER
Yield to call is the yield of a bond or note if you were to buy and hold the security until
the call date. This yield is valid only if the security is called prior to maturity. The
calculation of yield to call is based on the coupon rate, the length of time to the call date
and the market price. - ANSWER
The duration statistic can serve as a measure of price volatility with respect to interest
rate changes. - ANSWER
The duration statistic can only be used to approximate changes in bond prices when
interest rates change because the curve for the price of a bond as a function of the
discount rate is convex. - ANSWER
The current yield is the coupon amount divided by the bond's price. - ANSWER
The yield to maturity on a debt instrument is based on both its market price and its
coupon rate. - ANSWER
The yield to maturity changes every time the price of the bond changes, because it is
based on both its market price and its coupon rate. - ANSWER
Answers 100% Pass
Par = $______ - ANSWER 1,000
Coupon payment - ANSWER Annual interest on a bond
Coupon rate - ANSWER Annual interest payment divided by the par value
coupon rate = cOOpOn - ANSWER three zero's in coupon to remind you to multiply by
1,000. Coupons apply to payments
Any bond with a coupon rate LESS than its discount rate will sell at a _____ , meaning for
LESS than $1,000. - ANSWER discount (lee equals less)
Any bond with a coupon rate HIGHER than the discount rate will sell at a ______ ,
meaning for MORE than $1,000. - ANSWER premium (more equals more)
Any bond with a coupon rate EQUAL to the discount rate will sell at ____, meaning
EQUAL to $1,000. - ANSWER par (equality)
N always equals the total number of payments in the equation, so if you are getting paid
quarterly for 3 years that number will be 3 x 4 (12)
Once you do that, you are always going to have to adjust the remaining numbers for I/YR
and PMNT by dividing by the number of periods in a year. (I/YR and PMNT assume "n" is
the number of years, unless corrected.) - ANSWER Calculation logic
If a problem asks you to calculate for BEGINNING of each period, you need to change
the calculator you need to press SHIFT and BEG/END. "Begin" will be shown on the LED
screen, when changed to begin. If you don't see "begin" (you won't see anything) it is set
to END. Ending period calculations are the default setting. - ANSWER Calculation logic
When calculating time value of money calculations, always use the "five key approach".
Enter figures for all five keys, going from left to right, entering a "0" if there is no number
provided for that item. If you have TWO NON-zero numbers for any of the last three keys
(PV, PMT, FV) you will need to use the +/- key for one of the numbers to reflect a cash
OUTflow. - ANSWER Calculation logic
Positive numbers are cash INflows - ANSWER
Negative numbers are cash OUTflows - ANSWER To enter a NEGATIVE cash flow
number use the +/- key, not the - key!!
The plus/minus key on the calculator creates a ______ number. - ANSWER negative
, 72 divided by the interest rate equals the number of years needed to _______ the present
value - ANSWER double
The rule of 72 calculates time needed to double (or half) a value. If you see the words
double, half or halves, use the rule of 72! Divide 72 by interest rate shown. - ANSWER
Test tip
For an annuity DUE, add the "beg/end" key to the equation. ADB - ANSWER Annuity DUE
= BEGINNING key
A coupon rate is the yield paid by a fixed income security. A fixed income security's
coupon rate is simply just the annual coupon payments paid by the issuer relative to the
bond's face or par value. - ANSWER like a fixed rate CD
When computing the price of a bond that pays interest semiannually, one uses the
semiannual coupon payment, one-half the discount rate, and double the number of time
periods. - ANSWER Calculation logic
For all discount bonds, the coupon rate will be _____ than the current yield. - ANSWER
lower
When computing the realized compound yield to maturity (RCYTM), if the reinvestment
rate equals the yield to maturity, the RCYTM will also equal the yield to maturity. -
ANSWER
Yield-to-call computations are identical to yield-to-maturity calculations except that the
call price is substituted for the par value. The coupon payments stay the same. the
number of periods until the earliest call date is substituted for the number of periods
until maturity. - ANSWER
Yield to call is the yield of a bond or note if you were to buy and hold the security until
the call date. This yield is valid only if the security is called prior to maturity. The
calculation of yield to call is based on the coupon rate, the length of time to the call date
and the market price. - ANSWER
The duration statistic can serve as a measure of price volatility with respect to interest
rate changes. - ANSWER
The duration statistic can only be used to approximate changes in bond prices when
interest rates change because the curve for the price of a bond as a function of the
discount rate is convex. - ANSWER
The current yield is the coupon amount divided by the bond's price. - ANSWER
The yield to maturity on a debt instrument is based on both its market price and its
coupon rate. - ANSWER
The yield to maturity changes every time the price of the bond changes, because it is
based on both its market price and its coupon rate. - ANSWER
