ASU FIN 300 UPDATED TEST PAPERS QUESTIONS
AND ANSWERS SURE A+
What is true regarding the securitization process of mortgage loans? - ✔✔Securitization
of mortgage loans involves pooling mortgage loans with similar characteristics together
and selling the claims of the cash flows to investors
✔✔Which of the following is true of zero coupon bonds?
A) zero coupon bonds have no coupon payments over its life and only offer a single
payment at maturity
B) zero coupon bonds have a yield to maturity 0%
C) the most frequent and regular issuer of zero coupon securities are non-governmental
agencies
D) Zero coupon bonds tend to sell above their face value - ✔✔A) zero coupon bonds
have no coupon payments over its life and only offer a single payment at maturity
✔✔Regatta, Inc., has six-year bonds outstanding with face value of $1,000 that pay an
8.25 percent coupon rate. Investors buying the bond today can expect to earn a yield to
maturity of 6.875 percent. How much will you be willing to pay for Regatta's bond today?
- ✔✔$1,066
✔✔Kevin Rogers is interested in buying a five-year bond that pays a coupon of 10
percent on a semiannual basis. The current market rate for similar bonds is 8.8 percent.
What should be the current price of this bond? - ✔✔$1,048
✔✔Jane Thorpe has been offered a seven-year bond with a face value of $1,000 issued
by Barone, Inc., at a price of $943.22. The bond has a coupon rate of 9 percent and
, pays the coupon semiannually. Similar bonds in the market will yield 10 percent today.
Should she buy the bonds at the offered price?
A) No, the bond is only worth $921
B) Yes, the bond is worth more at $951
C) No, the bond is only worth $912
D) Yes, the bond is worth more at $1,015 - ✔✔B) Yes, the bond is worth more at $951
✔✔Robertsons, Inc., is planning to expand its specialty stores into five other states and
finance the expansion by issuing 15-year zero coupon bonds with a face value of
$1,000. If your opportunity cost is 8 percent and similar coupon-bearing bonds will pay
semiannually, what will be the price at which you will be willing to purchase these
bonds? - ✔✔$308
✔✔Which one of the following statements is true of a bond's yield to maturity?
A) The yield to maturity of a bond is the same as the coupon rate assuming the bond
price is below par value
B) A bond's yield to maturity is the same as the bond's realized yield if the bond is held
to maturity
C) The yield to maturity of a bond is the discount rate that makes the present value of
the coupon and principal payments equal to the price of the bond
D) If the yield to maturity is less than the coupon rate, the bond will sell above par value
- ✔✔C) The yield to maturity of a bond is the discount rate that makes the present value
of the coupon and principal payments equal to the price of the bond
✔✔Jane Almeda is interested in a 10-year bond with a face value of $1,000 issued by
Roberts Corp. that pays a coupon of 10 percent annually. The current price of this bond
is $1,174.45. What is the yield that Jane would earn by buying it at this price and
holding it to maturity? - ✔✔7.5%
✔✔Five years ago, Shirley Harper bought a 10-year bond that pays 8 percent
semiannually for $981.10. Today she sold it for $1,067.22. What is the realized yield on
her investment? - ✔✔10%
✔✔Which of the following statements is true?
A) interest rate risk decreases as maturity increases
B) All other things being equal, short-term bonds are riskier than long-term bonds
C) As interest rates decline, the prices of bonds rise and as interest rates rise, the
prices of bonds decline
D) Long-term bonds have lower price volatility than short-term bonds of similar risk -
✔✔C) As interest rates decline, the prices of bonds rise and as interest rates rise, the
prices of bonds decline
AND ANSWERS SURE A+
What is true regarding the securitization process of mortgage loans? - ✔✔Securitization
of mortgage loans involves pooling mortgage loans with similar characteristics together
and selling the claims of the cash flows to investors
✔✔Which of the following is true of zero coupon bonds?
A) zero coupon bonds have no coupon payments over its life and only offer a single
payment at maturity
B) zero coupon bonds have a yield to maturity 0%
C) the most frequent and regular issuer of zero coupon securities are non-governmental
agencies
D) Zero coupon bonds tend to sell above their face value - ✔✔A) zero coupon bonds
have no coupon payments over its life and only offer a single payment at maturity
✔✔Regatta, Inc., has six-year bonds outstanding with face value of $1,000 that pay an
8.25 percent coupon rate. Investors buying the bond today can expect to earn a yield to
maturity of 6.875 percent. How much will you be willing to pay for Regatta's bond today?
- ✔✔$1,066
✔✔Kevin Rogers is interested in buying a five-year bond that pays a coupon of 10
percent on a semiannual basis. The current market rate for similar bonds is 8.8 percent.
What should be the current price of this bond? - ✔✔$1,048
✔✔Jane Thorpe has been offered a seven-year bond with a face value of $1,000 issued
by Barone, Inc., at a price of $943.22. The bond has a coupon rate of 9 percent and
, pays the coupon semiannually. Similar bonds in the market will yield 10 percent today.
Should she buy the bonds at the offered price?
A) No, the bond is only worth $921
B) Yes, the bond is worth more at $951
C) No, the bond is only worth $912
D) Yes, the bond is worth more at $1,015 - ✔✔B) Yes, the bond is worth more at $951
✔✔Robertsons, Inc., is planning to expand its specialty stores into five other states and
finance the expansion by issuing 15-year zero coupon bonds with a face value of
$1,000. If your opportunity cost is 8 percent and similar coupon-bearing bonds will pay
semiannually, what will be the price at which you will be willing to purchase these
bonds? - ✔✔$308
✔✔Which one of the following statements is true of a bond's yield to maturity?
A) The yield to maturity of a bond is the same as the coupon rate assuming the bond
price is below par value
B) A bond's yield to maturity is the same as the bond's realized yield if the bond is held
to maturity
C) The yield to maturity of a bond is the discount rate that makes the present value of
the coupon and principal payments equal to the price of the bond
D) If the yield to maturity is less than the coupon rate, the bond will sell above par value
- ✔✔C) The yield to maturity of a bond is the discount rate that makes the present value
of the coupon and principal payments equal to the price of the bond
✔✔Jane Almeda is interested in a 10-year bond with a face value of $1,000 issued by
Roberts Corp. that pays a coupon of 10 percent annually. The current price of this bond
is $1,174.45. What is the yield that Jane would earn by buying it at this price and
holding it to maturity? - ✔✔7.5%
✔✔Five years ago, Shirley Harper bought a 10-year bond that pays 8 percent
semiannually for $981.10. Today she sold it for $1,067.22. What is the realized yield on
her investment? - ✔✔10%
✔✔Which of the following statements is true?
A) interest rate risk decreases as maturity increases
B) All other things being equal, short-term bonds are riskier than long-term bonds
C) As interest rates decline, the prices of bonds rise and as interest rates rise, the
prices of bonds decline
D) Long-term bonds have lower price volatility than short-term bonds of similar risk -
✔✔C) As interest rates decline, the prices of bonds rise and as interest rates rise, the
prices of bonds decline
