1.

Calculate the yield to worst on the following bond, which makes semi-annual
coupon payment:
Coupon rate = 6%
1,100

PMT = 30

Maturity = 30 years
PV = 1,100

N = 60

PMT = 30

Par Value = $1,000

YTM = 5.329%

Only call option in 11 years at $1,200

FV = 1,000 PV =

N = 22

FV = 1,800

YTC = 6.048%

Thus, YTworst = 5.329%

The current market price for this bond is $1,100

a)
b)
c)
d)

5.328%
6.048%
3.024%
2.664%

2. An investor will purchase a tax exempt bond that will yield a 9% interest rate. If
the investors marginal tax rate is 25%, what is the equivalent taxable yield?
a) 11%
b) 6.75%
c) 12%

ETY = 0.09 / (1 0.25) = 12%

d) 15%
3. The process whereby customersinquire of issuers or their agents about designing
a security with desired features is known as:
a) SEC Rule 144A
b) reverse inquiry
c) global inquiry
d) MTN customization

4. What is the total return for a 20-year zero-coupon bond that is offering a yield to
maturity of 8% if the bond is held to maturity?
a)
b)
c)
d)

6%
7%
8%
10%

5. Which yield-curve is a likely predictor of economic recession

a) positive curve
b) inverted curve
c) flat curve
6. Consider the following two Treasury securities:

Bond

Price

Modified duration
(years)

$100

$ 80

Which bond will have the greater dollar price volatility for a 25-basis-point change in
interest rates?
a) Bond A
b) Bond B
7. The breaking down of a system to gain insight into its compositional sub-systems
is known as:
a) Top down approach
b) Bottom-up approach
c) Quantitative approach
8. Being a senior secured debt holder in an investment grade corporation assures
the investor that she will incur no loss on a credit default.
a) True
b) False

Calculate the requested measures in questions 10 through 12 for bonds A

and B (assume that each bond pays interest semiannually):

Bond A
Coupon

8%

Bond B
9%

Yield to maturity 8%
Maturity (years)
Par

$100.00

Price $100.00

8%

$100.00
$104.055

9. What is the price value of a basis point for bond B only

a) 0.0181
b) 0.0416
c) 0.0597
d) 0.0746
10. Compute the approximate duration for bond A only using the shortcut formula
by changing yields by 20 basis points
a) 1.814948
99.637864

PMT = 4

N = 4 y = 8.2/2 = 4.1%

FV = 100

P+ =

b) 2.465732
100.36385

PMT = 4

N = 4 y = 7.8/2 = 3.9%

FV = 100

P- =

c) 4.277338
approximate duration (Bond A) = 100.3638 99.6379 / 2 (100)
(.002) = 1.814948
d) 8.344402
11. Compute the approximate duration for bond B only using the shortcut formula
by changing yields by 20 basis points
a) 1.814948
PMT = 4.5
P+ = 103.2283

N = 10

y = 8.2/2 = 4.1%

FV = 100

b) 2.465732
PMT = 4.5
P- = 104.891

N = 10

y = 7.8/2 = 3.9%

FV = 100

c) 4.277338
approximate duration (Bond B) = 104.891 103.2283 / 2 (100)
(.002) = 3.994507
d) 3.994507

12. Compute the approximate convexity measure for bond A only using the shortcut
formula by changing yields by 20 basis points
a) 1.814948
100.36385

P0 = 104.055

P+ = 99.637864

P- =

b) 2.465732
convexity measure = 99.63786 + 100.3638 2 (100) / 100
(.002)2 = 4.27735
c) 4.277348
d) 3.994507
13. Compute the approximate convexity measure for bond B only using the shortcut
formula by changing yields by 20 basis points
a) 1.814948
104.890854407

P0 = 104.055

P+ = 103.228267506

P- =

b) 19.763824
convexity measure = 103.2283 + 104.891 2 (100) / 100
(.002)2 = 21.916085243
c) 4.277348
d) 3.994507

14. Which U.S. Treasury securities do not make a coupon payment?

a. Treasury Bonds
b. Treasury Notes
c. Treasury Bills
d. All of the above
15. The most recently auctioned issue of treasury securities is called:
a. On-the-run issue
b. Off-the-run issue
c. STRIPS issue
d. Spot issue
16. Treasury securities are priced based on:
a. The yield curve
b. The theoretical spot rates
c. The par coupon curve
17. Investment grade bond issues that were later downgraded to noninvestment grade (junk) bonds are commonly known as:
a. Dark angels

b. Fallen angels
c. Junk hybrids
d. Bankruptcy candidates
18. Deferred coupon bonds that give the issuer the option to make a coupon
payment with cash or with a similar bond is known as:
a. Step-up bonds
b. Deferred-interest bonds
c. Payment-in-kind bonds
19. Which statement below is NOT correct?
a. Eurobonds can be issued in various currencies
b. Eurobonds are typically less liquid than Yankee bonds
c. Eurobonds pay semi-annual coupons
d. Eurobonds typically have weaker covenants than U.S. domestic bonds

20. Which bond warrant entitles the warrant owner to buy additional bonds from
the issuer at the same price and yield?
a. Equity warrant
b. Debt warrant
c. Currency warrant
21. A bond that is issued simultaneously in several bond markets throughout
the world and can be issued in any currency is:
a. Global bond
b. Euro medium-term note
c. Convertible bond
d. Yankee bond