e
1.
a.
b.
c.
d.
e.
The annual coupon of a bond divided by its face value is called the bond’s:
coupon.
face value.
maturity.
yield to maturity.
coupon rate.
b
2.
A bond with a face value of $1,000 that sells for less than $1,000 in the market is called
a _____ bond.
par
discount
premium
zero coupon
floating rate
a.
b.
c.
d.
e.
e
3.
a.
b.
c.
d.
e.
e
4.
a.
b.
c.
d.
e.
c
5.
a.
b.
c.
d.
e.
b
6.
a.
b.
c.
d.
e.
In the event of default, _____ debt holders must give preference to more _____ debt
holders in the priority of repayment distributions.
short-term; long-term
long-term; short-term
senior; junior
senior; subordinated
subordinated; senior
Interest rates or rates of return on investments that have not been adjusted for the
effects of inflation are called _____ rates.
coupon
stripped
effective
real
nominal
You own a bond that has a 7 percent coupon and matures in 12 years. You purchased
this bond at par value when it was originally issued. If the current market rate for this
type and quality of bond is 7.5 percent, then you would expect:
the bond issuer to increase the amount of each interest payment on these bonds.
the yield to maturity to remain constant due to the fixed coupon rate.
to realize a capital loss if you sold the bond at the market price today.
today’s market price to exceed the face value of the bond.
the current yield today to be less than 7 percent.
The bonds of Frank’s Welding, Inc. pay an 8 percent coupon, have a 7.98 percent yield
to maturity and have a face value of $1,000. The current rate of inflation is 2.5 percent.
What is the real rate of return on these bonds?
5.32 percent
5.35 percent
5.37 percent
5.42 percent
5.48 percent
d
7.
Which of the following statements are correct concerning the term structure of interest
rates?
I.
The outlook for future inflation influences the shape of the term structure of interest
rates.
II. The term structure of interest rates includes only the real rate of return and the
inflation premium.
III. The interest rate risk premium is included in the term structure of interest rates.
IV. The term structure of interest rates can be downsloping.
a. I and II only
b. II and IV only
c. III and IV only
d. I, III, and IV only
e. I, II, and IV only
d
8.
a.
b.
c.
d.
e.
b
9.
a.
b.
c.
d.
e.
b
Jackson Central has a 6-year, 8 percent annual coupon bond with a $1,000 par value.
Earls Enterprises has a 12-year, 8 percent annual coupon bond with a $1,000 par value.
Both bonds currently have a yield to maturity of 6 percent. Which of the following
statements are correct if the market yield increases to 7 percent?
Both bonds would decrease in value by 4.61 percent.
The Earls bond will increase in value by $88.25.
The Jackson bond will increase in value by 4.61 percent.
The Earls bond will decrease in value by 7.56 percent.
The Earls bond will decrease in value by $50.68.
A Treasury bond is quoted at a price of 106:13. What is the market price of this bond if
the face value is $1,000?
$106.13
$1,064.06
$1,106.13
$1,106.41
$1,106.64
10. A Treasury bond is quoted at a price of 106:13. What is the market price of this bond if
the face value is $1,000?
a. $106.13
b. $1,064.06
c. $1,106.13
d. $1,106.41
e. $1,106.64