FIN350 Exercise No. 4
1.The coupon rate of a bond equals:
A) its yield to maturity.
B) a percentage of its face value.
C) the maturity value.
D) a percentage of its price.
Answer: B
2. What happens when a bond’s expected cash flows are discounted at a rate lower than
the bond’s coupon rate?
A) The price of the bond increases.
B) The coupon rate of the bond increases.
C) The par value of the bond decreases.
D) The coupon payments will be adjusted to the new discount rate.
Answer: A
(Remarks: This is a discount bond. If discount rate (interest rate) is constant, then the
price of this discount bond will increase with time. The wording in this question is
imperfect.)
3. When an investor purchases a $1,000 par value bond that was quoted at 97.16, the
investor:
A) receives 97.5% of the stated coupon payments.
